The Bottom Line on IRAs Buying Physical Precious Metals

With instability in the stock market, many retirement investors are looking to alternative assets including precious metals. Gold, silver, and other metals carry intrinsic value not found in many traditional assets which makes them particularly valuable in uncertain times. Many IRA custodians only provide their clients with the option to invest in a Gold or Silver Exchange-Traded Fund (ETF) and give them no opportunity to purchase physical precious metals.

With a self-directed IRA from New Direction IRA, investors can use their retirement funds to purchase physical metal, rather than purchasing shares in an ETF. If you follow the gold and silver markets and would like to use your expertise to invest in what you know, or if your financial advisor has suggested that you diversify your retirement investments, your SDIRA can purchase physical gold, silver, platinum, and palladium.

The IRS has placed certain regulations on the metals that may be purchased by an IRA, as well as requiring that the metals be stored in a depository away from the physical possession of the account holder. NDIRA has a dedicated Precious Metals Asset Team to walk you through the process and answer any questions you may have concerning purchasing gold, silver, platinum, or palladium with your IRA. NDIRA will also work with any precious metals dealer and any depository, so your IRA can purchase metals from people you know and trust. Or if you are new to precious metals investing, you will shop around and  choose the dealer and depository that is right for you.

Once you reach age 59.5, you are eligible to begin taking distributions from your account without penalty, and you can decide what to do with your metals. You can choose to sell them and distribute the cash, or you can take possession of the physical precious metals. If you have a Roth IRA and take a qualified distribution the increase in the value of your gold or silver will be tax-free.

Having a SDIRA through New Direction IRA allows you to invest in physical precious metals, rather than ETFs, to help you reach your retirement goals. Contact our Precious Metals Asset Team for more information.

Tax Saving Opportunity or Tax Fraud?

Buy high, distribute low, sell high, save taxes!  That is the latest scheme circulating in the precious metals IRA industry.

More specifically the scheme is: 

• Establish an IRA with a provider that prices all metals at spot;
• Buy approved metal item (usually coin(s)) that has a premium associated with it;
• Direct the IRA provider to distribute that item at spot price thus decreasing the tax on the distribution;

Result:  the IRA holder now owns metal at its real value, having only paid tax on a portion of it.    

The idea sounds great, but it could put you crosswise with the IRS and Federal authorities for tax evasion.   If you are considering taking an in-kind distribution of gold or silver from your IRA, make sure your IRA provider has the information – many don’t – to report the accurate value of the metal!   Like any asset, all metals have a real price: the amount someone will pay to purchase them.  It is a critical issue when it comes to distributions in kind.

Consider for a moment the implication of a distribution of proof silver eagles at a spot price.  Using round numbers, let’s say a proof eagle any year is going for $50 while the spot price for silver is at $20.

Suppose your Traditional IRA buys 1,000 proof silver eagles at a cost of $50,000, but your IRA provider, rather than showing the actual value of the coins, reports the value at spot price.  Your IRA would then show a value of only $20,000.    If you took a distribution of the coins, your 1099-R would only show the $20,000 value, which is the dollar value on which your tax would be based.   The correct value of your distribution, $50,000, is what should be taxed, and the amount for which the IRS would hold you accountable. You avoided paying tax on $30,000, but the problem is that the IRS sees this as tax evasion.

This scheme goes particularly awry if someone is ill-informed enough to use the strategy in their Roth IRA.  Distribution of metals at less than their actual value negatively impacts the account holder's taxes since their personal cost basis on the metals would be less than it should be.  In the above example, the tax basis of your metals would be only $20,000 rather than $50,000.  This has an adverse impact on the tax implications when the coins are sold in the future.  In other words you will pay taxes on the $30,000 when you wouldn’t have to if your Roth IRA distribution was valued at $50,000.  

IRA-eligible coins, rounds, bars, and other metals, just like any other assets, have prices based on what the market will bear for that particular item.  The price of each type of product  varies based on demand and availability, which is seldom if ever the spot price, but numerous IRA providers don’t make much of an effort to find accurate values for gold or silver in IRAs; a large percentage of providers take the “easy” route and value everything at the metal’s spot price.  The difference between the spot price for gold and silver and the actual value of a given coin or bar has led some individuals to take distributions of the metals at artificially low values – which are reported to the IRS on form 1099-R – as a way to save on income taxes.

