Retirement Investing in Precious Metals



Retirement Investing in Precious Metals

Retirement Investing in Precious Metals

New Direction IRA’s Co-Founder and CEO, Bill Humphrey, explains how simple it is to invest in precious metals using a self-directed IRA.

Recent turmoil in the securities market has sent retirement investors scrambling to find alternative investments that may bring balance to the high-risk assets in their portfolio. Many investors have discovered that self-directed IRAs (SDIRAs) provide access to a much wider variety of investments than the typical IRA structure offered by the securities industry.

One of the championing benefits of a self-directed IRA is the freedom and power granted to clients to take the reigns of their retirement savings. A principal facet of this freedom is the ability to invest in alternative assets outside of the publicly traded securities market; including investing in precious metals, real estate, private equity, and more.

Self-directed IRAs are one of the fastest growing segments of retirement industry. The latest estimates show that SDIRAs now represent at least 3.5 percent of the $5+ trillion IRA market—that’s $175 billion in assets and counting.

SDIRAs give investors the ability to adapt to volatile economic conditions. Many precious metals buyers and sellers who didn’t know they could buy precious metals with their retirement funds are now opening SDIRAs in response to stressful stock market fluctuations.

Some investors hold the belief that the funds within an IRA account must first be distributed before acquiring precious metals; or that investing in precious metals with an IRA is difficult or expensive. However, investing your IRA funds in precious metals is a relatively simple process. Many 401(k) plans and most IRAs can be moved tax free into an SDIRA account structure. Plus, the overall fees associated with SDIRAs can be significantly lower than securities-based IRAs.

The following will focus on buying and selling precious metals with an IRA. While IRA investing in physical metals may not be for everyone, understanding this investment option can be beneficial to investors and metals dealers alike.

What is a Self-Directed IRA?

“Self-directed” is a descriptive term, not a legal or IRS distinction. It indicates that the account holder has a broad choice of assets that can be purchased by their IRA. You may have heard descriptive terms like “Gold IRA” or “Gold-backed IRA”, which refer to a self-directed IRA that holds precious metals.

The IRS allows an IRA to purchase any asset except life insurance and collectibles. However, most IRA providers limit account holders’ assets to publicly traded securities, funds, or bank CDs/savings accounts. An SDIRA provider allows investment in alternative assets, so the account holder can invest in what he or she knows and trusts.

SDIRA plans have the same tax advantages and the same contribution and distribution rules as non self-directed plans. The plan type (Traditional IRA, Roth IRA, SEP-IRA, SIMPLE IRA, HSA) does not dictate what type of investments are allowed. This article will focus mainly on IRAs, but the same rules and regulations apply to all tax advantaged savings plans offered by the IRS.

Why purchase precious metals with an SDIRA?

For precious metals buyers, retirement accounts allow a second source of funds to invest in metals. The IRA does not need to be distributed to buy precious metals. In fact, if a buyer distributes their IRA before they make a purchase, they’ll likely buy less because taxes (and possibly penalties) will be assessed.

Precious metals assets sales within the account are tax free or tax deferred depending on the retirement plan type. Investors can buy and sell metals within their IRA to potentially grow their retirement savings. If metals inside the account are sold, income tax is avoided.

Many pundits believe that the time is right for precious metals investing, particularly with the recent drop in spot prices for gold and silver. Recent economic vacillations and stresses about future stock market conditions have caused many retirement investors to pull their IRAs out of stocks and bonds. Many IRA accounts only hold cash because their owners lack knowledge about investing in metals and other alternative assets. Investors who have bought precious metals with personal funds are now becoming aware of how beneficial and easy it is to use their retirement funds to buy more metals.

What types of metals can my IRA own?

The IRS sets rules for IRA investments in return for the special tax status that retirement accounts receive. IRAs can purchase gold, silver, platinum, and palladium products as specified by the IRS. Other than U.S. Minted American Eagles, most collectable coins are not allowed. Graded coins cannot be purchased.

