Precious Metals IRA Custodian
Section 408 of the Internal Revenue Code prohibits IRA owners from taking direct possession of assets owned within an IRA. Instead, you must have a third-party hold title to or physically control the assets on your behalf.
Usually third parties are called custodians. When you buy gold and other precious metals within a gold IRA, you won’t be taking physical possession of it. Instead, you place an order via your custodian or via a third-party administrator. They, in turn, will handle the transaction, including record-keeping, arranging for storage with a depository firm, sending you a monthly statement, and an annual 1099-R.
They also file IRS Form 5498. Additionally, your custodian will pay all depository, insurance, commissions and other fees that occur within your self-directed IRA.
To act as gold custodians for IRA assets, these companies – typically banks, financial institutions, trusts or similar entities - must get special approval from the Internal Revenue Service.
By law, every IRA must have an assigned custodian or trustee to handle all transactions, do the record keeping, and ensure compliance with the law and IRS regulations.
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Conventional vs. Self-Directed IRAs
If you’re new to self-directed IRA investing, let’s take a step back. It’s important to understand the difference between ordinary, run-of-the-mill conventional IRA accounts typically offered by investment firms, and self-directed IRAs.
Ordinary IRAs typically only handle paper securities, such as stocks, bonds and mutual funds. They’ll also hold cash on your behalf. But the Wall Street investment companies that handle these types of accounts are not set up to handle physical investments such as gold, silver, real estate or other tangible assets. These assets can be difficult or expensive to hold, and require specialized skill sets when it comes to record keeping, storage and administration.
To hold these physical assets, you need to open a self-directed IRA. These are simply IRAs that allow you to hold non-traditional, physical assets like real estate, gold and precious metals.
The law allows you to hold anything of value you like within an IRA, with just a few exceptions:
- Jewelry and gems
- Life insurance
- Precious metals other than bullion – coins, rounds and bars of adequate and consistent purity.
- Alcoholic beverages
A gold IRA is simply a self-directed IRA used to own gold.
However, just as you can’t live in a house you own in a real estate IRA, you also can’t take physical possession of gold you own within a gold IRA. Instead, you must appoint a custodian to hold the gold on your behalf.
Typically, your custodian will contract with a depository, such as a vault service, which will actually hold the gold in your IRA.
As long as you don’t take possession of the gold, you can keep it within your IRA. You can also sell the gold to buy other assets within the IRA. For example, you can direct your custodian to sell the gold at market prices and send the proceeds to your IRA administrator, who will then deposit the funds in a bank or money market account held not in your name, but in the name of you IRA.
Your administrator or custodian can then write a check on your behalf to buy stocks, bonds, real estate, or anything else you like within your IRA, as long as it’s not a prohibited transaction.
If you do take physical possession – for example, if you direct your custodian to ship you the physical gold, the IRS will treat it like a distribution. You’ll owe income taxes and possible early withdrawal penalties on the amount you withdraw. It will also be subject to capital gains taxes when you sell from that point on. Once the asset leaves the IRA, you no longer qualify for any tax-advantaged growth.
Gold IRA Custodian: Fee Structure
Fees vary with the custodian. Typically, you may encounter the following fees:
- A one-time account set-up fee
- An AUM-type fee, based on a percentage of the assets held in your account
- Transaction fees
- Copying fees
- Annual or monthly statement fees
Additionally, your storage or vault company will also charge a fee, which includes security and insurance on your precious metals.
Insurance will protect you against loss or theft at the vault company. However, it will not protect you against market losses. If the market price of your gold declines, you will lose money on your investment.
Gold IRA Custodians vs. Trustees
There is a lot of overlap between an IRA custodian and a trustee. And many people use the terms interchangeably. Both have to be specifically approved by the Internal Revenue Service. Both hold your IRA assets on your behalf. Both record all your transactions, and send information returns (1099s) to you and to the IRS each year.
But there is an important distinction between IRA custodians and trustees. A custodian does not have investment authority; a trustee can.
An IRA trustee not only holds the IRA assets you assign to it. Trustees can also make buy and sell decisions and execute them, within the terms of the trust.
Trustees are held to a fiduciary standard. That means they must make decisions in the client’s best interest, in the utmost good faith, with no self-dealing. The fiduciary standard is the highest standard of good faith and fair dealing in the financial industry.
