Should You Buy Premium Coins in a Precious Metals IRA?

Recently, some gold and precious metals companies have come under scrutiny for pushing special collectible coins, proofs, limited editions, “semi-numismatics,”  and exclusives to people who own or are interested in gold IRAs.

While these items can be very beautiful and highly desirable as collectibles, that doesn’t mean they’re suitable to hold within an IRA. Those who aren’t highly experienced in the gold and precious metals market should be particularly cautious when it comes to these transactions. Here’s why: 

Anytime a retail consumer buys gold, securities, or even a used car from a professional dealer, they are working at a decided disadvantage: The dealer knows much, much more about the item and the market for it than the customer.

This is what economists call an asymmetrical information environment. The dealer holds all the cards… and frequently chooses the game. This is certainly the case when you’re negotiating the sale of proof or semi-numismatic coins, bars, or rounds, or any other collectible that’s not a commodity.

When you buy bullion, you minimize the asymmetrical information dynamic, and you are on a much more even playing field with the dealer. 

• You can look up the current spot price of gold per ounce just as easily as they can. 
• You can easily calculate their markup over spot price. 
• And you can compare their offer against other dealers in an apples-to-apples comparison. 

Once you get involved in any kind of precious metal other than basic bullion, you add cost, complexity, liquidity issues, and confusion to the equation. All these things benefit the House. That’s not you.

The KISS Principle Applies

There’s no doubt that a market exists for serious hobbyists and professional traders buying and selling collectible and antique coins. But this is a very small segment of the precious metals market, largely dominated by nerds, geeks, aspies, and autists. 

They’ll eat you for lunch. Unless you’re one of these few highly knowledgeable experts in the field, you are almost certainly much better off keeping things simple: Look for bargains, pay as close to spot price as you can for a given weight in metal, don’t get greedy, and don’t get cute.

When it comes to precious metal IRAs, the KISS principle applies: Keep It Simple, Stupid. Stick to ordinary bullion. That is, bars, coins or rounds manufactured to exacting standards specifications, specifically for the purpose of investing. Here’s why:

When you buy pure bullion, you are making a very simple bet: 

1.) Gold will be worth more dollars X years in the future than it is when you buy it. 

2.) The price appreciation will be more than enough to cover any premium price you pay over spot price, and any fees, commissions, spreads, or anything else you pay over and above spot price. 

The soundness of this bet does not depend on any particular or rare expertise in numismatics, rare coins, or commodities. You don’t need a specialized education, training, background or experience to soundly make this bet.

Anyone with ordinary knowledge of economic history can make it, and be on very sound footing: Inflation isn’t constant. But over long periods of time, the dollar and nearly every other fiat currency in history gradually and sometimes not-so-gradually loses value to inflation. This is the long-term play with IRAs. 

Everything else is speculation. 

Related: How to Diversify Your Savings with Physical Gold and Silver (Tax-Free)

Why Owning Gold And Precious Metals Makes Sense

Since 1913 - the founding of the Central Bank that was supposed to help protect the dollar against debasement, the dollar has lost more than 96% of its purchasing power.

Everybody and their grandma knows this. And so it’s probably wise to include some provision in your portfolio to help protect your portfolio against long-term inflation and to hedge against foreign sanctions or even a more serious economic collapse.

That’s the logic of buying bullion at or very close to the current global spot price: The price is simply based on the spot price of the weight of the metal in the gold bar, coin, or round –– plus a reasonable markup for the dealer, which is typically between 4 and 10 percent.

Related: Paul Stone of Colonial Metals Sounds the Alarm on US Economy

The metal composition is standardized: With 24 karat gold or bullion, it’s 100% gold, to at least .999 purity. Some coins take it out to .9999, or “four nines fine.” With 22 karat bullion coins like the Gold American Eagle coin, you get an imperial gold alloy: 91.67% gold, 3% silver, and 5.33% copper. 

Again, minted to a very fine level of tolerance. Bullion coins are priced primarily according to the weight of the metal. And so a 1-ounce 22-karat bullion coin would ordinarily sell for somewhat less than a 1-ounce 24 karat gold coin, such as a Gold American Buffalo coin.

Video credit: Birch Gold Group

If you melted down your coins tomorrow, and just sold the metal by its weight to an informed retail buyer with trusted weights and measures, you could expect to get roughly the same amount for the melted down metals as you could for the coins themselves, though hardly anyone actually buys coins that way.

What Are Numismatics? 

