The gold and other precious metals in your gold IRA belong to you, so technically you should be able to store them anywhere you want, right? Wrong! There are actually specific IRS rules and regulations that do not allow you to do that.
Whether you have the most secure safe in the world or you plan of keeping a few gold bullion coins under your mattress, you are still not allowed to hold physical gold in an IRA. This rule alone may be enough to put some investors off opening a self-directed IRA based on gold investments.
However, when you invest in gold and other precious metals, the benefits are too good to resist, especially when compared to paper assets, such as mutual funds, exchange traded funds, and playing the stock market. A combination of high gold prices and a hedge against inflation means that a gold IRA is still the safest way to invest funds in a retirement account.
If you are concerned about how the IRS rules regarding precious metals in retirement accounts will impact your self-directed IRA, then read on for some financial advice.
What Will I Learn?
- What Is a Precious Metal IRA?
- What Portion of Your IRA Should Include Precious Metals?
- Examples of IRS Approved Metals for Your Gold IRA?
- IRS Rules on Home Storage for Gold IRAs
- Be Wary of Deceptive Ads
- Other Options Besides an Approved Depository
What Is a Precious Metal IRA?
A precious metals IRA can best be described as a type of self-directed IRA that allows you to invest part of your retirement account portfolio in silver and gold bars, platinum and palladium bullion, and various other precious metals.
It offers a reliable investment opportunity for those who are already heavily invested in exchange traded fund investments, mutual funds, stocks, and other assets. The basis for choosing a precious metal IRA is that gold, silver, and palladium bullion have continued to increase in value over the years.
While those invested in paper assets continue to battle market volatility and economic uncertainty, if you choose to purchase gold for use in self-directed IRAs, you can protect a significant part of your existing retirement account.
What Portion of Your IRA Should Include Precious Metals?
Having decided to take the safer option of opening a gold IRA account, the question you will need to ask yourself is how much of your Roth IRA should you diversify towards gold IRAs.
A conservative approach is what most experts recommend when it comes to rolling over funds from traditional IRAs to gold IRAs. Typically, any investment in the region of around 5% is a good start for any investor.
Going over 5% will reduce the diversity of your retirement funds portfolio because a lot of your money will now be tied up in precious metals, which incurs unnecessary risks. Gold prices generally either increase or remain stable, but there are times when they dip in value and you don’t want to be stuck with a whole bunch of precious metal coins during that time.
Examples of IRS Approved Metals for Your Gold IRA?
A wide range of precious metals can be included in gold IRAs, such as gold coins, silver bars, platinum, and palladium. However, the precious metal purity of each of these has to be high enough to meet the standards set by the IRS, which are:
99.5% purity for gold
99.9% purity for silver
99.95% purity for platinum and palladium
If you do not know how to accurately determine the purity of precious metals, it is better to open a self-directed IRA with a licensed legal IRA custodian rather than take the risk of approaching precious metals dealers to purchase gold.
IRS Rules on Home Storage for Gold IRAs
Let us now deep-dive into the IRS rules that govern the storage of precious metals in a gold IRA. The law states that while purchasing gold and other metals for home storage is allowed, you cannot do so for IRA-purchased precious metals.
All metals that are part of your gold IRA must be stored by a bank, an IRS-approved nonbank trustee, or a depository. As the IRA owner, physical possession of self-directed IRA gold constitutes distributions and as such, you can be charged penalties.
An IRS-approved depository is the best option for investors owning physical gold and looking for a safe deposit box to store it. There are many such depositories scattered across the country, such as the Delaware depository. Your IRA custodian will probably recommend one that they are in a partnership with.
Penalties for Home Storage
Being found in physical possession of any gold, silver, platinum, or palladium funded through a gold IRA will have consequences for the investor who will be charged with distribution.
The IRS can impose penalties of up to 10% on anyone under the age of 59.5. All tax-free benefits will also be removed, meaning you will now owe taxes to the IRS. The end result is that your gold IRA will cease to be beneficial and you will find yourself paying huge amounts of money.
In the worst-case scenario, you could find yourself being audited by the IRS and this can result in potentially paying additional fines if the audit turns up additional irregularities.
Lots of Confusion Regarding Rules for Home Storage
One common complaint among potential gold IRA investors is that there is a lot of confusion regarding the specific storage rules for those who invest in gold. The safest way will always be to deal with legitimate gold IRA companies that have experience with the running of a traditional gold IRA.
Be Wary of Deceptive Ads
When researching the various storage options for a self-directed gold IRA, you may come across many companies that advertise home storage. Some even go as far as implying that they can help you to store your gold bars, silver bullion, or Australian Kangaroo coins in your home safe.
However, this is very misleading and is something you should be wary of. It not only puts you at risk from criminals but is also a direct violation of IRS rules. Home storage is not a viable alternative to the kind of protection you will get from a licensed self-directed IRA custodian.
Other Options Besides an Approved Depository
If you are wondering if there is any way to go around the issue of physical possession of precious metals, there is! The following two options are available to investors who wish to take physical possession of gold paid for by traditional IRA funds:
Physical Gold Purchases
Many gold IRA custodians offer purchasing and home delivery services to their clients. You can even have them send your precious metals to a safety deposit box of your choosing.
In times of emergencies, these companies have a provision to allow the quick selling of your metals so that you can have ready access to cash. The downside is that the gold you purchase this way is not exempt from taxes in the same way as your gold IRA. These services are also a lot more expensive and, as such, may not be ideal for those investing in smaller amounts.
You always have the option of requesting an early withdrawal of the gold in your IRA account. While this will result in certain penalties, it might be worth it depending on your individual circumstances. The best person to assist you is your financial advisor from your gold IRA company.
The issue of being forced to store the gold and silver in your retirement portfolio only with an IRS-approved financial institution is one that some people are not comfortable with. However, investing in gold is still a good enough reason to go ahead and open a new IRA account anyway.
There are many major brokerage firms and other types of custodians that can help you not only buy gold but also find an approved depository to store it for you. The extra storage fees that you will pay are worth it considering the peace of mind you will have knowing that you have made a good personal finance decision that will benefit you in the long run.