Given today’s situation on stock market valuation and historically low-interest rates (IRs) on fixed-income investments, some Individual Retirement Account (IRA) owners may be interested in moving their funds from low-risk securities and equities like money-market funds and Treasuries to precious metals. But before individuals invest in valuable metals like platinum, palladium, silver, or gold, here are some federal income tax problems they need to consider.
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Valuable metal assets held in the Individual Retirement Accounts
As a rule of thumb, investing in these precious metals or coinages counts as the acquisition of collectible items. These transactions are characterized as taxable distributions from IRAs followed by purchases of coins or metals by IRA owners. In effect, this rule of thumb prohibits these accounts from investing in valuable metals. But the Tax Code supplies vital statutory exceptions:
Individual Retirement Accounts can invest in certain platinum, silver, and gold coins. They can also invest in palladium, platinum, silver, and gold bullion that meets purity standards. But the bullion or coins need to be held by the IRA custodian or trustee instead of the account owner. These rules and regulations apply equally to conventional IRAs, SEP accounts, Roth IRAs, as well as SIMPLE-IRAs.
How does IRS work? Click this site to find out more.
Physical Individual Retirement Account investments in valuable metals
Under the exception, IRAs owners can own certain bullion and coins, including:
- Palladium, platinum, silver, and gold bars or bullion that meets purity standards
- Coins like American platinum, silver, and gold coins
- Canadian Gold Maple Leaf coins
For instance, gold bullion should be 99.5% pure or better. Silver bars should be 99.9% pure or better. The main concern is finding a trustee willing to set up self-directed IRAs and facilitate physical transfers and storage of these assets.
Only a couple of outfits are eager to act as trustees for these investments that hold allowable bullion or coinages. With a simple search, willing and reputable trustees can be found on the Internet and will arrange for physical storage of these assets owned by IRAs. These trustees will usually charge:
- Annual fees for insurance and storage
- Annual account maintenance and admin fees for sending statements
- A one-time set-up fee
Additional fees will be charged for transactions like distributions and contributions, as well as commissions for asset sales and purchases.
How are coins produced? Check out https://www.usmint.gov/learn/production-process/coin-production for details.
How Holding Precious Metal Assets Affect a Person’s IRA
Purchasing shares of ETFs that tracks the value of these assets is an excellent option for people who do not want to deal with problems that surround physical ownership of valuable bullion or coinages by IRAs. At one time, there were concerns that account acquisitions of shares in ETF could be treated as acquisitions of collectibles.
In turn, it would result in deemed taxable distributions from these accounts. Thankfully, the Internal Revenue Service now says that these things can purchase shares in precious metal Exchange-Traded Funds that are classified as grantor investment trusts without any issues.
According to the latest Private Letter Ruling, the rules and regulations prohibiting direct IRA investments in bullion or coins do not apply when independent trustees hold these things. In the case addressed by the PLR ruling, shares in holding trusts like ETFs were sold to the public and traded on the stock exchange.
Important tip: Another simple and indirect way to invest in these things is to have the IRA purchase common stock shares of mining firms or mutual funds that hold valuable mining stocks.
Age-related considerations for account holders
Prices for these valuable metals usually are very volatile. So, it is imperative to read best gold IRA guides to understand the possible pitfalls before applying the strategy. Using IRAs to invest in these assets becomes pretty problematic when individuals are at or near their retirement age.
In addition, once conventional Individual Retirement Account owners reach the age of 72 years old, annual RMDs or required Minimum Distributions need to be taken. A person’s conventional accounts need to have enough liquidity to allow Required Minimum Distributions.
With that being said, people are not required to take these distributions from each account. The only requirement is that the right amount is withdrawn from one or more IRAs. For instance, people could have one fund that is invested in bullion or coins and another fund that is invested in liquid assets like mutual funds or publicly traded stocks. People could take annual RMD amounts from liquid funds while leaving precious metal funds untouched.