Numismatics are gold coins, bars, or rounds primarily bought and sold as collectibles. Their value is not primarily in their metal content, but in their rarity, beauty, or collector’s value, independent of their spot price for the weight of their metal. They may trade at significant premiums to their spot price.

Or they may not. 

A given numismatic may fall out of favor for all sorts of reasons. If you pay a significant premium for a numismatic item, and the piece falls out of favor, you could lose money - even if the underlying value of the metal increases. 

The good news is, you’re unlikely to get stuck being unable to sell a good numismatic for less than its spot price for the metals. But numismatics may not be minted to the same fineness or tolerances as bullion products from national or NYDEX-certified mints.

They may have less gold, silver, platinum or palladium than you thought - or were led by a seller to believe. Unless you have your own way of checking the claimed bullion content, and have your own independent expertise in the numismatics market, these are not investments for you.

They are speculative purchases.

Numismatics: Not Eligible for IRAs

And numismatics aren’t eligible for self-directed IRAs, anyway. Stay away from any dealer or seller who tries to sell numismatics and collectibles to you for your IRA. You could accidentally expose yourself to significant income tax liability and penalties if you try to purchase them for your IRA. 

What Are Proof Coins? 

Proof coins are special editions of normal bullion coins. They are made starting with specially polished rounds for an extra shiny, mirror-like background finish. During the minting process, they’re struck multiple times, resulting in extra vivid raised design elements.

They may be “frosted” using a laser etching process to create a more powerful contrast. These coins are extremely beautiful, and popular among collectors and hobbyists. For that reason, proof coins in good or mint condition are usually bought and sold at a premium to spot price.

Bullion coins issued as proofs are still bullion: They are very standardized, and manufactured according to the same precious metal composition and fineness as their ordinary bullion counterparts. And because they are bullion and meet the required purity standards, and unlike numismatics, they are perfectly legal to own in IRAs.

They’re lovely to look at. And some of these proof coins can be visually spectacular. Collectors love them. But that doesn’t mean you, as an ordinary retail player, will be able to find a buyer to pay a retail price well above spot when you are ready to sell. 

Any premium you pay over spot price when you buy is likely to come right out of your margin when you sell. 

Related: How to Diversify Your 401(k) with Physical Gold (Tax-Free)

So What’s the Problem with Proofs?

Professional gold dealers have established contacts with people and institutions who pay premium retail prices. Most ordinary individuals don’t. When you are ready to sell your proof coins––or any other non-bullion coin, bar, or round, for that matter––you’ll probably have trouble recovering the premium you paid over spot price.

Most people depend on professional dealers and market-makers to sell gold and precious metals. They won’t pay you retail value for your proofs or collectibles. They will always buy wholesale and sell retail.

That’s how they stay in business. But it certainly takes a chunk out of your returns when you sell. The same is true, to a lesser extent, of other lower-grade forms of premium bullion, such as uncirculated and brilliant uncirculated coins, or coins manufactured or marketed more for their collectors value and rarity than as a standard unit of metal.

So how big a chunk are we talking about? As always, it depends.

But when you buy standard, garden-variety, unglamorous bullion – think of pedestrian, scuffed-up bars that lie in stacks in vaults - you will typically pay a markup of 4 to 10% over spot price. The smaller the weight, the higher the markup, in most cases.

But when you buy premium coins, such as proofs, rather than standard bullion, you could pay anywhere from a 35% to a 300% markup, according to the Commodity Futures Trading Commission.

That’s a tough markup to recover from at sale. 

You Can’t Store IRA Coins at Home

Additionally, the extraordinary beauty of proof and brilliant uncirculated premium coins is wasted in IRAs. But they are wonderful, rewarding collectors items for many serious hobbyists. And they may have a place in your private non-IRA collection that you store in your home safe or mantlepiece.

Furthermore, if you buy proofs, brilliant uncirculated, or uncirculated gold or silver coins at a premium in your IRA, your coins will be sitting in a vault the entire time you own them. When it comes time to sell, it will be nearly impossible for a buyer to examine them for themselves.

And so they probably won’t be willing to pay you the same premium you paid for the coins when you bought them. They’ll no doubt be happy to pay spot price for them, or slightly under. In which case, you would be better off with ordinary bullion. 

Related: Goldco Review - Is the Gold IRA Company Legit?

Don’t Overpay

When you stick strictly to bullion, You don’t pay a premium because they’re pretty. If it’s IRA gold, you’ll never see your coins or bars anyway. Your IRA custodian will store them on a shelf in a cage in a vault you’ll never visit. 