The IRS mandates that IRAs can only purchase metals of certain fineness or purity (note that these requirements do not apply to American Eagle coins):

  • .995 for Gold
  • .999 for Silver
  • .9995 for Platinum and Palladium

An IRA cannot buy or sell metals from a disqualified person to the IRA. Disqualified persons include the IRA holder, his/her spouse, parents and grandparents, children and grandchildren, the spouses of children and grandchildren, and certain fiduciaries. An investor may not sell their personal bullion to their IRA.

What does the IRA investment process look like?

The IRA investing process is relatively easy.

First, the investor must select a self-directed IRA provider and open an account. The SDIRA provider handles the IRA assets, IRS reporting, and executes transactions at the direction of the account owner.

Investors will then choose a precious metals dealer/broker from which to purchase the metals. Transaction details are negotiated between the dealer and the account holder. Once completed, the account holder directs the SDIRA provider to make the purchase. IRA providers can provide assistance to dealers unfamiliar with the purchase process.

After the deal is agreed upon, the cash is sent to the dealer and the metals are shipped directly to a precious metals depository. The IRS prohibits the IRA owner from holding the metals personally. Some SDIRA providers allow the investor to choose their depository. Dealers often choose to work with a specific depository for logistical or procedural efficiency. Factors included in depository selection can include fees, segregated vs. non-segregated storage, facility location, security, insurance levels, etc. Recently, internationally-based depositories have begun offering metals storage for IRAs (editor’s note: including Strategic Wealth Preservation in the Cayman Islands). Although metals owned by the IRA remain under the control of the IRA provider at all times, some IRA owners prefer off-shore storage to achieve geo-diversification of their assets.

Due to the volatility of metals pricing, dealers often require confirmation of cash availability from the SDIRA provider prior to locking in metals pricing. Transfers from other IRA accounts can take two weeks or longer, so many SDIRA investors set up the self-directed IRA and fund it before negotiating a purchase with a metals dealer. SDIRA fees vary depending on the provider, the number of transactions, and the account value, but are often still lower than securities based IRAs.

Current SDIRA account holders with metals investments may transfer their IRA metals “In-Kind” to other SDIRA providers at any time with no IRS tax or penalty. The metals do not need to be liquidated to be transferred.

How do I distribute metals from my IRA?

The IRA owner may direct the IRA to sell the precious metals at any time. Sales inside the IRA are tax sheltered, so some investors will choose to move between metals types or between asset types, tax-free.

To sell the metals, the IRA holder will arrange the terms of sale with a precious metals buyer, and then direct the IRA provider to sell the precious metals. The sale’s proceeds are sent directly to the IRA, and the precious metals are shipped from the depository to the buyer.

If the IRA holder would like to take a distribution, he or she can take the cash proceeds of the IRA’s sale or distribute the actual metals. A distribution of IRA assets to the account holder may result in potential tax consequences. Income taxes and/or penalties vary depending on the type of plan and the age of the account holder at the time of the sale.

Many IRA holders choose to distribute metals to satisfy their Required Minimum Distributions (RMDs), which must be taken every year once the account holder turns 70 ½ years old. RMDs are based on an investor’s total IRA value, so the IRA holder must have their assets valued. The RMD can be made in cash or “in-kind.” For in-kind distributions, investors may buy lower value denominations of a given precious metal, or exchange more expensive bars or coins.

Precious metals IRA investment risks

Investing in precious metals with an SDIRA carries the same risks involved with investing in precious metals via other means. There has been recent media coverage concerning scams aimed at self-directed investors. While financial scammers are always a concern, they need not paralyze investors. Fraud exists whether you invest in securities or alternative assets; the main difference is that the SEC is not actively policing investments outside of those that require public disclosure.

Due diligence is the investor’s responsibility – it is their retirement money on the line. When performing due diligence, the IRA holder should research the IRA provider, the dealer, and the depository. The SDIRA account holder is an active participant in the investment process.

Strategic Wealth Preservation is the only approved offshore IRA storage facility in the Western Hemisphere. To get started with your self-directed offshore IRA today, contact New Direction IRA (pmat@ndira.com).



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