How to Buy Gold and Other Metals With a Self-Directed IRA

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Evidence of the modern day gold rush is all around - everything from Super Bowl commercials to famous financial advisors telling Americans to buy gold. But with the unemployment rate growing and many people tightening their budgets, how can the average American invest in anything? Bill Humphrey, co-owner of Entrust New Direction, a self-directed IRA custodian, has an answer. "Anyone can use their retirement funds to buy gold and other precious metals, if they have a self-directed retirement plan." Humphrey said the most common follow-up question is - what kind of gold and what other metals?

With so many coins and metal choices out there in the market, choosing a retirement investment can be confusing. Which metals and which types of metals are acceptable for an IRA investment? Does the IRA owner store the metal personally? How can a self-directed IRA owner tell if the gold in question is approved by the IRS? Bill Humphrey, a CPA who has worked with self-directed IRA owners for years, can help answer these questions.

First, the basics. Self-directed IRAs can only invest in Gold, Silver, Platinum and Palladium. Humphrey said, "The key word here is invest. IRAs cannot buy collectibles." In other words, the IRA is only investing in the metal itself, not rare or attractive coins. "As long as the metal is not collectible," Humphrey continued, "the main thing to worry about is the purity." The purity or fineness of the metal is how the quality of the metal will be measured for the IRA.

"Also, the metal must be in a certain form - usually coins or bars," Humphrey said. When most people hear about gold investment, they picture the 400 ounce gold bars commonly seen in movies. Extraordinarily heavy (about 25 pounds), those bars are also quite the expensive items, particularly with the recent price increases in gold. IRAs are often priced out of the gold bar market, but, fortunately, other options exist. One other option is smaller units of bullion, provided they meet the fineness, or purity level requirement. Another option is coins.

Humphrey said that initially, the IRS deemed all coins to be collectible and disallowed IRA investments in coins. In the mid 1990's, after realizing that a 400 ounce gold bullion bar would be prohibitively expensive for most IRAs, Congress revised the rules for IRAs and allowed certain coins in addition to bullion.

Humphrey laid out a list coin categories that the IRS generally allows:
1.    Coins specifically listed in the Internal Revenue Code and minted by the US. These include:
a.    American Gold Eagles
Interestingly, these US minted coins are not of sufficient purity to classify them as bullion. They are only approximately 91% pure gold. The other material in the coin offsets the softness of the gold and makes the coin more durable. Gold Eagles arrive in one of four forms: 1/10, ¼, ½ and 1 full ounce coins.
b.    American Gold Buffalo coins.
First minted in 2006, they are of bullion fineness, 9999 fine (known as four nines). Note that the specially processed proof version of this coin is NOT acceptable due to the treatment raising the value of the coin beyond the value of the metal.
c.    American Silver Eagles.
Silver Eagles land in only on form, one full ounce coin. They are of bullion fineness, but are only .999 (three nines) due to the addition of a touch of copper for added durability.
d.    American Platinum Eagles.
The rarest of birds, the Platinum Eagles are minted in 4 forms: 1/10, ¼, ½ and 1 ounce coins. These are of .9995 fineness.

Humphrey warned that if the above coins have been graded for condition by certification organizations and placed in tamper-proof plastic containers called "slabs", they will generally fall into the collectible category and will not be allowed for IRAs. He said, "If you're not sure about this, ask your custodian or metals dealer." He also warned that the face value is not necessarily the true value of the metal.

2.    Some coins meet the minimum fineness requirements but are not rare enough to receive collector attention.
a.    Gold Coins - .995+ Note that gold is a soft metal (although heavy) and thus most typical minting includes other alloy to harden the coin. Therefore most minted gold coins intended for use as currency do not meet the fineness requirement.
b.    Silver Coins - .999+
c.    Platinum - .9995+
d.    Palladium - .9995+

Humphrey added, "If you're talking about small bars, they still need to meet these required fineness levels."

In addition to these American options, there are some coins issued by mints of other nations that do meet the fineness requirements:
Australian Nugget (Kangaroo) Gold coins..9999 fine.
Australian Kangaroo and Kookaburra Silver coins .999
Australian Koala Platinum coin .9995 fine
Austrian Philharmonic Gold coins .9999 fine
Austrian Philharmonic Silver coins .999 fine
Canadian Maple Leaf Gold coins .9999 fine
Canadian Maple Leaf Silver coins .9999 fine
Canadian Maple Leaf Platinum coins .9995 fine
Canadian Maple Leaf Palladium coins .9995 fine
Mexican Libertad Silver Coins .999 fine
Isle of Man Noble Platinum coins .9995 fine

Some examples of coins that don't meet the fineness requirements are: Austrian Corona and Ducat, Belgian Franc, British Sovereign and Britannia, Chilean Peso, Columbian Peso, Dutch Guilder, French Franc, German Mark, Hungarian Korona, Italian Lira, Mexican Peso and Ounza, South African Krugerrand, Swiss Franc and any coin that falls into the "Rare", and thus collectible, category.

"As a general rule," Humphrey said, "special occasion coins and coins that were actually issued for trade are not going to qualify for IRAs." By saying coins issued for special occasions, he's referring to coins for Olympic games, national celebrations, and others issued in limited quantities. These are generally valued by collectors and their price is usually higher than the value of the raw metal.

Humphrey tried to summarize, "When researching a particular coin, check the fineness of the coin, and make sure the price of the coin is equal to the value of the metal." The IRA's investment in gold is just an investment in the value of the metal; personal appeal of the form of the coin should not come into play in an investment decision. In other words, consider the value of the coin melted down - not as a conversation or art piece.

He also cleared up another question commonly asked. "The IRA owner will not store the coins personally." IRA custodians like Entrust New Direction require that the coins be held in a depository and the owner will likely never see them unless the coins are taken as a distribution upon retirement.

After this quick gold class with Bill Humphrey, the average American is armed with good information on what kinds of precious metals a retirement account can invest in and can join the gold rush. Thankfully, the modern prospector won't need to trudge up and down mountains with a pick and shovel to diversify a retirement portfolio with precious metals.

Entrust New Direction does not offer investment, tax, financial or legal advice to clients. Individuals who believe they need advice should consult with the appropriate professional(s) licensed in that area.

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