Investment activity in precious metals is booming. A prudent strategy is to make significant investments that can preserve value by hedging against inflation and other market shifts.
If you're interested in investing in gold and other precious metals, then you may have seen advertisements for self-directed IRAs that allow you to store your metals at home. However, before dealing with these dealers, you should proceed cautiously and be aware that some of these accounts may violate IRS rules or even be illegal.
Example of a Deceptive Ad
The following gold IRA ad contains deceptive images that are meant to make the viewer believe that they can store hundreds of gold bars in their home. The ad features dozens of gold bars in a personal safe, suggesting that users also get a free safe with their purchases. Unfortunately, this misrepresentation may encourage illegal activity. The IRS requires that IRA-purchased precious metals be held only in IRS-approved financial institutions.
What is the IRS opinion on home storage Gold IRA?
While it is possible to purchase physical gold and store it at home, the IRS does not allow this for IRA-purchased gold or precious metals. Under section 408(m), investors can purchase only specific types of gold with a self-directed IRA. These items must also be physically possessed by an IRS-approved custodian or trustee.
The IRS has addressed this subject on its FAQ page, stating that
The Industry Council for Tangible Assets published a white paper in 2018 titled “The Prohibition on Home Storage of Bullion Held in an IRA” which clearly states that IRA custodians do not allow gold to be stored at home.
Before we continue...
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What penalties or taxes apply when a home storage Gold IRA is incorrectly opened?
Investors who fail to comply with IRS rules may have to pay a hefty fine. Here's how Jeffrey M. Christian, a precious metals expert, explains the consequences in the ICTA white paper:
Investors who break the rules and hold their gold IRAs home may be subject to hefty penalties. A prohibited transaction occurs when you take actions that are inconsistent with your obligation as a trustee of a tax-exempt retirement plan. This can result in income tax and penalty assessments against participants, which is exactly what happens if you hold your gold IRA at home.
In addition, your entire investment will have tax implications, and you'll have to pay income tax on the distribution. Either way, you'll have to spare a substantial amount in the form of fees, taxes or penalties. Failure to follow certain activities in an IRA could trigger an audit by the IRS, which may uncover additional fines and penalties.
Why is there confusion about the home storage IRA?
The ads for home-storage IRAs are confusing because they do not accurately reflect IRS restrictions on these accounts. Although an LLC can be used to invest IRA funds in gold yourself, the gold must be stored at a bank or in an IRS-approved facility. Therefore, you must work with a regulated professional to set up your IRA and make investments.
You should understand the tax implications if you decide to keep the gold at home. Hiding the gold under the mattress or keeping it in a house vault until you turn 59.5 years old would be considered a distribution. This would count as an early withdrawal, and you'll face a 10% penalty on the amount of gold you possess.
How does a Gold IRA work?
- Traditional or
Then, open an account with a trustee and contribute throughout the year. You may also be able to roll over previous IRAs into your new account if you have them.
Once the money is deposited into the account, it can be invested in gold or other precious metals. The trustee will then purchase the assets on behalf of the beneficiary based on their instructions. The newly purchased bullion bars are stored in an approved depository. Anyone at least 50 years of age can contribute up to $7,000 annually.
Once your investments reach maturity, they're paid out to you as income tax-free distributions under certain circumstances. There are no federal income taxes on long-term capital gains from sales within an IRA account.
Where can I open a Gold IRA account immediately?
Gold IRAs are an excellent investment if you want to add a financial security blanket. However, be aware that deceptive schemes have duped even expert investors and industry insiders, so it's essential to do your research. Check out several companies and compare their features, look at customer reviews, and ensure the company offers good customer service and a solid track record before moving forward.