One of the reigning benefits of a self-directed IRA or Solo 401(k) is the ability to invest in alternative assets outside of the stock market.
This freedom allows you to pick investment choices that utilize your experience and interests. Many seasoned real estate investors are drawn to real estate IRAs for this reason.
And if you’re an experienced precious metals investor, using your self-directed IRA to purchase gold or silver allows you to put your individual expertise to work to protect your hard-earned retirement savings.
Gold and silver boast a long history of stability in value. They’re tangible assets that aren’t vulnerable to the same devaluing forces and market dips that many paper-backed fiat currencies can be.
Because of this, a gold or silver IRA can be a powerful way to diversify your retirement portfolio.
These assets can help protect your savings against any inflation or market volatility your other investments may be subject to.
However, not all types of precious metals are allowed in a self-directed IRA. According to IRS rules, only specific coins can be held in an IRA-owned LLC or Solo 401(k): US-minted Eagles in Gold, Silver and Platinum.
Although these types of precious metals have been allowed in IRAs for over 20 years, purchasing in this asset class hasn’t always been easy for retirement investors.
Many self-directed IRA custodians have complicated and sometimes expensive processes to store precious metals for you.
That’s where the convenience of a Checkbook IRA comes in.
Below is the history of precious metal investing in self-directed IRAs, IRS rules regarding the asset, and how a Checkbook IRA makes it easier than ever to invest in precious metals.
History of Precious Metals and IRA Investing
Since 1997, the IRS has allowed self-directed IRA and 401(k) style plans to invest in specific types of precious metal coins and bullion.
But historically, most mainstream brokerages didn’t offer the specialty services needed to store precious metals.
Instead, many brokerages only offered various paper derivatives, like shares of metals funds — which is not the same as owning actual, physical metals.
IRS Rules for Holding Gold in Your Self-Directed IRA
Prior to 1997, precious metals were considered collectibles. Collectibles are one of the asset types which are still not allowed in self-directed IRAs.
Then the Taxpayer Relief Act was created. This act both made it possible to invest in precious metals with a retirement plan, and marked the creation of the Roth IRA.
With the passage of this act, section 408(m)(3) of the IRS tax code was changed to allow for certain distinctly valued metals assets to be held in IRA plans—specifically, US minted coins, pure bullion bars and rounds, and select foreign coins that meet purity requirements.
Investing in Precious Metals with an IRA Custodian
A lot has changed since the passage of the 1997 Taxpayer Relief Act. Many specialized self-directed IRA custodians now offer services for IRA plans to directly invest in physical precious metals.
But these services can be complicated and expensive for retirement investors.
The IRA custodian is responsible for storing your metals at a registered depository. These depositories aren’t always local—in fact, they could be thousands of miles away from where you live.
Any purchases or sales of your precious metals typically come with transactions fees, in addition to potential fees based on the asset value. Not to mention storage fees.
Then there’s waiting periods. Executing a precious metals transaction can take anywhere between 2-5 days. And in that amount of time, the price of gold can completely change.
The Checkbook Control Advantage
With a Checkbook IRA LLC or a Solo 401(k), you can have direct control over your precious metals investments — without transaction or storage fees.
Checkbook IRAs provide several distinct advantages for investing in precious metals with your self-directed IRA:
- You can deal directly with a metals dealer of your choosing — there’s no need to work with a small list of high priced brokers.
- You can initiate any purchases or sales transactions immediately using your checkbook, eliminating the 2-5 day processing delay typical of most self-directed custodians.
- You can arrange for your own secure storage locally.
US Eagle Coins Only
Within a Checkbook IRA or Solo 401(k) plan, you’re limited to investing in U.S. minted Eagle coins in gold, silver, platinum & palladium.
This is because when section 408(m)(3) of the code was modified, there was a distinction made between two classes of metals; coins and bullion.
Foreign coins fall under the bullion category. With respect to the allowable coins, there’s no language restricting storage.
But with bullion metals, there is a stated restriction that such bullion must be held in the physical possession of an IRA trustee.
This means that bullion and foreign coins must be held by a self-directed IRA custodian in a registered depository.
Storing Your IRA’s Coins
As the manager of an IRA-owned LLC or as Solo 401(k) trustee. It’s your responsibility to act in the best interest of the plan, and to keep all account activities clearly separated from personal or close family finances.
As such, it’s important to store your IRA’s precious metals in a documented, secure storage that’s fully segregated from any personal holdings.
One strategy is to open a safe-deposit box at a local bank, with the box held in the name of the IRA-owned LLC or 401(k).
As with any investment, there is risk associated with investing in precious metals. Before investing you should ensure you have the financial ability and experience to gauge and understand the risks.
Safeguard Advisors, LLC is not an investment advisor or provider, and does not recommend any specific investment.
We provide properly structured self-directed retirement plan platforms that provide you as the investor with full control over investment decisions.
The information above is educational in nature, and is not intended to be, nor should it be construed as providing tax, legal or investment advice.