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How to Hold Gold and Other Precious Metals in Your IRA

Bars of gold

  |  By Justin Farian, CISP®

There are numerous reasons to buy gold, but two factors often drive the decision to invest in this precious metal—investor worries over uncertainty and the desire for portfolio diversification.

Today, both of these factors are front and center in investors’ minds. The ongoing trade war, geopolitical strife, and worries that an economic slowdown is looming make uncertainty a daily reality. Meanwhile, talk of a potential recession combined with concern that the US equity bull market is losing steam means investors are looking to diversify their portfolios.

While investors may be familiar with investing in gold with their taxable accounts, many investors do not think of also investing in gold using a tax-advantaged IRA. This may be due to the fact that many custodians simply don’t allow account owners to hold gold and other precious metals in their IRA. But it's possible to do so in a self-directed IRA, and you’ve probably seen these self-directed IRAs advertised as "gold IRAs" or "precious metals IRAs."

As a self-directed IRA custodian, PENSCO makes it possible for our clients to hold gold in their retirement accounts[1], and we have the knowledge of and experience with IRS rules and regulations to help clients efficiently handle these transactions.

Here are some of the top questions we receive about investing in gold and other precious metals using a self-directed IRA:

  1. How does a “gold IRA” or “precious metal IRA” work?

By law, self-directed IRA custodians like PENSCO cannot find, recommend, or endorse any investment that will be held in your retirement account. As a result, IRA custodians cannot source a gold or precious metals investment for you. This means you need to work directly with a metals dealer who can source precious metals for you. It is up to you to select which pieces and amounts of precious metals you would like to buy with your IRA funds.

When selecting a precious metals dealer, conduct due diligence to ensure you’re working with a reputable one. Ask your financial professional for a recommendation or talk to fellow investors who have purchased precious metals to help protect yourself against fraudulent activity.

Once you’ve decided which metals to buy, you’ll need to open a PENSCO self-directed IRA if you do not have one already. This process can be completed online. After your self-directed IRA account is opened and funded, we’ll open an account on your behalf with our precious metals custodian, Delaware Depository, which is qualified to hold precious metals for IRAs. 

When your Delaware Depository account is established, we will send your IRA funds to your precious metals dealer. Delaware Depository will then work with that dealer to arrange shipment of your precious metals from the dealer to their storage facility for placement in your IRA account.

This process may seem confusing, but it is required by law. The IRS prohibits investors from personally taking possession of precious metals when they are owned in an IRA. That’s why a third party, like Delaware Depository, must hold the metal on behalf of an IRA.

  1. What types of precious metals can be held in an IRA?

Investors can diversify their IRA portfolios with gold, silver, platinum, or palladium. But the metal must meet specific IRS requirements. For instance, it must be “highly refined,” according to the IRS. IRAs are only allowed to own gold coins or bars that are 99.5% pure or better; silver coins and bars that are at least 99.9% pure; and platinum and palladium coins and bars that are at least 99.95% pure.

Owning rare or collectible coins—such as Belgian 20 Franc gold coins or Italian 20 Lira gold coins—is off limits in your IRA.

Before finalizing your precious metal purchase, consult with your financial professional to ensure the transaction doesn’t run afoul of any securities rules.

  1. How do required minimum distributions work with a hard asset like gold?

Investors with traditional IRAs must start taking required minimum distributions, or RMDs, once they turn 70½. Account holders are required to remove a portion of assets from their IRAs each year as a distribution so the government can begin collecting taxes on your savings.

The most common distribution method is cash, which means the IRA needs to have cash available or must sell securities to fulfill the distribution. A gold investor can sell a portion of their gold holdings to cover their RMD if needed, or they can take a "distribution in-kind." With a distribution-in-kind, an investor receives the physical gold owned by their IRA.

Keep in mind that if you have more than one traditional IRA, you have the option of taking your RMD from just one account or a combination of them. This means you can sell your more liquid securities—like mutual funds or stocks—to cover your RMD if you prefer and leave your precious metal holdings untouched.

Using precious metals to fund your IRA

At PENSCO, we’ve assisted clients with all different sizes and weights of gold, silver, platinum, and palladium in their IRAs. As a self-directed IRA custodian, it is our job to make the process of holding alternative assets—including precious metals and gold—as smooth as possible.

To learn more about holding gold, silver, platinum or palladium in your IRA, please contact us at 866.818.4472.

[1] PENSCO is not a precious metals dealer. All precious metal holdings are held at Delaware Depository Service Company, and PENSCO forwards the funds to complete transactions. 

Editor’s Note: This is an updated version of a post we originally published in 2016. We welcome new comments and questions below.

This Blog does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Investments are not FDIC insured and are subject to risk, including the loss of principal.

PENSCO Trust Company performs the duties of an independent custodian of assets for self-directed individual and business retirement accounts and does not provide investment advice, sell investments or offer any tax or legal advice. Clients or potential clients are advised to perform their own due diligence in choosing any investment opportunity as well as selecting any professional to assist them with an investment opportunity. Alternative investments are not FDIC insured and are subject to risk, including loss of principal. Other than the Opus Affiliates, PENSCO is not affiliated with any financial professional, investment, investment sponsor, or investment, tax or legal advisor.