New Direction IRA often hears clients comment on the value of metals held in their IRAs; some think it is high, and some think it is low. While New Direction strives to find the best available prices to report the value of IRA-owned metals, because of the vast number of different products available and the fact there are relatively few market makers for many of them, determining an accurate price independent of an actual sale is nearly impossible.   We generally report values at the Bid price, which is the price that will be received for the sale of the product.  Generally the bid price is lower than what your IRA paid because most metals trade using the typical bid/ask pricing model.  The best way to know the actual value is to call your dealer and ask how much they would offer to buy it back.  Prior to distribution, clients can have them confirm the actual offered market price and we show that on their tax report. 

Some companies are actually promoting this scheme.  They encourage you to buy proof coins in your IRA, wait until your IRA provider reports them at spot value, request a distribution of the metal at the lower price, and finally sell the metal back to the dealer at the higher actual price.   Note that the buy and sell transactions generate some quick profit for the company pushing the idea.    For the taxpayer, the result is that the income tax on the distribution is artificially made much lower than if the distribution were reported at an accurate value.   CPAs and tax attorneys note that contriving intentionally to take advantage of a reporting error to evade taxes is illegal.  A tax court could find you guilty of tax evasion, and penalties and/or jail time could easily follow. 

While a scheme such as this may be appealing, as it looks like the tax-payer will avoid taxes, it does constitute tax fraud. Avoid jail time and penalties by making sure your IRA provider has the information it needs to correctly report your distributions.  

How to Get Gold and Other Alternative Assets in a Self-Directed IRA

“Alternative assets” is the broader name for the suite of investment opportunities afforded by self-directed IRAs (SDIRAs). These alternative assets include real estate, precious metals, private equity and more. Alternative assets could even be oil rigs, tractors or trees. According the IRS, alternative assets can be anything except collectibles (wine, stamps, etc.) or life insurance.

The flexibility afforded by alternative assets and SDIRAs allow the IRA holder to choose what types of assets his IRA invests in. People with self-directed IRAs can rely on their own investment expertise, making tax-free or tax-deferred investments in assets they know and understand personally.

Alternative assets can be held in Traditional and Roth IRAs, SEP and SIMPLE IRAs, even Individual 401ks—as long as those accounts are serviced by a SDIRA provider. The truth is any IRA can be self-directed; it’s just that many IRA holders choose an IRA provider that restricts the types of investments it can make.

This new pool of alternative asset opportunities attracts many investors to SDIRAs. For instance, a self-directed IRA with investments in real estate can charge rent to tenants or visitors, let land appreciate in value, rent commercial space to business, fix and flip property and much more (plus, the property can be distributed for personal use after reaching retirement age.) This increases the value of the IRA as all income and payments must only be made to and from the IRA, not the account holder.

This ability to increase the value of your IRA with alternative assets continues to grow in popularity due to market volatility, favorable legislation, tax advantages, disaffection with banks and securities-based IRA and 401(k) providers, and the ability to invest in what you know.

According to IRS rules, investors need a self-directed IRA provider, like New Direction IRA, to handle the bookkeeping and administration for the account. Visit www.newdirectionira.com to get started.

Proof American Eagles in an IRA

Your IRA can invest in American Eagle coins

Many investors ask us if they can hold proof American Eagle coins in their IRAs. The short answer is “yes.” However, it is a good idea to be familiar with the relationship between proofs and IRAs. A “proof” American Eagle is unusual because it is considered both a collectible, which is categorically disallowed by the IRS, and a bullion product, which is allowed by the IRS.  Let’s look at these two characterizations.

American Eagle coins are commonly known as a bullion product. This type of coin makes it convenient for a consumer to buy a relatively small amount of gold, silver or platinum.  The U.S. Mint also produces “proof” American Eagle coins and it’s common for an investor or a collector to note that the price of “proof” coins is different from regularly minted coins.  But why is that and what does proof mean? 

