What To Know About Gold & Precious Metal Investing With Your IRA

Gold and precious metals can offer another level of diversification in your retirement account. Not only can you purchase, hold and sell physical precious metals with a tax-advantaged self-directed IRA account, it’s probably easier than you think. Many investors have experience investing their personal funds in physical precious metals, but did you know that you can leverage this experience by using a self-directed IRA to grow retirement wealth that is tax-deferred or tax-exempt?

Why physical gold and precious metals in an IRA?

Precious metals like gold, silver, platinum and palladium can be an important part of a well-diversified retirement portfolio, giving you the opportunity to invest in something tangible that can weather a financial crisis. Adding gold or precious metals to your retirement account may help protect your wealth in several ways by – reducing your investment volatility and risk, serving as a hedge in the event of an economic downtown and providing a tax-efficient shelter for potential gains.

Mutual funds and ETFs that invest in gold and precious metals stocks, including many companies that mine and process these metals may be fine as investments. But you are still investing in stocks, versus making a direct investment in physical metals. With mutual funds and ETFs, there is still a level of correlation to the stock market.

Types of precious metal investments allowed in self-directed IRAs

An IRA may hold investments in certain precious metals allowed by the Internal Revenue Code. Initially, only physical gold and silver coins were eligible to be held inside of an IRA. Coin or bullion that is not specifically permitted are considered to be collectibles and are not allowed for IRAs.

The allowable exceptions were broadened by the Taxpayer Relief Act of 1997, which expanded the types of gold and silver, plus added platinum and palladium. The precious metals that are specifically permitted are: silver, gold and platinum American Eagle coins, a coin issued under the laws of any State, and gold, silver, platinum or palladium bullion that meets the minimum fineness requirements. Among the most popular for IRA investors are:

• Gold – Gold bullion plus gold proof coins in formats including the American Eagle, American Buffalo Australian Kangaroo or Nugget, Austrian Philharmonic and others.
• Silver – Silver bullion plus proof coins including the American Eagle, American America the Beautiful, Australian Kookaburra, Austrian Philharmonic and others.
• Platinum – Platinum bullion plus proof coins such as the American Eagle, Australian Koala, the Canadian Maple Leaf, Isle of Man Noble and others.
• Palladium – Bullion coins like the Canadian Maple Leaf coin and others.

Beware of the federal IRA restrictions

Using a self-directed IRA account to purchase physical precious metals involves some additional rules and restrictions in general when compared to investing in precious metals with discretionary income.

In order for precious metals to be a permissible IRA investment, the precious metals must meet the following minimum requirements:

• Gold must be 99.5% pure, silver must be 99.9% pure, and platinum and palladium must both be 99.95% pure.
• Bars, rounds and coins must be produced by a refiner, assayer or manufacturer that is accredited/certified by NYMEX, COMEX, NYSE/Liffe, LME, LBMA, LPPM, TOCOM, ISO 9000, or national government mint and meeting minimum fineness requirements.
• Proof coins must be encapsulated in complete, original mint packaging, in excellent condition, and include the certificate of authenticity.
• Small bullion bars (other than 400-ounce gold, 100-ounce gold, 1000-ounce silver; 50-ounce platinum and 100-ounce palladium bars) must be manufactured to exact weight specifications.
• Non-proof (bullion) coins must be in brilliant uncirculated condition and free from damage.

Do your homework before investing

Before investing in precious metals within your IRA, here are a few things to think about:

• Make sure that you have qualified retirement funds, available in an IRA or other workplace-sponsored retirement plan, which can be transferred or rolled over so that all cash used to make this investment comes from eligible qualified retirement funds. No outside cash can be used to purchase the metals.
• You will need to select a precious metals dealer. Perform your due diligence to ensure the dealer is reputable. Obtain and compare quotes from several dealers.
• Visit the Federal Trade Commission’s (FTC) website to read these helpful consumer protection tips and information:
• Be aware that proof coins often have high mark-ups, which is the spread the dealer keeps as its commission.
• You will need to select a depository storage option for safekeeping of your IRA-owned precious metals after purchase, and your IRA custodian will usually specify one or more storage options you may use. Note that home storage of precious metals in an IRA is not recommended and in fact, home storage runs afoul of the federal IRS guidelines for IRA-owned precious metals.

It’s important to seek the advice of a trusted financial advisor when considering whether an investment in precious metals is right for your IRA.

What to expect after you invest

• Annual IRA and storage fees:  You should expect to pay an annual fee to your IRA custodian to cover your annual IRA fee and your depository storage fee.
• Valuation of your IRA-owned precious metals:  It’s important to understand the valuation (market value) of your precious metals. IRA custodians will typically reflect the value on your IRA statement at either the estimated bid or spot price of the metal. This value should be used as an indication of value only since the true value will come when you are looking to sell and solicit bids from dealers. Additionally, these estimated values do not include dealer mark-ups, discounts, or commissions. Current price estimations for bullion and proof products can be obtained from various sources including your dealer or through websites such as www.BullionValues.org.
• Taking an in-kind distribution:  You can take in-kind possession of the metals held in your IRA at any time, however, this is considered a taxable distribution and would be subject to any applicable taxes or penalties as with any withdrawal from your IRA.

Partner with a knowledgeable custodian

Investing in gold and other precious metals inside a self-directed IRA may be an appealing way to diversify your retirement portfolio. It’s critical to partner with a custodian who understands the complexities of investing in precious metals inside of an IRA account.

A self-directed IRA offers a great opportunity for tax-advantaged investments in gold and other precious metals.

STRATA Trust Company is a self-directed IRA custodian that specializes in holding alternative assets within IRAs.