What is a Gold/Silver/Precious Metals IRA?
A Gold/Silver/Precious Metals IRA or 401(k) rollover is exactly the same as any other IRA or 401(k) account. It is simply the vehicle by which you, the investor, save within the instrument.
In a nutshell, this means that rather than holding stocks, or bonds, ETFs, or some other type of “paper” investment, you hold a physical metal instead. This metal can be any type of precious metal approved by the IRS.
There are currently four elements which are allowed within precious metal IRAs – gold, silver, platinum, and palladium. This is unlikely to change.
To qualify for IRA status these metals have to meet a purity standard which is set out by the IRS in IRC Section 408(m) and its subsequent amendments. This is a fairly dense and complicated document (as you can see from this link) but it sets out, chapter and verse, your rules of engagement with the IRS.
As with all things in life – you can try to get around these rules – but the result will be your investment being declared null and void – any claim you had on it being disallowed, and a possible fine or session in prison. There is so much upside to precious metals at the moment that we feel it would be insane to try and beat the system. It is generous enough.
The basic rules for precious metals under the current legislation are:
(2) Collectible defined For purposes of this subsection, the term ‘‘collectible’’ means—
- (A) any work of art,
- (B) any rug or antique,
- (C) any metal or gem,
- (D) any stamp or coin,
- (E) any alcoholic beverage, or
- (F) any other tangible personal property specified by the Secretary for purposes of this subsection.
(3) Exception for certain coins and bullion For purposes of this subsection, the term ‘‘collectible’’ shall not include— § 408 TITLE 26—INTERNAL REVENUE CODE Page 1156 2See References in Text note below.
(A) any coin which is—
- (i) a gold coin described in paragraph (7), (8), (9), or (10) of section 5112(a) of title 31, United States Code,
- (ii) a silver coin described in section 5112(e) of title 31, United States Code,
- (iii) a platinum coin described in section 5112(k) of title 31, United States Code, or
- (iv) a coin issued under the laws of any State, or (B) any gold, silver, platinum, or palladium bullion of a fineness equal to or exceeding the minimum fineness that a contract market (as described in section 7 of the Commodity Exchange Act, 7 U.S.C. 7) 2 requires for metals which may be delivered in satisfaction of a regulated futures contract, if such bullion is in the physical possession of a trustee described under subsection (a) of this section.
All it takes, is a little fineness …
We mentioned four types of metal which were allowable under section 408 – gold, silver, platinum, and palladium. There is an important caveat to the acceptance of these metals though.
In order to qualify they must meet the following purity requirements:
- gold coins and bars must have a purity of .995 Fine or above
- silver coins and bars must have a purity of .999 Fine or above
- platinum coins and bars must have a purity of .999 Fine or above
- palladium coins and bars must have a purity of .9995 Fine or above
So, as you can see, the fact that a coin is historical, or is perceived as valuable, or is collectible, is completely irrelevant for the purposes of being eligible for inclusion in an IRA or 401(k) rollover. The only criteria is the purity of the metal.
To ensure that this is adhered to, the IRS have issued a list of the approved coins and bars:
- American Gold Eagle (bullion or proof) coins
- American Gold Buffalo coins
- Australian Gold Kangaroo/Nugget coins
- Austrian Gold Philharmonic coins
- Canadian Gold Maple Leaf coins
- Chinese Gold Panda coins
- Credit Suisse Gold bars
- Johnson Matthey Gold bars
- Valcambi Gold Combi-bars
Gold bars and rounds which meet minimum fineness requirements and are produced by a NYMEX or COMEX-approved refiner or national government mint,
- American Silver Eagle (bullion or proof) coins
- Australian Kookaburra Silver coins
- Austrian Philharmonic Silver coins
- Canadian Silver Maple Leaf coins
- Mexican Silver Libertad coins
- Johnson Matthey Silver bars
- Royal Canadian Mint Silver bars
Silver bars and rounds which meet minimum fineness requirements and are produced by a NYMEX or COMEX-approved refiner or national government mint,
- American Platinum Eagle (bullion or proof) coins
- Australian Platinum Koala coins
- Canadian Platinum Maple Leaf coins
- Isle of Man Noble coins
Platinum bars and rounds which meet minimum fineness requirements and are produced by a NYMEX or COMEX-approved refiner or national government mint,
- Canadian Palladium Maple Leaf coins
- Russian Palladium Ballerina coins
- Baird Palladium bars
- Credit Suisse Palladium bars
Palladium bars and rounds which meet minimum fineness requirements and are produced by a NYMEX or COMEX-approved refiner or national government mint,
What this means in practice is that many numismatic, or “collectable” coins fall outside the rules of IRS acceptance. Many such coins are sought after because of rarity, faults in manufacture, fashion or reputation. They do not necessarily contain the correct degree of refined metal – and for this reason they do not qualify as allowable investment vehicles. Be aware of this – it is an area in which many investors fall foul of the legislation. Seek expert advice before committing to any deal involving such coins.
So – what does all this mean for me?
If you take the same amount of money and put it into different instruments it will gain or lose different values. Nobody can predict what any given type of investment will yield over 10, 20, 30 or more years – which is the timescale that you are looking at for putting aside money for your retirement.