The U.S. Mint outlines the difference between proof and regularly minted coins in their description of the proof American Eagles on their website, usmint.gov: “The United States Mint produces proof versions of American Eagle Bullion coins for collectors.  American Eagle Proof Coins undergo a specialized minting process, which begins by manually feeding burnished coin blanks into presses fitted with special dies. The coin is struck multiple times so the softly frosted, yet detailed images seem to float above a mirror-like field. After scrutiny by white gloved inspectors, each American Eagle Gold and Silver Proof Coin is sealed in a protective plastic capsule … with its own official Certificate of Authenticity.  ... Since American Eagle Proof Coins are produced by the United States Mint, each coin's content, weight and purity are guaranteed by the United States Government.”

Below you will find the specifications for gold and silver proof American Eagles according to usmint.gov.

Gold American Eagles Proof Coin Specifications
Condition:     Proof
Composition:     91.67% Gold, 3.0% Silver, Balance Copper
Edge:         Reeded
Facility:      West Point
Mint Mark:      W

Silver American Eagle Proof Coin Specifications
Condition:     Proof
Composition:     99.9% silver
Edge:         Reeded
Facility:      West Point
Mint Mark:      W

The IRS allows physical precious metals (gold, silver, platinum and palladium) to be held as assets in an IRA.  There are fineness requirements associated with these metals, and the basic idea is that the IRA is purchasing a bullion product.  In this way, the value is determined by the market price of that amount of that metal.  In other words, it is the raw, intrinsic value of the material that is being purchased.  This is important because the IRS broadly prohibits the purchase of collectibles to be assets of an IRA.

Although silver and gold American Eagle Proof Coins are collectible and the gold eagle doesn’t meet the fineness requirement set forth by the IRS, these coins are available to your IRA. Eagles are allowable for IRAs by virtue of a specific exception within IRS code.

Furthermore, the idea that proofs are collectibles may be a gray area about which the IRS eventually provides clarification, but for now, American Eagles remain an allowable bullion product with some traits that typically apply to collectibles.

Gold IRA How-to: Who are the parties I need to work with to invest my IRA in gold?

Most people don't know that their Individual Retirement Account can be legally invested in almost any type of asset except collectibles and life insurance.  That means you can invest your retirement funds in precious metals like gold, silver, platinum and palladium—and it's a relatively easy process. 

There are four players involved when using your IRA to purchase precious metals:  The IRS, a Self-Directed IRA Provider like New Direction IRA, a Precious Metals Dealer and a Precious Metals Depository.

1. The IRS. In return for the special tax status that retirement accounts receive, the IRS sets some parameters that need to be followed.  First, your IRA is allowed to purchase metals as a commodity but cannot purchase collectible coins.  Therefore, graded coins cannot be purchased.  However, the IRS does specifically allow U.S. minted American Eagles that have not undergone grading. 

Second, there is requirement for the fineness or purity of the metals (note that these requirements do not apply to American Eagle coins):

.995 for Gold

.999 for Silver

.9995 for Platinum and Palladium

Third, your IRA cannot buy or sell your metals from a disqualified person. Disqualified persons include you, your spouse, your ascendants, descendants and their spouses.

2. Self-Directed IRA Provider. A self-directed IRA provider that allows assets like precious metals will help make you aware of IRS requirements as well as perform record keeping for your account.  If your retirement funds are not currently with an IRA provider that allows precious metal investing, you will likely be able to move your funds without a tax penalty to a provider that does allow precious metals.  It is a good idea to set up your self-directed IRA and fund it before negotiating your purchase with a metals dealer. The prices of metals are volatile and brokers are not likely to lock in a price for a long period of time.

3. Precious Metals Dealer/Broker. Self-direction of your retirement account means that you get to select a precious metals dealer with whom you are comfortable.  Due diligence is your responsibility, but once you’re satisfied with your selection, you agree on the deal and direct the IRA provider to fund your purchase. 

4. Precious Metals Depository. The IRS restricts you from keeping your IRA-owned metals in your physical possession.  They must be held in a depository for safe-keeping but the selection of this storage site is up to you.  Factors that you might consider include fees, segregated vs. non-segregated storage, facility location and insurance levels.

Now that we’ve identified the four players involved and established some expectations about their roles, it is time to start putting together your new Precious Metals IRA.  For more detailed information, please visit www.newdirectionira.com or call us toll free at (877) 742-1270.

