Occasionally, we come across television, radio, and internet ads promoting the sale of precious metals for IRAs and other retirement accounts. Some of these ads suggest that you can store these IRA-owned metals at your home.
The concept of this "home storage gold IRA" sounds great, right?
Yes, you can store all the gold, silver, platinum, and palladium you like at your home – as long as your IRA or other retirement account does not own it.
Likewise, it’s perfectly legal to own certain forms of gold, silver, platinum, or palladium within your IRA or other retirement account. But you cannot take physical possession of the assets, much less store them in your own home. To do so would violate prohibited transaction laws – restrictions Congress set on IRAs in order to avoid conflicts of interest and self-dealing.
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Gold IRAs and the IRS...
If the IRS finds out about your home storage gold IRA, it is almost sure to result in the immediate disqualification of your IRA’s tax-advantaged status. That would trigger the immediate distribution of all the assets, generate immediate income tax liability, and stick you with significant fees and expenses – especially if you are younger than age 59½.
Instead, most gold IRA experts will advise you that your physical gold and precious metals have to be held by a third-party custodian – usually a non-bank vault services company. There is some ambiguity about what sorts of institutions can hold gold, precious metals, and other assets on your IRA's behalf. More on that below.
The IRS also specifically shoots down the notion that you can store IRA-owned gold at home if you first establish an LLC within the IRA, and have the LLC purchase the gold via a specially-constructed checkbook IRA.
Gold and other bullion are “collectibles” under the IRA statutes, and the law discourages the holding of collectibles in IRAs. There is an exception for certain highly refined bullion provided it is in the physical possession of a bank or an IRS-approved non-bank trustee. This rule also applies to an indirect acquisition, such as having an IRA-owned Limited Liability Company (LLC) buy the bullion. [emphasis added] IRA investments in other unconventional assets, such as closely held companies and real estate, run the risk of disqualifying the IRA because of the prohibited transaction rules against self-dealing.
The reason is clear: The IRS requires gold and silver assets within an IRA to be held by approved third parties to prevent self-dealing. Without these third-party intermediaries, investors would be able to spend their gold and silver holdings at will, without reporting the income to the IRS. This would amount to a form of tax evasion.
Bullion held within an IRA must be physically in the possession of an approved custodian, who will report transactions to the IRS in accordance with the law.
So attempting to store gold IRA assets in your home or even your LLC’s business office is a non-starter.
Can I Store My Gold IRA Assets in a Safety Deposit Box?
While it's clear that you may not store your IRA's gold in your own home, some companies are promoting the idea that you can store gold IRA assets in a bank safety deposit box.
This may turn out to be legal – nobody yet knows for sure. The IRS has not formally issued any guidance specific to the question of banks and bank safety deposit boxes serving as custodians and storing gold IRA assets. And the courts have not ruled on the subject.
If you want to hold gold IRA assets in a safety deposit box, you would first have to jump through several hoops to comply with the law. You would also possibly pay more in fees in the compliance effort than you would spend simply by avoiding trouble, taking the conservative route, and engaging a traditional non-bank vault company to hold your gold IRA assets on your IRA's behalf.
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Congress generally prohibits IRA investment in "collectibles," which includes most forms of precious metals and jewelry. However, Congress did not want to completely prohibit retirement investors from access to the important precious metals asset class. They therefore carved out several exceptions to the definition of collectibles, listed in IRC Section 408(m):
- Certain gold, silver, or platinum coins described in 31 USC Section 5112. See IRC Section 408(m)(3)(A) for the full definition.
- Any coin issued under the laws of any state.
- Any gold, silver, platinum, or palladium bullion of a certain fineness if a bank or approved non-bank trustee keeps its physical possession. See IRC Section 408(m)(3).
It’s this last provision that advocates of the right to store your IRA’s physical gold assets in a safety deposit box. Congress itself opens the door to allowing private storage of IRA gold, silver, and other precious metals at a bank. Home storage is not included in the list of exceptions. But Congress specifically allows for storage of IRA metals at a bank and at IRS-approved non-bank trustees.
Further, according to the statute, Congress only requires that non-bank trustees require special approval for this purpose.
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How to Store Gold IRA Assets in a Safety Deposit Box
If you want to store physical gold or other precious metals held by your IRA in a safety deposit box, follow these steps:
- Establish a self-directed IRA;
- Establish a limited liability company (LLC), with your IRA (not you), as the sole owner.
- Your attorney should craft your LLC’s operating documents listing you as the managing partner, authorizing you to write checks and process transactions on the LLC’s behalf within your IRA.
- You should open a checking account in your LLC’s name. Keep your own personal name off of the account.
- Open a safety deposit box account, also in your LLCs’ name. Not yours. Keep your own personal name off of it.
- Write a check purchasing the gold for your LLC. Since your IRA owns the LLC, the gold or any other asset your LLC purchased is now within your IRA.
- Have a third party deliver your gold, silver, platinum, or palladium to the safety deposit box on your behalf. Do not take personal possession of the metal at any time.
Home Storage Gold IRA: Outlook
While Congress and the IRS both seem to indicate that you can store IRA gold at a bank, including safety deposit boxes. However, if the bank doesn't have its own record of how much you own, where it came from, and when and how much you take out of the safety deposit box, it cannot fulfill the functions of a custodian.
For this reason, there is a risk that the courts will not look kindly on this arrangement.
There are three main possible scenarios:
- The IRS or the courts could approve bank safety deposit boxes as satisfying the possession requirement;
- The IRS could disapprove it for future taxpayers, but grandfather in those IRAs currently holding gold within safety deposit boxes;
- The IRS could reject the argument outright, and disallow all IRAs that currently hold physical gold or other precious metals in a safety deposit box. This would result in the immediate distribution of all the assets, and potentially significant taxes and penalties.
Other Potential Hazards
Even if the arrangement ultimately passes muster with the IRS, other requirements make storing IRA-owned physical gold, silver, palladium or palladium within a bank safety deposit box very tricky:
- You could accidentally take possession of the physical metal – perhaps by having it delivered to your personal address.
- You could fail to store the metal properly – triggering a taxable event.
- You could fail to set up the LLC correctly. For example, you could accidentally set up the LLC in your name, rather than in the name of your IRA. Or you could fail to have the correct language in the LLC's operating documents.
- You could fail to set up the safety deposit box account correctly. For example, you or an attorney could easily accidentally open the safety deposit box account in your own name, instead of the name of the LLC itself.
Any of the above mistakes could constitute a prohibited transaction, resulting in severe taxes and penalties.
Even if the IRS does not issue a clarification, you could experience a tax audit, and your individual auditor could disallow the transaction. Mounting a legal challenge to the auditors’ decision here would be an expensive undertaking.