The Golden Rules for Putting Gold in IRAs

You’ve probably seen the commercials on television, read the ads popping up on the Internet or heard these advertisements on the radio: “Governments Are Over-Promising! Inflation Is Near! Invest In Gold! Put Gold in Your IRA!”

Many people are concerned that our poor fiscal policies may potentially lead to high inflation, which could ultimately make gold a sensible investment. So, in response, many investors have begun to modestly allocate gold and other precious metals into their portfolio.

However, while gold might be a smart investment (only time will tell), putting gold into an IRA can be complicated. Here are some key rules and suggestions for allocating gold into your retirement plans.

• In general, you may not invest your IRA in collectibles, such as metals and coins. However, a specific exemption allows IRAs to hold certain U.S. minted coins, as well as gold bullion suitable for regulated futures contracts. But do your research; some well-known gold coins are still off limits, such as the South African Krugerrand, and bullion bars that are not sufficiently pure.
• IRA gold must be held with a qualified trustee or custodian, rather than the IRA owner. Many major custodians will not hold physical gold, so alternative custodians may need to be found. In other words, you cannot invest in gold for your IRA and then stash the gold in your personal safe. 
• Required Minimum Distributions for IRAs with gold investments can be tricky. The gold held in IRAs is generally easy to value since coins and bars often come in standard sizes and weights, and the market price of gold is readily available and makes calculating the fair market value of an in-kind distribution, or the total IRA value for purposes of calculating RMDs (required minimum distributions), relatively easy. But, liquidation of the gold can be a challenge so you may need to take distribution “in-kind”.
• Custodians holding physical gold in IRAs may charge higher fees than other IRA custodians to help offset costs associated with precious metal dealers, storage, insurance and security costs.
• If gold bars and/or coins are distributed in-kind from an IRA and you want to do a rollover, you must roll the gold over to another IRA, and not cash.
• Purchasing the stock of gold mining companies or investing in precious metals funds may provide some of the benefits of investing in gold without actually having to hold physical gold in an IRA. In times of rising gold prices, these investments may perform better than actual gold thanks to the theory of operating leverage. However, in down markets, this strategy may under-perform gold.
• Another option is exchange-traded funds (ETFs). These funds invest in gold and allow clients to essentially mirror the gains and losses of actual gold without holding physical gold in their IRAs.
• Long-term capital gains on non-IRA gold mining stocks are taxed at a maximum of 15%. Long-term capital gains on non-IRA ETFs investing in precious metals, such as gold, are taxed at a maximum of 28% as a gain on collectibles. Gains on both gold-mining stocks and ETFs are deferred when held in an IRA and are taxed as ordinary income when withdrawn.
• Although precious metals, ETFs are taxed as collectibles and collectibles are generally prohibited from being held within an IRA. However, several IRS Private Letter Rulings, as well as the conduct of custodians, provides strong indication that such ETFs will not be considered a collectible under an IRA account.

Remember, that you are unable to keep IRA-owned gold coins in a safe or in your backyard even if it's segregated from other gold investments. The gold must be held in a storage facility, as the responsibility of a recognized IRA custodian. Many of these “hold your gold in your IRA” television ads should be considered misleading. The ads show gold bars while mentioning gold in IRAs. People are led to think they can just hold their IRA gold at home. This is NOT the case. This could potentially cause problems in actually getting your hands on your gold if we actually ever encounter the kind of crisis that the commercials predict as the very reason to own gold in your accounts.

If you have any questions about holding gold in your IRA, or would like a complementary “3 Step Review”, which includes a complete life insurance analysis and consultation of your own retirement plan, call Secured Retirement Advisors at 952-460-3260.