Gold IRA custodians are generally not considered to be fiduciaries, because they don’t offer investment advice, and they don’t make investment decisions on your behalf. They simply execute the transactions you direct.
You, not your precious metals IRA custodian, are responsible for all due diligence, and for all gains or losses that occur within your account. Beware of custodians vying for your business who overstate their role and the services they provide. According to the Securities and Exchange Commission, most custodial agreements between a self-directed IRA custodian and an investor explicitly state that the self-directed IRA custodian has no responsibility for investment performance.
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With a checkbook IRA, you establish a self-directed IRA and create an LLC, owned by your IRA. In turn, your LLC opens a bank checking account. However, in the managing documents of the LLC, you can name yourself the manager. You can then write checks on the LLC’s account yourself, bypassing the trustee or custodian.
However, you must still observe all the laws regarding prohibited transactions and asset classes, defined in Section 408 of the Internal Revenue Code.
There are a lot of technical requirements in the statute, and it’s very easy for people who don’t have much training in the laws specific to IRAs to make a mistake that can have severe financial and tax consequences.
Ordinarily, a trustee or IRA custodian may be able to help you avoid making a prohibited transaction, or incurring needless taxes and penalties.
If you are writing checks yourself to make purchases or sales using a checkbook IRA, you lose the benefit of this safety mechanism.
For this reason, most experts advise that investors use extreme caution when writing checks using a checkbook IRA.
You cannot take a personal loan against your assets in gold IRA or in any other kind of IRA. If you do, the IRS will determine that you have taken a distribution, and you will be liable for income taxes and penalties. The IRS may disallow the entire IRA, forcing you to take the entire IRA as a distribution immediately. This would potentially result in severe tax consequences.
You can borrow against your gold holdings that you own in your own name. Many companies are set up to lend cash secured by your gold and precious metal holdings. But you cannot personally borrow against assets in your IRA.
You may be able to borrow against your gold to buy other assets within your IRA, however. You just cannot take the loan directly.
Best Precious Metals IRA Custodians
Most investors start their journey by choosing a trusted Gold IRA company to facilitate setting up the precious metals IRA. Your gold dealer will likely recommend that you work with one of the precious metals IRA custodians listed below.
Most gold firms are flexible and will assist you in opening a gold IRA with any custodian of your choice. However, if you're not committed to a specific gold IRA custodian, you should consider going with their suggested firm.
The reason? Your gold dealer has likely built long-term relationships with these custodians. Because gold companies send these custodians consistent business, they're sometimes able to negotiate better deals than what you would be able to negotiate on your own.
Note: Some gold IRA companies will waive setup fees and even custodial administrative fees for up to three years if your account meets their minimum. If rolling over $50,000 or more into a gold IRA, ask your trusted dealer about all current discounts or promotions.
Below are some of the more well-known precious metals IRA custodians, their fees, and current rating with the Better Business Bureau.
The Entrust Group
In business for nearly forty years, the Entrust Group specializes in precious metals and other alternative investments not typically available through traditional retirement plans.
Fees & Ratings:
The company charges clients $50 to establish a self-directed IRA, and annual fees of $150 to administer the precious metals IRA account. For all information regarding fees, visit their website here.
The company currently holds an A+ rating on the Better Business Bureau with five complaints filed against them in the last three years.
Equity Trust Company
Equity Trust Company has been in business since 1974. As an IRS-approved custodian, the company can handle all of your administrative and custodial duties required for your precious metals IRA.
Equity Trust Fees & Ratings:
The company charges a flat rate of $50 to open a new gold IRA, and charges annual IRA maintenance fees of $80. More information about Equity Trust's fees can be found here.
At the time of this writing, Equity Trust Company has an A+ with the Better Business Bureau, with 34 complaints closed in the last three years.
GoldStar Trust Company
Established in 1989, GoldStar Trust Company serves as a custodian for more than 37,500 self-directed IRAs. The Trust branch of Happy State Bank, GoldStar assists investors across the U.S. diversify portfolios with alternative assets.
Gold IRA Fees & Ratings:
GoldStar also has a $50 setup fee for new gold IRA accounts. The company works with the Delaware Depository, handling fees for both maintenance and storage of your precious metals. Their fees are scaled - meaning total costs vary depending on your total investments. Scaled maintenance fees alone can run up to $275 annually. See their fee schedule here for full breakdown.
