Putting Precious Metals in an IRA

July 7, 2017 4:40 PM
By Brian Dobbis

More investors have taken a shine to investing in gold and silver in their retirement accounts. But there are a number of potential drawbacks to be aware of.


During the July 4th weekend, I received an e-mail promoting the purported benefits of investing in precious metals, such as gold and silver. Ads promoting investing in precious metals are fairly common—but this one touted their potential role in an IRA. Without much fanfare, precious metals have become more common investments in tax-advantaged accounts during the last decade. However, this type of investing is not for all investors.

I read the e-mail multiple times, determined to find any sign of the numerous potential “land mines” that an unassuming investor could face—especially in terms of undertaking prohibited transactions under the current tax code. Not surprisingly, there was no mention in the e-mail of the potential drawbacks of holding this asset category in a tax-advantaged account, let alone the consequences of running afoul of the maze of rules and regulations that apply to investments in shiny metals.

Through an IRA, a holder can purchase virtually any type of investment with the exception of collectibles (e.g., artwork, rugs, stamps, antiques, fine wines, etc.) and life insurance. However, if the IRS determines that an IRA has invested in collectibles, the taxman will come calling. The penalties are harsh: the amount invested is considered distributed to the account holder in the year invested. In addition, the 10% additional penalty tax on early distributions may apply if the account owner is younger than 59½ at the time of distribution. The silver lining in all this is that the entire value of the IRA is not deemed distributed, only the amount (value) invested in the collectibles.

So, it’s perfectly reasonable to ask, then, what you need to know about investing in precious metals via your IRA. It should be emphasized here that what we are discussing are the methods of investing in precious metals for a retirement account, not the merits. A self-directed IRA can hold precious metals so long as those metals are not considered collectibles. However, there is an exception. Only precious metals that satisfy Internal Revenue Code (IRC) Section 408(m)(3) may be owned by an IRA. All other metals are considered collectibles and cannot be held (invested) in an IRA.   

Precious metals may be owned in either bullion form (satisfying purity requirements) or in the form of certain coins. In other words, an IRA may own gold, silver, platinum, or other metals that meet certain requirements or which are specifically approved. (Refer to IRC Section 408(m)(3) for specifics.) If the bullion is not one of the approved metals, or if it does not satisfy the purity requirements found in Section 408(m)(3), then the IRA has invested in a collectible and is, therefore, subject to the prohibited transaction rules.

In addition to bullion, certain approved coins may be owned by an IRA. In publication 590-A, “Contributions to Individual Retirement Arrangements,” the IRS states the following:

“Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one-ounce silver coins minted by the Treasury Department. It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion.”

All IRA types (traditional, SEP, SIMPLE, rollover, and Roth) are permitted to invest in coins. However, another crucial matter to avoid running afoul of the rules is ensuring that the coins or bullion are stored (held) by the IRA custodian—not the IRA owner. In other words, the owner of an IRA is prohibited from storing the assets in his or her home. If coins or bullion are not properly held by the custodian, then a violation has occurred. The metals are deemed distributed to the account holder as of the date of said violation, subject to income taxes and, potentially, a 10% early distribution penalty.

There is, then, more than meets the eye when considering investing IRA assets in precious metals. In other words, do your homework: analyze the investments and risks involved. If you do choose to invest in precious metals for your IRA, we strongly urge you to consult relevant financial and tax professionals to ensure that your investment is in full compliance with the tax code. 


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