How to Use an IRA to Buy Gold & Silver

You have an IRA, but you’re worried about the frothiness of the markets. You’d like to invest in precious metals, but you’re unsure of the applicable laws. Can you use your IRA to buy gold?

According to an Act of Congress, gold may be held in a self-directed IRA, provided it meets specific minimum purity standards (.995 fine for gold coins and 99.5% purity for gold bullion). The IRA owner may also not hold it; it must instead be stored in an IRS-approved depository by the IRA trustee.

Investing IRA money in precious metals such as gold may appeal to you. But you may not be sure whether you can legally use your IRA to buy gold, and if so, what rules apply.

This post provides you with the information you need about investing gold in an IRA.

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Why Would You Want to Invest in Gold in an IRA?

With the recent rapid price appreciation of assets, IRA owners such as yourself may be worried about accounts being overexposed to equities in a frothy market.

However, the safest fixed-income investments, such as treasury bonds, money-market funds, and certificates of deposit, are paying near-zero interest rates. Gold and paper assets usually move in opposite directions, so you may want to invest in it.

You can use an IRA to directly invest in gold bullion and coins instead of indirect investments such as precious metal exchange-traded funds and mining stocks.

You will need to use a self-directed IRA. A self-directed IRA is much the same as an ordinary IRA and comes in traditional and Roth options. However, a self-directed IRA allows you to invest in alternative assets such as precious metals, real estate, and cryptocurrency.

Precious metals enjoy tax-free or tax-deferred status, and using a self-directed IRA allows you to invest in physical gold while enjoying these tax benefits.

The advantages of a gold IRA are that it:

  • offers a hedge against inflation
  • protects against market volatility

The disadvantages of a gold IRA are that it:

  •  is focused on a single asset class, rather than a range of assets
  • often has higher fees associated with it than an IRA investing in stocks, bonds, and mutual funds

How is it Possible to Include Gold in an IRA?

On the face of it, the Internal Revenue Code appears to prohibit holding physical precious metal assets in an IRA.

It states that an IRA investment in a metal or coin counts as acquiring a collectible. Therefore, this transaction is considered for federal income tax purposes as a taxable distribution from the IRA for the IRA owner to buy the collectible.

Therefore, this proviso in the Internal Revenue Code prevents IRA’s from being used to invest in precious metals, whether as bullion or coins.

However, in 1997, Congress enacted a statutory exception to this prohibition, provided certain conditions are met.

IRAs can be used to invest in specific gold, silver, and platinum coins, as well as gold, silver, platinum, and palladium bullion, as long as it meets the required standards of purity as specified under IRC § 408(m)(3).

This statutory exception also states that the coins or bullion may not be held by you as the IRA owner but must instead be held by the IRA custodian or trustee in an IRS-approved depository.

You may not hold the gold assets yourself to prevent self-dealing and tax evasion.

These rules about investing in precious metals using a self-directed IRA apply whether you have a traditional IRA or a Roth IRA.

What Forms of Gold May You Own in a Gold IRA?

The IRS has ruled that you may only own certain types of physical gold in a gold IRA.

Gold bars must be a minimum of 99.5% purity (.995 percent). The same rule applies to coins, with the sole exception of the American Gold Eagle, which is .9167 fine.

The following coins are permissible:

  • 1 oz American Gold Eagle Coins
  • 1/2 oz American Gold Eagle Coins
  • 1/4 oz American Gold Eagle Coins
  • 1/10 oz American Gold Eagle Coins
  • 1 oz American Gold Buffalo Coins
  • 1 oz Canadian Gold Maple Leaf Coins
  • 1 oz Australian Gold Kangaroo Coins
  • 1 oz Austrian Gold Philharmonic Coins

The following coins, among others, are not permissible:

  • South African Krugerrand
  • United Kingdom Sovereign

Certified or slabbed, numismatic, and proof coins are not eligible for inclusion in a gold IRA.  Gold jewelry is an excellent way of holding gold, but it counts as a collectible, and you may therefore not hold it in a gold IRA.

Check with the trustee of your IRA about what is allowed and what is not before transferring gold into your IRA.

Which IRA Trustees Act as Precious Metal IRA Trustees?

To hold gold in an IRA, you will have to find a reliable IRA trustee willing to set up a self-directed IRA and arrange the physical transfer and storage of the gold in an IRS-approved storage facility.

Only a few firms are willing to act as trustees of precious metal IRA; however, no major brokerage firms are among their number.

Examples of willing precious metal IRA trustees are Broad Financial, the Entrust Group, Comprehensive Advisor, American Estate & Trust, GoldStar Trust Company, Equity Trust Company, Strata Trust Company, and New Direction Trust Company.

Note that the mention of these trustees does not constitute an endorsement.

The Tax Laws Applicable to Holding Gold in an IRA

The self-directed IRA you will require to invest in gold can be either a traditional or a Roth IRA.

Investments grow tax-free while in either type of IRA. If you sell the gold, you will not be taxed as long as you retain the gain in the gold IRA.

The IRS regards gold coins and bullion the same as all other assets in an IRA.

You cannot withdraw the gold from the account without penalty until you, the owner, turn 59 1/2 years old. When you turn 70 1/2, federal laws require you to begin making mandatory withdrawals from your IRA.

You can either sell the metal and draw a cash distribution or draw the physical metal from the account.

Final Thoughts

Gold offers a very valuable hedge against inflation and market volatility, and using your IRA to invest in gold is an appealing option.

You will require a self-directed IRA and a trustee willing to handle precious metals. The gold will need to be .995 fine (for gold coins) or 99.5% pure (for gold bullion).

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