Can I store my gold and silver at home?
Of all the aspects of buying gold and silver and other precious metals, the one that causes most confusion, is that of knowing whether you can store gold and silver at home.
The short answer is yes – and no …
The short answer is yes – and no …
If you buy gold, silver, or any other precious metal as coins or bullion on a stand-alone basis – you are free to keep it wherever you like.
The confusion comes when a third-party becomes involved and you are using gold and silver to fund a precious metal IRA or 401(k) rollover.
For the purposes of legal requirements, it does not matter whether your coins or bullion are numismatic or bullion grade coins. The same applies to bullion itself.
Here we are going to take a look at home storage and what the rules and regulations cover in greater depth.
The first thing to say is that security has to be the number one priority of anybody keeping precious metals at home. Telling anyone of your holdings is a risk. You never know when this will be discussed with third parties – strangers knowing that you have precious metals in your house is never a good idea. Brief the rest of the family members who live in your house with you to do the same.
Taking the basic security precautions is a given if you have precious metals in your house. Making sure that all the doors and windows are lockable and secure. Installing and regularly testing an alarm system is also a wise precaution. This does, of course, depend entirely on the amount of precious metals you intend to keep. Spending more on security measures than the quantity of gold you have is somewhat pointless.
Another precaution that can be taken these days is that of installing either a CCTV system or web cameras or similar devices throughout the house and the immediate outside area. Although a video system will not stop perpetrators from committing crime – although it may act as a deterrent – but what it will do is enable the police to gather evidence should you be robbed at any point.
Security devices, particularly those relating to video, are becoming cheaper. New devices are coming onto the market all the time and it is worth checking the latest developments for improvements if you have a system which has been installed for a while.
The other obvious thing for storing gold at home is to have a safe installed. This is an area where there is a lot of competition and companies vying for your business. It is possible to get quite a hefty discount on such items.
There are various kinds of safe available from the old-style knob turn combination lock type of safe, through to state-of-the-art electronic keypad – or even bio-security panel safes. These operate on the iris pattern of the eye, or through fingerprints.
There is a lot of debate regarding how many safes to have. There is a school of thought which says that having just one safe is dangerous because keeping everything in one place makes it easy to clean out all of your holdings in one hit. Better to have several safes and keep one obviously visible, with the least in it – some cash and small coins. This will satisfy the robbers and keep the rest of your valuables safe.
All of the above measures help to qualify for discounts when it comes to negotiating your insurance. This is another area where you need to be well informed. At-home cover for precious metals is difficult to get hold of and relatively expensive. You will need a survey carried out by an insurance assessor who does a risk assessment of your property before finalising your quotation. Any remedial measures that need to be carried out should be done. Not doing so will invalidate any insurance cover that you do have.
Self-directed IRA rules
So much for the storage of gold that you “own.”
The difference with the precious metal that constitutes your self-directed IRA is treated differently. You do not actually “own” this metal until you retire and are entitled to draw the money under the IRS rules. This is why such precious metal is held in a separate account run by a “custodian.
The Wall Street Journal ran an article, awhile ago now, which looked into the aspects of the storage requirements of the IRS with regard to gold held in IRAs. You can find the article itself here.
All the specifications for home storage can be found in IRS rules – IRC 408 (M) (3) is the one which covers all aspects of the home storage conundrum. Just to summarise briefly, the legislation which applies to home storage for IRAs and 401(k) rollover precious metals …
Precious metals can be held within a self-directed IRA, but those metals must not be collectables, and they must be stored properly. This is slightly different with IRAs which are bought through financial institutions. Here their custodians or administrators only offer funds, ETF’s, or some other form of paper – in these cases the IRA does not actually own any precious metals at all. With a self-directed IRA, any metals qualifying for IRA status must conform with fineness requirements set out under the legislation. These specify the purity of the metals and list the rules for each metal and type of product.
There are two categories of approved precious metals.
The first category are specifically approved coins, such as American Gold or Silver eagles.
The second category is bullion (in bar or coin form) that is gold, silver, platinum, or palladium, AND that meets certain purity requirements. These purity requirements are:
- Gold, meeting minimum fineness requirements of 99.5%.