We could show you hundreds of charts which can be drawn in clever ways and would “prove” to you that x beats y, or A loses more than B. But you can only go by history – and interpret and project based on what has happened before.
Instead, we will show just one chart.
This one chart is enough. This chart is beyond important because it shows an unpalatable truth. Money, cash, currency – the folding stuff – is virtually worthless today. It has been battered and inflated so much over the years that it has become almost meaningless. What will a sawbuck buy these days?
And this is not restricted to US dollars. The same pattern and the reasons behind it apply to every single currency the world over.
To show how this chart works – imagine a loaf of bread cost 10 cents in 1900. Today – to buy that same loaf of bread you would have to pay, say, three dollars.
You would have to spend more currency today to get the same thing.
Now imagine if you paid for that same loaf of bread with gold. In 1900 the bread would have cost say a tenth of an ounce of gold (10 cents) – to buy that same loaf of bread today you would pay one 400th of an ounce of gold. ($1245 [price of gold] – divided by $3 [price of bread])
You would need to spend less gold today to get the same thing.
Gold has not only held it’s “value” – but it has increased it …
This is a vital concept when comparing investments.
Precious metals are unique.
Every other investment involves currency or cash. The stock market relies on the cash value of cash rising or falling. The ETF industry relies on the cash value of cash rising or falling. Bonds rely on the cash value of cash rising or falling.
Inflation is the result of printing more currency. If this inflation (the value of you money falling in real terms) is 2.5% – and your investment instrument is making just 1.5% – you have just lost 1% on your investment. You would have to make 2.5% just to break even.
Gold does not have an inflation element. In fact gold uses inflation to enhance it’s value – so anything you make on gold is real value. It’s intrinsic worth never changes because it is tangible. Currency is simply an idea – a promise to exchange goods or services for a piece of paper with a perceived value.
We have used gold here in our examples but the same principles and results occur in all four IRA precious metals categories.
We are not suggesting for one second that you put all of your investment capital into gold – but we are suggesting that you put a percentage of it into your IRA to ensure that you:
- Preserve your wealth
- Take advantage of investment fundamentals
- Hedge against inflation
- Gain future upside when markets fall
- Diversify your portfolio
- Store value over time
What to do next …
Before you take a leap into the dark with precious metals – do some homework.
Research and gain knowledge about the way in which gold, silver, and other precious metals work.
A great starting point is an excellent introductory book by Michael Maloney called “Guide to Investing in Gold and Silver.”
Michael Moloney is acknowledged to be an expert in the field of precious metals, and is particularly interested in the historical cycles which point to the best investment opportunities, and how to take advantage of these.
This book takes you through the history of gold and silver, and explains how America detached itself from the gold standard, what this has meant for its financial future, how the markets view gold and silver, and why you should take advantage of the incredible opportunities which are appearing as a result of these known cycles.
On this site we aim to give you useful, evergreen information too, in order to guide your decision and help you to find the best way of investing for you and your families futures.
It is essential that you are completely happy with your decision to invest in precious metals and to know why you are doing so.
The problem with many investments is that they are beyond people’s control and understanding. Many of us simply send a check to the insurance or mutual company every month and get an annual statement. That is the sum total of our input. The vast majority of investors in mutual funds do not even know what companies or sectors they are invested in. They just leave the entire thing to their broker or salesman.
We firmly believe that you should be hands-on in your investment strategy – and precious metals lend themselves to this beautifully.
Unfortunately, the rules governing the way in which precious metal IRAs are administered mean that the investor cannot hold the precious metal themselves. This has to be arranged through a third-party. These guardians are known as custodians or trustees.
They act rather like an executor in a will. They look after the metals on behalf of the beneficiary and ensure that the administration is carried out in accordance with the rules and regulations of the IRS. it allows the owner to deal with the investment at arms length.
The law governing this is set out in IRS publication 590. It states that, “the trustee or custodian must be a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS to act as a trustee or a custodian.”
One of the areas the custodians or trustees deal with is the physical storage of the metals in a safe and secure environment. A common misunderstanding among investors is that of the ability to “self store” their precious metals for IRA purposes. The idea of storing silver or gold at home, in a safe or strong box, although appealing to many, is simply not something that the Internal Revenue Code allows.
The basic rule is that any asset which has an IRA tax advantage, has to be stored outside the immediate control of the owner until early distribution or retirement. The reason for this is obvious. It is to prevent you from spending the asset before you are entitled to. In this way the IRS ensure that the IRA does its job in providing for you in your retirement rather than an early spending spree – leaving you nothing to live on in subsequent years.
The storage itself must be in an approved storage facility known commonly as a depository or repository. These can be federally, state or privately run, and they charge and annual fee and insurance for the service they provide.
These facilities are regulated by COMEX, an industry watchdog, to ensure that they have the right degree of security. The metals can be stored as either segregated – where they are individually stored by themselves in a specific place, or as non-segregated (also known as “co-mingled” within the industry) – where they are mixed with other metals which are being stored at the same depository.
As you can see there are many decisions to be made when considering investing in precious metals and proper advice is something which is priceless in this situation.