THE ABCs OF PRECIOUS METALS IRAs by Diane Piret - ICTA Industry
Affairs Director
With
Gold at record levels, many investors (and some collectors)
have been inquiring about including precious metals in their
self-directed retirement plans such as Individual Retirement
Accounts (IRAs). Approaching the time of year when many investors
are especially concerned with investments, this is a good
time to informally recap how investors (and collectors) can
take advantage of the precious metals option. In 1981, Congress
arbitrarily deemed "collectibles" to be unacceptable
for inclusion in IRAs and other self-directed retirement plans.
In addition to fine art, gems, stamps, antiques, rugs, wine,
and other items, the definition of collectibles was changed
and included coins and precious metals. ICTA did not exist
at the time (ICTA was formed in 1983), and the coin and precious
metals industry had no real voice in Washington to either
prevent this action or give Congress the facts. In 1986, the
American Eagle Gold and Silver coin program began, and the
legislation that created the Eagle included language that
stated that for the purposes of Section 408(m) of the Internal
Revenue Code (the section that deals with self-directed IRA
plans), the term "collectible" did not include Gold,
Silver or (later) Platinum Eagle coins. Therefore, Eagles
are allowed in self-directed IRAs. There is no differentiation
between Proof and Uncirculated, and both versions are allowed.
As part of the Taxpayer Relief Act of 1997,
ICTA was successful in having Congress approve legislation
that expanded IRA-acceptable precious metals to include additional
bullion Gold, Silver, Platinum and Palladium products. While
the definitions of these other eligible precious metals items
were not specific other than by fineness, it is generally
accepted that many "mainstream" (most popular and
frequently traded) precious metals bullion coin and bar products
are acceptable if they meet the specified criteria. The IRA
companies that handle such retirement accounts can provide
you with a list of those items they will or will not accept
for IRA purposes. (They may vary by company.)
HOW TO INCLUDE PRECIOUS METALS IN
YOUR IRA
Especially in this record-setting precious
metals market, there is a much greater interest in including
precious metals in IRAs. Both in¬vestors and dealers who
don't have experience with these accounts have many questions.
The following includes some of the basic ele¬ments of
these accounts. You'll find some of the information highly
dependent on the policies and procedures of the company handling
your IRA, and now is the time to compare companies for the
one that best fits your needs. (Please note that ICTA
provides this information with the intent to assist you, but
ICTA's staff cannot provide advice on the subject. For more
specific information, we strongly recommend that you consult
with your own legal counsel or professional tax advisor.)
A - The first step to including
precious metals in your IRA is to set up an IRA account with
a company that handles IRA accounts for precious metals ("the
IRA Company"). If you don't do that properly, you lose
the tax benefits associated with an IRA. You must have the
account set up and funded (with rollover or "new"
IRA money) before you purchase any metals. It is important
to note that you may not personally take physical delivery
of precious metals products held in your IRA without incurring
a substantial penalty. The IRA company should arrange
for the safekeeping of the metals to your satisfaction. There
are two ICTA-member companies we are aware of that serve as
precious metals IRA custodians: Sterling Trust Company of
Waco, Texas and GoldStar Trust Company of Canyon, Texas. Sterling
Trust's website contains a list of items of Gold, Silver,
Platinum and Palladium products that it will accept for IRA
accounts in addition to other helpful information. We recommend
you contact whatever IRA company you choose for the specific
procedures you will need to follow in order to establish an
IRA account containing precious metals.
B - While there are the
usual benefits to including any acceptable 1 asset in a qualified
IRA (or other self -directed retirement program), there are
certain costs associated with such IRAs. There may be a flat
annual fee (sometimes called an administration fee) as well
as the annual storage charges. Another company's fee structure
may be different and might include a per transaction fee.
You should evaluate all applicable charges to determine which
company may better serve your needs.
C - Generally, in non-IRA
transactions, you lock-in the purchase C ) of metals for the
benefit of your account. You do the same thing
when you buy precious metals in coin or bullion form for your
IRA. There are transactional differences. Ask whether the
IRA company or your dealer has any minimum dollar amount for
an IRA trade. You will want to research in advance to see
if your favorite dealer is willing to conduct bullion IRA
transactions and whether there is any service charge for this
type of trade. If you need assistance in determining a dealer,
some IRA companies will offer a list of suggested firms; others
will not make any such recommendation. Regardless, you have
to follow the rules on acquiring precious metals coins or
bullion as well as the rules on disposition.
Unlike a normal cash bullion purchase where you pay for and
receive your merchandise immediately, IRA transactions must
be handled according to IRS regulations and the IRA company's
procedures, and often there is a delay in payment to the dealer.
Since this may mean that the dealer has to have his money
tied up for some period of time prior to the IRA company releasing
the funds from your account, there may be a nominal IRA transaction
fee levied by the dealer to help offset this extra cost. Be
sure to ask.
Sometimes IRA companies may release payment
for the precious metals before the dealer ships to the designated
safekeeping facility. It is likely they limit this pre-funding
accommodation to dealers with which the IRA company has an
existing relationship. However, ICTA recommends that dealer
sellers contact the IRA companies in advance of doing any
IRA trades to determine if this policy can apply to them.
But normally, payment is only authorized once receipt of the
metals has been logged in at the facility.
