With the recent volatility in the stock market, some IRA owners may be concerned that their retirement funds are overexposed
to equity investments. Some IRA owners are looking into precious metal investments.
IRAs Cannot Invest in Collectibles
As a general rule, the IRS throws cold water on the idea. The IRS will treat an IRA investment in precious metals as a disallowed investment in collectibles. As such, the transaction will be treated as an IRA distribution and will be subject to income tax and, possibly, the 10% penalty.
The Exception that Swallows the Rule
Fortunately, an exception allows IRAs to investment in certain gold, silver, and platinum coins and in gold, silver, platinum, and palladium bullion that meets purity standards. For example, gold bars must be at least 99.5% pure and silver bars must be at least 99.9% pure.
Coins or bullion must be held by the IRA trustee or custodian rather than by the IRA owner directly.
The above rules apply equally to traditional IRAs, Roth IRAs, SEPs and SIMPLE-IRAs.
The big practical issue is finding an IRA trustee that is willing to set up a self-directed IRA and facilitate the physical transfer and storage of precious metal assets. A precious metal IRA trustee will usually charge a one-time account fee (maybe $50), an annual account administrative or maintenance fee for sending account statements and so forth (about $150 or an amount based on asset value), and an annual storage and insurance fee (about $125 to $250 or an amount based on asset value).
Don’t Want to Arrange Storage?
For those who don’t want to deal with the issue of physical storage of precious metal coins or bullion, buying shares of an ETF that tracks the value of a particular precious metal is an option. The IRS has held that IRAs can buy shares in precious metal ETFs that are classified as grantor investments trusts without any tax problem.
An even more indirect way to invest in precious metals through an IRA is for the IRA to invest in mining companies. There is absolutely no tax law problem in this type of investment.
Issue When Retirement is Approaching
Traditional IRA owners must consider what happens once they reach age 70½ when minimum required distributions are required. The IRA account must have sufficient liquidity to pay the required distribution to the IRA owner. That said, required distributions are not required to be taken from each IRA; all that is required is for a distribution to be taken from any IRA based on the aggregate value of all IRAs. Therefore, while the value of a precious metal IRA must be taken into account in determining the amount of the required distribution, the actual distribution can come out of an IRA that is invested in liquid assets such as CDs, money market accounts, marketable securities, etc.
To see how this applies to you, give us a call at 248-538-5331.
Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.