Financial Planners: How to help your client's IRAs invest in gold and precious metals

Self-directed IRAs allow control of one’s retirement investments. Clients can benefit from self-directed IRAs by reducing their taxes while enhancing their asset protection and estate planning. With this insight, your clients can unlock their own investment expertise, making tax-free or tax-deferred investments in assets they may know and understand personally.

Many financial professionals have concerns about their clients holding precious metals in an IRA. Part of what we do at New Direction is simplify and clarify the process so investors can make smart decisions about their IRAs.

There are three parties an investor needs to choose in order to hold a gold IRA: a self-directed IRA provider, a precious metals dealer and a depository.

A self-directed IRA provider like New Direction IRA will set up an IRA for your client that allows precious metals, provide education on IRS requirements and perform record keeping for the account. Investors can move their funds without a tax penalty to a provider that does allow precious metals if they currently have an IRA.

With a truly self-directed retirement account, your client can select a precious metals broker with whom they are comfortable. Due diligence is your client’s responsibility. Dealer fees, shipping and handling charges are also likely to be incurred.

Your client must choose a depository in which to store his metals. Clients should consider fees, segregated storage, facility location and/or insurance levels. The depository will charge for their storage services.

There are also strict regulations about which metals an IRA may hold. IRAs may only purchase gold, silver, platinum and palladium products approved by the IRS. You can view the full list of allowed and disallowed metals here and share that list with clients.

Financial professionals also may be concerned about their clients self-dealing assets. Indeed, an investor who’s IRA owns precious metals does not personally own the metals and cannot physically handle those assets. New Direction provides education to investors so that they know what constitutes self-dealing and how to stay within IRS code.

After our client decides to invest his IRA in precious metals, it’s simple to get started. The investor will open and fund the account via contribution, transfer or rollover. Then he’ll select his dealer and depository. Then, he’ll direct the provider to fund the purchase and the metals will be sent to the chosen depository.

How to Invest Your IRA in Gold and Precious Metals

A lot of people are surprised when they learn that IRA rules allow them to hold real gold bullion, gold coins and other similar forms of precious metals within their retirement accounts. But IRA rules give investors a lot of leeway as to what they can hold in their accounts. IRAs are not restricted to stocks, mutual funds, bonds, certificates of deposit, annuities and other conventional financial products.

With a self-directed IRA account, you can hold precious metals including gold, silver, platinum and other precious metals. Here are some basic requirements:

Allowable Investments

There are four precious metals in which your IRA can invest: gold, silver, platinum and palladium. There are, however, some restrictions when investing in these metals. 

Minimum Fineness Required:

Gold .995+

Silver .999+

Platinum .9995+

Palladium .9995+

Allowable coins include U.S.-Minted Eagles and coins meeting minimum fineness (purity) standards, provided that they are not collectible. The primary value of the coin should come from the gold itself, and not thanks to the scarcity of and demand for the minted coin among coin collectors.

Examples of coins you can own:

Gold

American Eagle coins (proof and non-proof)

American Gold Buffalo coins (non-proof)

Austrian Gold Philharmonics coins

Canadian Maple Leaf coins

Australian Kangaroo/Nugget coins

Bars and rounds by a refiner/assayer/manufacturer accredited by NYMEX/COMEX, NYSE/Liffe, LME, LBMA, ISO 9000, or national government mint and meeting minimum fineness requirements.

Silver

American Eagle Coins (proof and non-proof)

Austrian Philharmonic

Mexican Libtertads

Australian Kookaburras

Canadian Silver Maple Leaf Coins

Platinum

American Eagle Coins (proof and non-proof)

Australian Koalas

Isle of Man Noble Coins

Palladium

Bars and rounds by a refiner/assayer/manufacturer accredited by NYMEX/COMEX, NYSE/Liffe, LME, LBMA, ISO 9000, or national government mint and meeting minimum fineness requirements.

Disallowed Coins:

There are, however, some coins you cannot own within your IRA, because they are not minted with sufficient purity. Some common examples:

Austrian Corona and Ducat
Belgian Franc
British Sovereign & Britannia
German Mark

Columbian Peso
Dutch Guilder
French Franc
Swiss Franc

Italian Lira
Mexican Peso and Ounza
South African Krugerrand