You don’t pay a premium because they’re “rare” or “collectible.”When you pay significantly above spot price for any coin, bar, or round, you are getting away from your “safe bet,” and making a very different one:

You’re betting that you’ll be able to find another sucker down the road who will pay way over spot just like you did. You’ll be able to get the current spot price, sure. Or very close to it, considering reasonable buy/sell spreads from reputable dealers. But if you paid a big markup, it’s much more difficult to recover that markup in the future.

Related: How to Diversify Your Savings with Physical Gold and Silver (Tax-Free)

Any premium you paid over the current spot price was speculation, not investment. Furthermore, the numismatic value of a coin depends not just on its rarity, but also its grading. When you’re buying coins for your IRA, you probably will never see the coin.

Unlike collector coins you buy in person from a coin shop or that you have delivered to you, the gold IRA coin will never be in your hands so you can inspect it personally. You can’t have an independent appraiser assess it in person for you either. Even if you could, the coin you bought may not be the coin actually delivered to the vault service.

And you would probably never know. 

Below: A warning about "Gold IRA Collectibles Scam" from the CFTC:

Yes, Proofs are Beautiful, But…

Proofs and brilliant uncirculated coins are amazing works of art! People enjoy their brilliance and beauty and collectors’ value. But they are generally best held in your personal collection. IRAs are not designed for proofs and semi-numismatics, and much of their value is lost in the IRA context.

It’s much easier to play on a level playing field outside of your IRA, where both you and your eventual buyer can physically inspect the purchase of any proof or premium coin before the transaction, which is impossible to do in the IRA context.

Don’t Fall For Home Storage Schemes

Never attempt to store IRA precious metals at home. There are a few “dealers'' and con artists who are still trying to pitch a scheme where you create an LLC within your IRA, and then have you take personal possession of your gold bullion and store it in your home safe.

The courts have shot this idea down in flames. You can store all the gold you own in your personal name, outside of tax-advantaged accounts, in your home safe, under your mattress, in a piggy bank, or anywhere else you like. But any precious metals held in your IRA must be held by an IRS-approved custodian, and never pass through your hands or come under your personal physical control. 

Protect Yourself

• For gold and precious metal IRAs, stick to bullion, and keep your bet as simple as possible. 
• Avoid complicating factors where you are at a serious information disadvantage. 
• Buy only from established and reputable dealers.
• Be wary of precious metals being sold significantly under spot price. People have been fooled, and sold drilled-out bars, shaved coins, or painted lead fakes. If it sounds too good to be true, it probably is. 
• Know which coins are allowed in IRAs, and which aren’t. Generally, the only 22-karat gold coins that are allowable in IRAs are American-minted coins, as they fall under a special exception.
  
  This is why 22-karat Gold American Eagle coins are acceptable for IRA accounts, but South African Krugerrands, minted from the exact same gold-silver-copper alloy as Gold American Eagles, are not. 
• Don’t buy solely based on shared political or religious affinity. Many IRA-related cons have relied on exploiting shared religious or political affinity to take advantage of unwary buyers. 
• Anyone who tells you that semi-numismatic or numismatic collectibles will only go up in value is a fool or a scammer or maybe both. 
• Check your broker’s license. If anyone makes recommendations about what to buy or sell for your IRA or other investment accounts, they are providing investment advice and must be registered with the SEC (adviserinfo.sec.gov), FINRA (brokercheck.finra.org), or the securities regulator in your state (nasaa.org/contact-your-regulator.  

Learn More: Gold IRA Scams To Avoid in 2024

Final Thoughts

For some people, owning physical gold, silver, platinum, and palladium can make good sense. They can serve as a bulwark against the tendency of the dollar to decline over time, and can act as ballast during times of stock market volatility or economic upheaval.

But you can get that effect from ordinary, basic bullion. You don’t need to pay premium prices for proofs or semi-numismatics to get that benefit. Indeed, if you aren’t a serious precious metals enthusiast yourself, this may be the way to go, since it helps limit your risk to changes in spot price.

If you want to own proofs, brilliant uncirculated, numismatics, or semi-numismatics, consider owning them outside your IRA, where you can appreciate and enjoy their beauty or historical value for years, while preserving your ability to get a fair and worthy price for them at sale. 

Meanwhile, in your IRA, keep it simple, and buy plain-Jane bullion as close to spot price as possible, from established and respected dealers. 

Let the scammers cry.