What is a self-directed IRA? It’s a retirement account that obliges the owner to take responsibility for investment decisions as a fiduciary for the account. The Taxpayer Relief Act of 1997 allows the individual broad latitude in choosing investment vehicles for retirement, including precious metals. Most commercial banks and brokers won’t serve as trustee or custodian for these accounts, which is just as well since in all likelihood they won’t have the knowledge or expertise to administer the account properly.
While the rules governing Self Directed IRAs are flexible regarding investments, one that has grown in popularity over the past ten years is the so-called ‘Gold IRA.’ Many custodians of these “alternative” IRAs allow the account to “integrate” investments simultaneously in a variety of platforms including equities, precious metals, real estate, hedge funds, etc. The Gold Self Directed IRA invests in precious metals allowed by the IRS, specifically gold, silver, palladium and platinum. They must also be bullion quality and of sufficient fineness or purity. Moreover, the issuing mint is required to be COMEX or NYMEX approved. IRS rules permit both coins and bars. Note that “slabbed” and historical coins, considered collectibles, are not allowed. Like stamps, historical coins may be a great investment over time but IRS regulations do not permit their inclusion in a Self Directed IRA.
Required Purity Levels
- Gold – 99.5+ %
- Silver – 99.9+ %
- Platinum and Palladium – 99.95+ %
When did Gold IRAs start getting traction?
Gold IRAs began gaining popularity in 2003 as the price of gold started to rise. When gold prices skyrocketed in the years 2008 through 2011 in response to the ‘Great Recession,’ Self Directed IRAs – including those invested in precious metals – became the choice of savvy investors burned by the implosion of the equities market.
While the investor may choose from precious metal ETFs or mining company stock, the simplest and easiest investment is physical coins and bars. In fact, while the IRS requires the fiduciary of a Gold IRA to store bullion bars in an approved depository (e.g., Delaware Depository), bullion coins are under no such stipulation. While it may not be a prudent choice, there are no laws forbidding an owner of a Gold IRA from storing his coins in his mattress or piggy bank. Most investors who do choose to invest in coins store their investment in a bank’s deposit box. Remember that should the contents of the box be stolen, FDIC insurance will not cover its value. Carefully review the contract when you rent the safe deposit box from the bank. It’s a good idea to purchase separate fire and theft insurance for your coins. Often this coverage may be part of one’s homeowner insurance. Consult an insurance agent for details.
Naturally, one great advantage of personally serving as a trustee of one’s Self Directed IRA is the elimination of maintenance fees. Depending upon the trustee, administration fees have the potential for draining much of the accrued income the account makes.
The numbers behind investing in metals for your IRA LLC
As many investors have discovered, inflation is Public Enemy Number One for retirees. Since the establishment of the Federal Reserve, the dollar has lost 97% of its value. This erosion of the dollar’s worth has only accelerated since President Nixon ended the direct convertibility of the greenback to gold in August 1971. One need only look to the federal government’s CPI inflation calculator to see how the mighty dollar has fallen over the years – according to this measure, $1 in 1913 has the equivalent of $23.62 today. While annual inflation has averaged “only” 3.2% since 1913, this amounts to a cumulative inflationary rate of 2,300% in a hundred years – evidence of inflation’s corrosive power of compounded interest.
Inflation affects all “paper” investment instruments, including equities and bonds. A stock’s dividend of 3 or 4 % – anemic on its face – looks even worse when one considers the average annual inflation has been 4.2% since 1971. Inflation and the stock market implosion of 2008 (when investors lost US$7 trillion, according to the ‘Washington Post‘) are good reasons for investors to seek the safety of gold and precious metals. The intrinsic value of gold, historically used as legal tender, today also has wide applications in jewelry and technology and makes it a natural choice for long-term investments.
Any competent adviser will warn clients of the folly of not properly diversifying one’s retirement investment. A Gold IRA allows the investor to add diversification to his retirement account by including precious metals with equities, oil and gas properties, promissory notes… indeed, a wide variety of investment options are available. So long as the investor performs due diligence in establishing the account and scrutinizes the investment going forward, the returns can be very rewarding and will almost certainly outperform a “conventional” IRA that holds nothing but equities.