Investors who like gold as a hedge against inflation or stock market volatility sometimes turn to self-directed individual retirement accounts, where they can hold bullion, coins or other physical forms of the yellow metal.
You may have heard of a home storage gold IRA or seen the concept advertised. The idea is that investors can open a self-directed IRA and keep the gold at home, rather than store it elsewhere.
While that may sound like a strategy that saves money and gives investors more control over their assets’ location, it’s not allowed, according to Internal Revenue Service rules.
Does the IRS Allow Home Storage Gold IRAs?
According to the Securities and Exchange Commission, all IRA accounts must be held by custodians, which can include banks, trust companies or any other entity approved by the IRS. That means home storage of gold in a self-directed IRA is off-limits.
“The rules state that any precious metals owned by an IRA must be stored in a precious metals depository under the name of the IRA custodian for the benefit of the IRA,” said Jaime Raskulinecz, founder and CEO at Next Generation Trust Company in Roseland, New Jersey, in an email. “This alone would preclude anyone from having an IRA at home.”
[Read: How to Open a Roth IRA.]
Use Caution When Considering a Home-Storage Gold IRA
“The IRS has made the rules very clear and shown through court cases that they are willing to litigate investors who run afoul of these rules,” said Stephen Kates, a certified financial planner and principal financial analyst for Annuity.org, in an email.
In 2021, a tax court ruled that a Rhode Island couple owed more than $300,000 in taxes and penalties after storing about $411,000 in silver and gold coins at their home.
“The IRS rules dictate that self-storage gold does not qualify as an individual retirement account and will not qualify for the tax-deferred benefits that are typically part of an IRA,” said Kates. “Any physical gold or precious metals must be held by an IRS-approved custodian in order to meet the storage regulations. Additionally, most homes are not typically secure places to house precious metals and create additional risk of loss from fire, theft or damage.”
[READ: Deciding Between a Roth vs. Traditional IRA.]
Legal Alternatives to Home-Storage Gold IRA
Home storage gold IRAs are sometimes pitched to investors as a safe way to invest in gold in a qualified retirement account, but that practice is deceptive.
Here are some ways investors can legally invest in physical gold.
Self-Directed IRA
A self-directed IRA allows investors to own a wider range of investments beyond traditional stocks, bonds, mutual funds and exchange-traded funds. Investments allowed in a self-directed IRA include physical gold and silver, real estate and private equity, among others. A self-directed IRA’s assets are held by an IRS-approved custodian, not in the account owner’s basement.
Own Gold Outside an IRA, but Store It Somewhere Other Than Your Home
Investors don’t need to hold gold or precious metals in a qualified account. Those who choose to own gold outside of an IRA can store it in a secure location.
An alternative to self-storage is buying gold with a financial institution that allows for unallocated gold purchases, said Jason Stelmaszyk, managing director and senior wealth advisor at GenTrust in New York, in an email. This means purchasing a percentage of bars in the company’s vault, and the owner is part of an investor pool.
Stelmaszyk said investors can also purchase allocated gold, which entails buying individual bars that belong to the account owner, but are stored in the financial institution’s vault.
Store Gold at Home, Outside of an IRA
Investors who genuinely want to store their gold at home can’t do that within the structure of a self-directed IRA. “One of the main risks any person should consider when buying and holding their own physical gold is the responsibility of securing the physical metal itself,” said Stelmaszyk. It falls to the owner to protect their investment, he added.
There are diversification benefits to owning gold or precious metals as part of a portfolio, but investors don’t have to own physical gold; they can also own gold stocks, ETFs or mutual funds.
“Gold can be a strong store of value during recessions or inflationary periods,” Kates said. “Additionally, gold, precious metals and commodities often have little correlation with equity and bond markets.”
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What Is a Home Storage Gold IRA? originally appeared on usnews.com