The company currently holds a A+ rating with the Better Business Bureau with three complaints closed in the last three years.
Kingdom Trust Company
In business over eleven years, Kingdom Trust Company is an independent custodian with over $12 billion in assets under custody. The company currently serves over 100,000 clients across the United States.
Fees and Ratings:
Kingdom Trust has a $25 online fee to setup a new account. While this is lower than some of their competitors, Kingdom Trust's annual fees start at $225 and are scaled depending on the size of your total investment. Note: this annual fee also includes storage of your metals. See Kingdom Trust's fee schedule here.
Kingdom Trust currently has an A+ with the Better Business Bureau. The company has had five closed complaints over the last three years.
Madison Trust Company
Madison Trust Company is a highly rated gold IRA custodian serving clients across the United States. With over $1.5 billion under custody, the company helps clients diversify retirement funds into precious metals, real estate, and other alternative investments.
Fees and Ratings:
Madison Trust charges the standard $50 for opening new self-directed IRA accounts. They charge a flat rate of $300 annually for custodial fees and have partnered with the Delaware Depository for storage. Storage fees start at $100 annually for accounts up to $100,000. Beyond that, storage fees are billed at $1 per $1,000 of asset value. See their fee schedule for details.
Madison Trust Company currently holds an A+ rating with the Better Business Bureau with zero complaints closed in the last three years.
Midland Trust Company
Midland Trust Company has been helping families diversify with physical gold and silver since 1994. Today, the company has more than 26,000 clients and over $2 billion in client assets.
Fees & Ratings
With Midland Trust, clients have the option of either going with a fee-based or value-based schedule. See information posted on their website here. Your fees are determined by your specific situation. Custodial and gold IRA storage fees with Midland are typically total between $195-$295/year.
Midland Trust currently has an A+ rating with the Better Business Bureau, with one complaint closed in the last three years.
Millennium Trust Company
Established in 2000, Millennium Trust is a privately-owned trust company with over 1.2 million client accounts and $26.6 billion in assets under custody.
Gold IRA Fees and Ratings:
Millennium Trust charges a one-time $50 fee to open a new self-directed IRA, along with a base annual fee of $100 to maintain the account. See their account fee schedule here for more information.
While the company maintains an A+ rating with the Better Business Bureau, they've had 39 complaints closed in the last three years.
New Direction Trust Company
New Direction Trust Company has been helping Americans invest in precious metals, real estate, and other alternative assets for over fifteen years.
Fees and Ratings
The gold IRA custodian charges a low fee ($30-$75) to setup a new self-directed IRA, and between $95-150/year in annual administrative fees. You can find their fee schedule on their website here.
The company has an A+ rating with the Better Business Bureau with three complaints closed in the last three years.
Provident Trust Group
Provident Trust Group has been helping clients invest in alternative assets since 2008. The company currently boasts 34,000+ clients and more than $6 billion in assets under custody.
Fees and Ratings
Provident Trust Group charges a low one-time $50 for setting up a new self-directed IRA and has a $395 annual custodial fee. More details on their fee schedule can be found on their website here.
The company has an A rating with the Better Business Bureau with thirteen complaints lodged against the gold IRA custodian in the last three years.
Strata Trust Company
Strata Trust Company (formerly known as Self-Directed IRA Services, Inc) was established in 2008. The company specializes in empowering investors to reach their investment goals with both alternative assets and traditional investments.
Fees and Ratings
As a gold IRA custodian, Strata Trust charges a one-time $50 fee to establish your IRA. Their annual administrative fees are a low $95. They also offer gold depository storage through their partnerships with Brinks Global Storage or the Delaware Depository for $100-$150/year. This range in pricing depends on whether you choose segregated ($150) or commingled ($100) vault storage. Their fee schedule can be found online here.
Strata Trust boasts an A+ rating with the Better Business Bureau. The company has had five complaints filed against them in the last three years.
Since 2004, Vantage IRA has been assisting Americans with investing in alternative assets. The gold IRA custodian takes pride in educating clients on physical precious metals and other investment options not typically available through the stock market.
Fees and Ratings
Vantage IRA also has the standard $50 fee for opening a new self-directed IRA. Their annual fees for administering your gold IRA is $350. For more information and frequently asked questions regarding their fee schedule, click here.
Vantage IRA has an A+ rating with the Better Business Bureau with zero complaints filed in the last three years.