In August of 2017, we blogged about the dangers of owning physical gold and/or silver in an IRA, while storing the actual metals in your home. Back then, one could hardly avoid hearing commercials pushing gold and silver IRAs. Hold it in your hand, love it, cherish it, protect your assets, and succeed. All that, and purchase it with after-tax IRA dollars—what a deal!
IRS rules for IRAs include a strict prohibition on self-dealing. You cannot benefit from personal use of the assets in your IRA. Violations result in your IRA becoming instantly 100% taxable. A recent IRS decision confirmed the danger of trying to home base your physical IRA gold. As a result, a couple now owes $300,000 to IRS for storing gold in their home safe.
IRS allows the purchase of some forms of gold in an IRA, but it also specifies the special type of trustee that can custody the account. Specialized custodial accounts carry higher fees than do traditional IRA custodians. Unless and until IRS guidelines change, we would never own physical gold or silver in a home-custodied IRA.
Whenever our clients express an interest in owning precious metals, we prefer and suggest the electronic form of ownership. Several Exchange-Traded Funds (ETFs) exist, whereby investors can own precious metals by simply buying shares of the ETFs. These ETF assets are backed by physical commodities and can be held in taxable or tax-deferred accounts.
ETF-style ownership has several salient features. First, it has proven to be legal and penalty-free. Additionally, there is little or no emotional attachment to a share of an ETF. Selling shares allows the IRA owner to add or subtract small quantities instead of having to trade only high-value coins or bars. We do not believe that “buy and hold” for precious metals is necessarily a good long-term investment, as pricing fluctuates wildly over time. By paying attention, it is possible to buy low and sell high, then repeat at the next opportunity, based on price.
Many people likely disagree with our very conservative view on this subject, but in the absence of a verifiable change with the IRS, we cannot advise people to set up a home-based precious metals IRA.
For a more thorough education on the subject, simply execute an Internet search on a few keywords, such as “gold,” “IRA,” and “at home,” and you will find pages of information and opinion. Some websites contend that under a provision of the Pension Protection Act, it is legal for certain people to own IRA gold at home. When you read their disclaimers, you will draw a simple conclusion—you aren’t among them.
Van Wie Financial is fee-only. For a reason.