- Silver, meeting minimum fineness requirements of 99.9%.
- Platinum, meeting minimum fineness requirements of 99.95%.
- Palladium, meeting minimum fineness requirements of 99.95%
Clarifying the type and purity of metals in your holding is just the start. The precious metals that you obtain have to be stored with, what the code calls a “bank.” It then goes on to define a bank as a bank, credit union, or trust company. IRS private letter ruling 200217059 further clarifies this point. It states that a broker-dealer, third party administrator, or any company not licensed as a bank, credit union, or trust company may not store precious metals owned by an IRA.
The reasons for these rules are quite simple. The fineness or purity rules are designed to make sure that the metal can command the kind of money that it was bought for i.e. that it has a true value. For example if you bought gold which was below the fineness requirements, but you paid more money for it than it was worth, when you come to realise the asset you may find that it is not worth what you paid for it. That would obviously be disastrous for your retirement and could lead to a deficit in your funding.
The second reason for creating the arm’s-length approach to keeping the metals is to deny you, as the owner, trying to sell the metal before your retirement! This, again, would lead to the situation where there was a deficit in your retirement funding.
The third reason is simply to avoid the situation where the third-party and the “owner” of the precious metal, collude to defraud the fund of its assets. As with the previous example, this would obviously leave a deficit in your retirement funding too!
The confusion about the exact circumstances of home storage revolve around the words “physical possession.” The rules state that a “trustee” must be in “physical possession” of acceptable precious metals bullion.”
What the internal revenue code does not define is exactly what “physical possession” means.
There have been many court cases regarding this over the years and a code of practice has evolved around it. It consists of three steps. First, “physical possession” has its ordinary and common, dictionary meaning. Second, because collectables are not allowed within an IRA, an investment in any precious metal is a limited exception to this rule. It has been accepted that “this exception must be narrowly construed so that the exception does not swallow the rule.” In re Woods, 743 F.3d 689, 699 (10th Cir. 2014) (“we are guided by the interpretive principle that exceptions to a general proposition should be construed narrowly.”) third, in interpreting the term “physical possession” it must be taken into account, and be in harmony with the legislative intent of the exception that allows IRAs to invest in precious metals bullion coins and bars.
There are far more details of the legislation surrounding the issue of “physical possession” and for those that are interested, Black’s Law Dictionary, 606-607 (5th Ed. 1983), and Black’s Law Dictionary, 1163 (6th Ed. 1990) cover this in minute detail.
To give a brief example of the kind of complexities involved, suppose an IRA custodian were to delegate to a non-bank the responsibility of storing precious metals bullion in its custody, the “physical possession” requirement would not be met because the non-bank, and not a trustee, is in actual, physical control of bullion held in an IRA. Therefore, an IRA custodian (or any other trustee) should not delegate storage of bullion in an IRA to any party who itself does not qualify as a “trustee.”
Why does all this matter?
None of this would matter at all if it were not for the fact that the IRS give people a tax break on the assets that they put into their IRA funds.
In simple terms, by taking out, and maintaining, a self-directed IRA the government do not have to pay out that equivalent in pension money. Because the government are saving money they give a tax break to encourage people to start such plans.
The rules regarding the purity of the metals and their storage are there to protect not only the holder of the IRA, but also “their” investment in them.
The penalties for non-compliance are severe. It is within the power of the IRS to withhold any gains made from the IRA – it is even possible for them to seize the metals as repayment of any tax breaks you were given. There is also the possibility of fines and penalties – even jail for more complicated frauds and false accounting. Even if committed in error, any irregularities in the way in which precious metals are dealt with as IRAs are treated very seriously.
What this all underlines, is the need to make sure that you are advised properly regarding all aspects of precious metals investing – especially if it is for a self-directed IRA or 401(k) rollover.
By using a company like Noble Gold, you instantly tap into over 20 years of precious metals experience, the connections necessary to enable you to trade with confidence, and the assurance that there will be no sleepless nights over the validity of anything that you have invested in, or the way in which you have done it.