During the summer of 2016, many gold and IRA companies advertised that home delivery gold coins could be a safe addition to IRAs. According to the Internal Revenue Service, storing precious metals at home for tax-free retirement accounts may be illegal.
First of all, let’s lay most of the confusion of home delivery gold and silver IRA’s on the shoulders of the IRS themselves. They are in violation of the Taxpayer Bill of Rights one and two. The right to be informed and the right to quality service. A call to the IRS is like a call to the post office. It’s likely you will be hung up on after being on hold for 45 minutes or you’re going to speak to an uninformed low wage worker.
What is clear is that gold, silver, platinum, and other precious metals are popular investment options for risk-averse savers. Precious metals have historically held their value during financial crises, and they are often viewed as a safeguard against inflation. Keeping precious metals in an IRA is allowed by current laws. Per IRS Publication 590-A, “your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins” as well as in certain silver and platinum coins or bars.
While investing in precious metals is allowed by the IRS, storing gold and silver IRA assets at home is usually illegal or extremely hard to meet stringent IRS rules regarding such accounts. These precious metal in-home IRA assets are often referred to as home storage, home delivery, or physical gold.
According to Laura Saunders of the Wall Street Journal, the companies that are advertising home delivery gold are not revealing any legal disclaimers. Before purchasing home delivery gold for tax-free retirement funds, investors should do their homework to protect themselves from the government’s tedious IRA laws.
It is clear that investing in home storage gold is a troublesome and rather confusing endeavor, but the investment option remains attractive for some worried savers. Since gold has been viewed as an IRA safety net against inflation and downturns in the business cycle, many savers have appreciated the idea of securing their precious metals in their own homes. Unfortunately, IRS regulations require that precious metals are stored in a third-party storage facility that is under the supervision of a financial intermediary.
When precious metals are stored in these third-party facilities, investors are often not allowed to see or touch their gold. In these situations, savers see their gold and silver assets as mere numbers on a portfolio spreadsheet. In an age of artificially low interest rates and growing inflation, investors would prefer to verify their ownership by storing their metal assets in home vaults.
A home delivery precious metals IRA may seem like a valid method of securing a stable financial future. Unfortunately, only a small percentage of investors can use the home delivery method without incurring penalties from the IRS. According to Seth Pierce of Mitchell Silberberg & Knupp LLP, only rare investors can meet the IRS rules that allow investors to hold IRA structures with no bank, no fees, and immediate access to assets. Pierce also explained that investors who do not meet the IRS requirements are punished with tax penalties.
For many investors, losing the tax exempt status of an IRA can be devastating. Pierce suggested that most investors would lose about 35 percent of their retirement funds to taxes. This would present major disadvantages to heavy savers, and it may be a violation of the Taxpayer Bill of Rights. The Taxpayer Bill of Rights also states that every citizen has the right to pay no more than the correct amount of tax. The IRS’ decision to remove the tax-exempt status of a retirement fund is not based on a tax bracket or common taxation policy. Instead, it is based on a technicality. The IRS removes the tax-exempt status from IRAs with home delivery gold solely due to the fact that the gold at home is treated as a transfer instead of a normal asset. This may be an example of unlawful government overreach, but alas, savers must abide by the established policies to protect their hard-earned retirement funds.
The Internal Revenue Code requires that precious metal assets be stored with a trustee. This trustee is usually a bank or a third-party security company supervised by a bank. Investors usually cannot avoid this requirement, but they can hold home delivery IRAs under special circumstances. IRA-holders simply need to avoid prohibited transactions.
According to attorney Christopher Johnson, a prohibited transaction may occur when investors use their IRA assets for personal gains. To use a home storage gold IRA without incurring legal or tax penalties, investors must:
- Separate precious metal assets from personal assets
- Never attempt to qualify as a trustee
- Never use precious metal assets for personal gain
- Cover their precious metal assets with a separate IRA insurance policy
- Never list their precious metal assets on a homeowner’s policy
After home delivery precious metals are added to an IRA, the IRS has a seven-year window to conduct an audit. During this window, the IRS can check to ensure that investors meet the requirements to have home storage for precious metals in an IRA. If an investor does not meet these requirements during an audit, the IRS will remove the tax-exempt benefits from the investor’s retirement fund. This harsh penalty will surely discourage most savers from using home delivery gold investment options.
The Certified Gold Exchange also believes that meeting the requirements for a home delivery gold IRA structure is too costly for almost every investor. Since the IRS rules require that investors cover their home delivery precious metal assets with a new insurance policy, retirement savers must pay for additional insurance fees to store gold at home. Paying for storage, home security, and a trustee can also offset the financial benefits of holding precious metals in an IRA.
For most savers, holding precious metals with a bank or third-party firm is likely a better option than a home delivery gold and silver IRA structure. While savers may believe that their assets are more secure when stored at home, the evidence does not suggest that gold will simply vanish when it is held at a depository. Regardless of where it is stored, the gold, silver, and platinum assets will protect investors from inflation and volatile markets. By transferring precious metals to your IRA through a financial intermediary, you can avoid legal pitfalls, hefty fees, and difficulties with the IRS.
Additionally, the Delaware Depository has a UPS calculator on their homepage, so if investors really feel that our society’s financial markets are collapsing they can always take the metals via IRA distribution.
With few unique benefits and a plethora of costs and unclear IRS rules, it seems that a home delivery gold and silver IRA is rarely a sound choice for investors.