How to Put Gold in Your IRA
By Zacks Investment Research
Editors Note: Gold recently traded above $1,000
for the first time in over a year.
To help you take advantage of the rising price,
we asked Casey Research for insight on how
individual investors could invest in the
precious metal. They responded with this great
article that explains how can put gold into your
Casey Research has expertise in precious metals
and publishes the popular Big Gold newsletter.
--Charles Rotblut, CFA, Senior Market Analyst,
As you undoubtedly know, last year's market
meltdown meant that 401(k)s and IRAs ceased to
be a safe haven for Americans' nest eggs. In
2008, employees lost on average 14% of their
retirement money. Those who had $200,000 or more
fared even worse - they lost more than a quarter
of their savings. No wonder more and more people
are asking whether they can, or should, use an
Individual Retirement Account (IRA) to hold
physical gold. Our answer to the first part of
the question is yes, indeed you can. The tax
rules governing IRAs leave room for gold. But
our answer to the second part is equivocal.
In 1986, as the U.S. Mint began issuing gold
coins for the first time since 1933, a tax rule
against holding 'collectibles' in an IRA was
relaxed to allow gold and silver Eagles. Later,
in 1997, the Tax Payer Relief Act opened the IRA
door for a broad spectrum of precious metals
(gold, silver, platinum, and palladium), whether
in the form of bullion or coin. The easier rules
now apply to all types of IRAs, including
traditional, Roth, Simplified Employee Pension
(SEP) and Simplified Incentive Match Plans for
The only stipulation is that all bars and all
coins other than Eagles must be .995 fine. Thus
Canadian Maple Leafs and Austrian Philharmonics
qualify, but the South African Krugerrand,
minted with an alloy, does not. Numismatic coins
are also impermissible for an IRA.
The procedure for putting gold into an IRA is
somewhat more complicated than with paper
assets, but the requirements aren't onerous.
To begin with, you have to find an IRA custodian
that handles investments in metals, and they are
few. Don't look to your discount broker or a
fund family like Vanguard; they won't touch the
stuff. Instead, you'll need a specialist like
the two original gold IRA custodial companies,
American Church Trust (acquired by GoldStar
Trust in 2007) and Sterling Trust. These are the
most respected names in the business. An
Internet search will turn up others, and if you
do your due diligence on them, you might find
one that works for you.
But remember that it's especially important to
choose a custodian with a solid reputation,
because your gold will be stored at a location
twice removed from you. A firm such as GoldStar
or Sterling would be merely your IRA's legal
custodian; for vaulting your IRA gold, it will
employ a certified depository, likely either
HSBC Bank USA (which is also a COMEX gold
depository) or Delaware Depository Services.
So chances are you'll have to open a separate
IRA for physical gold, which will be a matter of
doing a little paperwork and paying some fees.
Then you put money into your account and tell
the custodian what to buy. (Dropping in coins
you already own is against the rules - a
'prohibited transaction'.) And if you want to
mix in some paper - for example, to consolidate
your gold, ETF, and mining stock holdings into
one account - that's fine, too.
The custodian will charge either a fixed annual
fee or a percentage of the IRA's value, with a
ceiling. And the depository will charge its own
fee for safekeeping. There also may be a
transaction fee each time you add to your IRA.
In all, you can expect the basic cost to run
between $160 and $340 per year, depending on the
fee structure of the custodian you choose.
You can make the same tax-deductible
contribution each year to a gold IRA as with any
other IRA. The current limit is $5,000, or a
'catch-up' limit of $6,000 for those 50 and
over. Custodians generally set their minimum
initial investment at that $5,000 mark but will
accept smaller subsequent contributions.
When the time comes to withdraw from your gold
IRA, you don't get any coins or bars, alas. You
get cash. The custodian sells the gold and
distributes the proceeds, with the money then
taxed at your ordinary income rate, just as with
any other asset held in an IRA.
Who Should Consider It
That takes care of the how-to. The trickier part
is whether it's a good idea.
There are some situations when an IRA may be the
right place to hold part or all of your
investment in physical gold....
No-income portfolio. If you've decided that the
outlook for bonds and dividend-paying stocks is
so bleak that you don't want any at all, then
putting gold into your IRA won't crowd out any
Strategic switching. Perhaps you plan at some
point, when you judge that the gold bull market
probably has run its course, to liquidate part
of your gold. Whatever gold you have in an IRA
then could be sold and reinvested, with no loss
to current tax, in something else.
IRA Only. If your IRA is the only investment
vehicle you have, and you want gold, then using
funds within the IRA to buy gold may be the only
way for you to hold it.
For many other readers, holding in gold in an
IRA is not be a good idea. Here's why.
The idea behind a traditional IRA is twofold.
First, reduce present taxes by taking a
deduction upfront for your yearly contribution
of $5K or $6K. Second, defer taxes on the
investment income and gains that build up inside
the IRA until after retirement.
Physical gold, of course, doesn't generate
income. So you might be wasting part of your
IRA's tax-saving power by filling it with gold
instead of investments that earn interest,
dividends, or trading profits.
Transfers and Rollovers
In researching this topic, we chatted with Glen
Kirsch of Asset Strategies International, who
has been dealing with gold and gold-related
investments for more than thirty years. We asked
Glen what would be the benefit of a gold IRA.
His experience accords with our analysis of when
putting gold in an IRA makes sense.
He said he rarely if ever sees people open a
gold IRA just to deposit that five grand a year.
What he does see is individuals making the
flight to quality with their accumulated
retirement assets. Say, someone with most of his
wealth in a pension fund limited by a menu of
poor investments is searching for a way out. If
the individual is generally suspicious of paper
investments, a gold IRA will look attractive.
Making the move is simple if the pension fund is
already an IRA. You're free to transfer funds
from an IRA that's invested in stocks or
anything else directly into a gold IRA.
Or if the pension fund is run by your employer,
when you leave (quit, retire, or get fired), you
can roll your interest in the pension fund over
into an IRA, without tax consequences, and use
the money to buy gold.
Of course, holding physical gold - in your
possession and under your control - is Rule #1
in this crisis. Buying and holding it will
protect your assets, whether it's in your IRA or
stored somewhere else safe.