D - In addition to setting
up an IRA account with "new" IRA money, investors
may rollover existing monies from other IRA accounts they
have. Usually the procedure will be to issue an order to liquidate
certain other assets held in an existing IRA. If you are using
rollover money, you need to make sure you understand exactly
what you need to do. It should be very simple— you will
authorize the sale of the original IRA asset and direct that
the proceeds of that sale be sent to the company handling
your precious metals IRA account. You may do this yourself
(giving instructions where to send the proceeds) or the company
handling your precious metals account, upon your signed order,
may place that order for you. Be sure you understand the procedures
for setting up the new account in order to have a smooth transition.
If the funds from the liquidation are sent to you directly,
this can affect the tax-advantaged status of the rollover
money if it is not re-invested within the allowed time frame.
Plus this will delay setting up your account and, with the
current daily fluctuation of precious metals prices, can affect
the price you pay for your IRA metals. Once your IRA account
is funded, then you will be able to purchase the precious
metals you want to include in your precious metal IRA account.
Dealers interested in conducting precious
metals IRA transactions should contact at least one or two
IRA companies for more information on policies and procedures.
There is a lot of interest in these IRAs right now, and you
want to be sure you can accommodate your customers' business
quickly and easily. Likely your customers will have many questions,
and it's just smart business to be ready to assist your clients.
FAQ
Q: Can slabbed coins to into an IRA? A: This depends on the IRA Company because
there are no government regulations concerning it. The Sterling
Trust website says that they will not accept coins that have
been slabbed, i.e. authenticated, graded and encapsulated.
You may wish to ask whether a bullion coin that has been authenticated
but not graded is acceptable if that is important to you.
Raw bullion coins have been successfully placed in IRAs for
years, so this may not be a concern for you.
Q: Are US Mint issued sets that include
Eagles allowed? A: The law is very specific: Eagles or any
Gold, Silver, Platinum, or Palladium bullion of a fineness
equal to or exceeding the minimum fineness that a contract
market (as described 'in section 7 of the Commodity Exchange
Act, 7 U.S.C. 7) requires for metals which may be delivered
in satisfaction of a regulated futures contract. Check with
the IRA company you choose. You may find that a depository
will reject coins that do not meet its criteria. We are aware
of errors that have occurred in the past where the transaction
proceeded all the way to the metals arriving at the depository
only to be rejected.
Q: As this is an especially volatile
precious metals market, how fast can I lock in a liquidation
of precious metals in my IRA? A: There are several elements to liquidating
some or all of the as-sets. ICTA recommends you ask your IRA
company at the time you set up your account to outline its
liquidation procedures.
In general, you would contact your coin dealer to lock-in
a price on the metals. You, of course, will tell the dealer
this is an IRA transaction. The dealer will prepare a purchase
invoice which the IRA company will need in order to find out
from the custodial facility how much additional funds will
need to be paid for shipping charges. The metals and shipping
charges have to be paid in advance of the release of any metals.
The dealer sends payment (bank wire preferred) to the IRA
company, for your account. The IRA company will then direct
its custodial facility to release the metals for shipment
to the dealer. Dealers don't usually pay shipping charges
for delivery of metals they purchase from a customer, so you
may have to inquire how you and the dealer will handle this
aspect. OR, you may ask your IRA company if they can just
deduct the shipping charges from your IRA account. We strongly
suggest having these procedures understood and ready to be
implemented so any liquidation of your metals will not be
delayed and the price possibly affected. A problem-free transaction
is everyone's goal. Again, ask whether the dealer has any
other special fees for conducting the liquidation since he/she
will be fronting money for product likely not received for
at least a week or two. Again, your dealers may or may not
add fees—we just suggest you ask so there are no surprises.
Q: How fast does my dealer get delivery
of metals liquidated from an IRA? A: The faster the transaction is paid for,
the sooner the depository will be notified to release the
metals for shipping to the dealer. You may wish to ask what
the normal turnaround time is from when the payment is made
to the actual shipment of the metals to the dealer by the
depository. It should be reasonably quick. If the dealer has
his own account with that particular depository, it may be
possible merely to transfer from your IRA account to the dealer's,
thereby avoiding shipping charges. There might be a small
transfer fee from the depository; however, it would be less
than insured shipping charges.
Q: What about dates on coins going
into my IRA? If I specify in my order a certain date of, let's
say, American Eagles, will these be segregated for my account?
A: You should ask your IRA company whether your specific
coins are segregated from other IRA accounts. One suggestion
might be to have the dealer specify any dates of coins in
your IRA order on all invoices and other documents. Even if
the coins are the current year's coins, this could be of importance
in the future, especially for Proof Eagles. Such specificity
can only work to your advantage. Some advisors recommend that
investors only deal in segregated assets; consult with them
if you have questions.For investors who want to own precious
metals but do not have adequate funds outside of an IRA or
other self-directed retirement plan, IRAs provide an excellent
way to fulfill your personal investing strategy. Whether a
dealer or investor, doing your homework on the details of
IRAs ensures your transactions are easy and hassle-free.
IMPORTANT NOTE:
This information is provided to assist you and is not intended
to be your sole resource on this subject. We believe our understanding
of the subject to be correct; however ICTA cannot be responsible
for any errors, typographical or other. We urge you to consult
with your legal counsel and/or professional tax advisor.
ICTA is a non-profit national association representing the
rare coin, currency and precious metals industry. ICTA is
supported solely by membership dues and donations.