So, you’re thinking about adding precious metals to your retirement funds. Perhaps you have already been buying gold or silver for your other investment accounts or maybe this will be your first venture into precious metals investing.
Of course, you could just purchase gold, silver, platinum or palladium, store them separately, and mentally earmark them “saved for retirement.” But a more reasonable option might be to take advantage of the tax benefits available through the use of self-directed IRAs and self directed “Roth” IRAs. You can learn more about these benefits by conducting Internet research. The specific language pertaining to investing IRA funds in precious metals can be found in Section 408(m)(3) of the Internal Revenue Code.
All self-directed IRAs must be established through independent third party firms known as custodians. These are usually banks, trust companies, credit unions, brokerage firms or savings and loan associations that have been approved by Federal and/or state agencies to provide asset custody services to individual investors and financial advisors. They undergo special audits to document their financial strength and custodial performance. Custodians establish IRAs for their clients and then execute all asset purchases or sales authorized by the client and perform all required record keeping functions. They also prepare statements for the account holder and file documents with the IRS. One critical responsibility is to be certain all IRA holders’ investments and transactions qualify for the tax deferred or tax-free advantages of their self-directed accounts.
A great many firms provide services for IRAs that are invested in regulated, publicly traded investments such as mutual funds, stocks, bonds and ETFs. More specialized services are required to custody alternative assets such as precious metals and therefore far fewer firms serve this market. If you already have a self-directed IRA with a custodian that does not custody precious metals you may opt to move the account to a firm that does or just transfer a portion of the funds in the existing account to open a precious metals IRA with such a firm. There are limits to the total amount of new investment funds you can contribute to IRAs each year but you may disburse these funds across as many different IRAs as you wish.
You can identify precious metals custodial firms by conducting an online search as well as contacting precious metals dealers as some of them will refer you to custodians with whom they do business. More detailed information can be obtained on a custodian’s web site and asking them for background information. If you search for news stories on precious metals IRAs or alternative investment IRA’s, you may find coverage of some firms as well.
Experience and capacity are critical elements when evaluating a custodian. Leading firms serve tens of thousands of active IRA account holders. They have invested in the staffing and technology required to facilitate purchase or sales transactions, monitor the physical status of metals for each transaction, perform all record keeping functions and file required client and IRS reports for those clients. And, they maintain electronic client communications capabilities on a 24/7 basis.
Do not confuse custodians with financial advisors. Custodians will provide you with guidance as to the specific type of coins or bars approved by the IRS for retirement accounts but they will never offer you tax, legal or investment advice. As you consider these investments you may wish to consult with your tax advisor or financial planner.
If your pursuit of this type of IRA is your first foray into the precious metals world you will quickly learn about the critical role of precious metals dealers. These are firms whose business is buying and selling gold, silver and other metals for individuals as well as self directed IRA account holders. To buy precious metals for your IRA you must notify your custodian as to the dealer from whom you wish to make the purchase. When you wish to sell precious metals from your account, you will authorize your dealer, through your custodian, to sell them and forward the funds to your custodian to be deposited in your account. You may authorize purchases through one dealer and later, if you wish, you can initiate a sale through another dealer.
Some, but not all custodians, have a list of dealers they have pre-qualified to serve their IRA clients. This list may include several hundred such dealers throughout the country. The terms of these approval agreements are stipulated in written documents between the dealer and the custodian. However, custodians will not select a dealer for you. Should you wish to do business with a dealer not on their list many custodians may perform their own standard due diligence research and/ or require the dealer to deliver your precious metals before sending payment from your IRA account. To make the relationship more effective, many custodians provide training for dealers who have never before offered self-directed IRA services to their customers
Though custodians do not recommend dealers, the reverse is not always the case. If you spend time reviewing the web sites of precious metals dealers you will find that some of them do have information about one or more custodians to whom they often refer their customers for self-directed IRA services.
A final component of the IRA creation is the storage of the precious metals you own in your IRA. The Internal Revenue Code referenced above states that gold silver or palladium bullion in an IRA account must be held in the physical possession of a U.S. Trustee otherwise known as a U.S. bank or financial institution. Some custodians differ on the interpretation of the term “physical possession.” The most prominent interpretation is that the custodian must store the precious metals in your IRA in a separate account for your benefit. In this instance precious metals purchased through dealers are physically shipped to a depository approved by the custodian. These deposits are insured by the depository and regularly audited by banking authorities and the custodian. Should you wish to withdraw precious metals from your account and take possession yourself, the custodian will coordinate the shipping to you but will report the withdrawal to the IRS
You may have heard of a “Checkbook IRA” These are offered by some custodians who interpret the IRS code as meaning that you can comply with the code by purchasing precious metals through a self-directed IRA LLC and hold them in a safe deposit box within a banking institution. While this model might appeal to you if you wish more direct access to the precious metals in your IRA there can be tax consequences if you are not absolutely certain that if your account is scrutinized by the IRS you have been providing accurate and documented information. Usually financial institutions offer no insurance for safe deposit box contents though you can purchase your own.
Custodians do charge fees for their services. Their fees may vary from firm to firm and are usually spelled out on their web sites and in their literature. These may include fees to open an IRA, initiate purchase or sales transactions, precious metal shipment and storage, account administration and insurance.
Experienced custodians realize that investors as well as the dealers they work with rely on them not only to disseminate information quickly but to be easily accessible to respond to comments, questions, problems or instructions they may have. This requires extensive data management, transaction, record keeping, administrative, reporting and communications technology operating on a 24/7 basis. Multilevel security systems as well as disaster recovery plans should also be in place.
~ Author ~
John Johnson is president of GoldStar Trust Company, headquartered in Canyon, Texas. Goldstar is one nation’s leading self-directed IRA custodians with more than twenty years of experience and serves more than 37,000 IRA accounts with assets of more than $2.2 billion dollars as of March 31, 2013. The firm has developed a special expertise and experience in serving precious metals IRA account holders.