Gold has been touted as a safe-haven asset, a hedge against everything that afflicts the stock market. Some clients may find gold in their IRA an attractive alternative to the volatility of traditional equity investments. The topic often comes up during periods of stock market volatility and can have some pitfalls. (For more information, see: The Midas Touch for Gold Investors.)
Gold in an IRA
Holding physical gold in an IRA is not as simple as buying a mutual fund or Exchange Traded Fund (ETF) through a standard custodian like Charles Schwab Corp. or Fidelity Investments. One type of gold investment that can be easily managed in an IRA is ETFs and mutual funds that invest in gold-related companies. Some examples are Fidelity Select Gold Portfolio (FGDAX) and SPDR Gold Trust (GLD). The latter has historically tracked the price of gold quite well as the underlying holding company is the real metal. (For more, see: Top 5 Precious Metal Funds.)
It is not that easy for investors who want to hold amounts of the physical metal. First of all, standard janitors like Schwab and Fidelity aren’t equipped to handle this as part of an IRA. You will need to find a custodian who handles self-directed IRAs where account holders can invest in non-standard assets, such as gold, a company, direct real estate investments, and other non-traditional gold ira companies reviews
Rules for holding gold in your IRA account
There are three items that the tax code prohibits you from holding onto your IRA:
Stock in an S-Corp.
Some types of gold coins can be classified as collectibles, so IRA investors need to understand this to ensure that they do not violate any prohibited transaction rules. The consequences of doing so may include penalties, additional taxes, and disqualification of the assets in question.
The IRA must buy the gold. The account holder cannot withdraw funds from the IRA, buy the gold, and then deposit it back into the IRA. Basically, the IRA account must buy the gold directly and the gold must be hosted in the account. As the account holder you cannot physically handle the gold.
If you are looking to store gold in your home or take physical possession of the metal, a gold IRA is not the right investment vehicle for you. (For more, see: Top 5 Private Equity Mutual Funds for 2016.)
The primary custodians will not receive the gold or take the necessary steps to facilitate the purchase and transfer of gold or other precious metals. This leaves a handful of custodians offering self-directed IRAs.
Self-directed IRAs are accounts in which account holders can invest in assets such as real estate, businesses, badlands, or precious metals. As mentioned above, those who want to open a self-directed IRA need to find a custodian to offer them and the number is limited.
These accounts have grown in popularity, but the Securities and Exchange Commission estimates that even with this growth, self-directed IRAs comprise only about 2% of all IRAs. The Oak Brook, Illinois-based Millennium Trust has seen its assets in these accounts grow from $ 733 million in 2005 to more than $ 6 billion today. San Francisco-based Pensco Trust has seen similar asset growth. (For more information, see: Analysis: You Must Get a Gold IRA.)
Fiduciary banks and specialized custodians operating in this field tend to focus on ensuring that all documents are completed properly and in order, and provide annual valuations for underlying assets that often do not have a public secondary market. When selecting a custodian for your account, you need to conduct thorough due diligence and compare their fees.
Beyond a self-directed IRA custodian, a gold IRA has a number of “moving parts.” “The IRA concierge must be able to specifically facilitate the purchase, storage and ownership of the gold. Beyond this, a precious metals dealer is needed to make the purchase. A storage facility must also be found to house the gold. Of course, all of these players will expect to be paid. The IRA custodian will charge for the initial setup and there will be ongoing fees to produce statements and to provide a valuation of the metal. Transactions will be made to buy and sell any or all of the bullion. and there will be costs to store and secure the metal.