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In the realm of retirement investing, gold IRAs have long been revered for their ability to diversify portfolios and provide a hedge against economic uncertainties.
While traditional gold IRAs often involve storing precious metals in secure depositories, a growing alternative gaining popularity is the concept of home storage gold IRAs. As the name suggests, these retirement accounts seemingly allow individuals to hold physical gold within the comfort and security of their own homes.
In this article, we will explore the ins and outs of home storage gold IRAs, discussing the dangers, considerations, and steps involved in setting up and maintaining such accounts.
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What Investors Need to Know
Precious metals present an option to diversify investment portfolios and avoid the impact of inflation and the ever-changing value of the US dollar. And these opportunities offer a lucrative way to save for retirement.
The IRS has strict guidelines and regulations for gold IRAs, and anyone who wants home storage must meet even more stringent requirements. Reviewing this guide helps investors determine if they qualify and what they can expect over the lifespan of their gold IRAs.
Setting Up an LLC
A limited liability company presents many benefits for the owners, including pass-through taxation. Tax implications for the business income aren't the direct responsibility of the business owner.
Business owners don't face any liabilities related to the company, they get flexible membership, and the owners can either manage the company on their own or choose a management group to oversee operations.
The IRS requires any account holder that wants a home storage IRA to establish an LLC before attempting to open the IRA. To start, investors must choose a state, select a name for the company, and hire a registered agent.
Next, they must create an operating agreement defining how the business operates and all expectations for the organization. Finally, they file the LLC in their preferred state and pay all related fees and costs.
Setting Up an Ongoing Retainer with An Attorney
Next, the LLC owner must choose an attorney to represent them under circumstances where they could face legal action from the IRS for noncompliance or unexpected audits.
It is recommended that the business owner sets up an ongoing retainer with their attorney to manage unforeseen situations related to home storage IRA and the IRS's desire to ensure that the LLC complies with all tax codes and federal regulations.
A tax attorney can help the LLC owner present the appropriate documentation for the gold IRA according to the IRS's requirements and avoid significant losses.
The sporadic inspections and compliance checks aim to determine that the account holder isn't using gold or precious metals and isn't getting distributions without paying adequate taxes on the funds.
If they choose to store their precious metals in an IRS-approved depository, the IRS knows the owner doesn't have direct access to them.
A Public and Physical Business Location
Next, the LLC must have a public and physical business location to serve customers. The IRS requires a publicly accessible building where their agents can visit the company during business hours without notice. The commercial property must adhere to security guidelines and lower the theft risk and criminal activity. The owner must also adhere to all federal and state safety regulations.
Reputable Financial Background
To qualify for a gold IRA as an LLC, the owner(s) must provide evidence of a reputable financial background. Their financial background defines if the business owner is competent to manage the gold IRA and won't attempt to liquidate the account due to mismanagement of business funds.
The IRS must review several years of tax returns that show financial responsibility and bank statements that do not have any history of overdrafts with a steady deposit history. The IRS will not approve an LLC for home storage IRAs if there is a history of mismanagement of business profits or if the business faces any financial difficulties.
Proof of Your Net Worth
The LLC owner must provide evidence of their net worth and meet specific criteria. They must have a current net worth of no less than $250,000.
Bank statements that show an active business bank account with at least this balance can provide sufficient evidence for their net worth; however, the business owner must show the IRS all current business expenses that could lower this value and deem the business owner ineligible for the gold IRA.
Managing Trustees for the IRA Account
The LLC owner must set up a trust for their business, and the trust will choose a trustee to oversee the trust and all assets within it.
When setting up the trust, the business owner must complete documentation for a successor or other beneficiaries who will take over the trust when the original owner dies. The IRS requires a trustee for the gold IRA account, and more oversight is needed to prevent penalties and noncompliance issues later.
Fidelity Bonds for IRAs
The IRS requires all business owners who want home storage IRAs to get a fidelity bond of no less than $250,000 for each business owner and employee who works for the LLC.
The purpose of the fidelity bank is to provide coverage and protection for IRA-related precious metals under the circumstances of fraudulent activities, larceny, theft, misappropriations of funds, or other wrongful acts resulting in the loss of the precious metals.
Detailed Annual Audits from a Certified Public Accountant
One of the conditions of having a home storage gold IRA is detailed annual audits conducted by a certified public accountant. The LLC owner must set up the audits to comply with the IRS tax codes and regulations. The CPA submits audits to the IRS to show that the owner hasn't liquidated or accessed the precious metals for any purpose.
The company's financial standing could introduce issues if they are operating at a loss with IRA-related precious metals onsite. If the IRS deems the organization ineligible for home storage options, the company must send its precious metals to an IRS-approved depository.
During these detailed annual audits, the CPA must physically see and count all precious metals related to the gold IRA. Without IRS approval, the absence of any precious metals indicates that the LLC owner or others have received a distribution from the IRA or misappropriated the metals and funds generated from their sale. Under the circumstances, the LLC faces an immediate penalty of 35% of the total IRA investment.
Must Hire a Custodian to Manage the IRA
After meeting all IRS prerequisites for opening a home storage IRA, the LLC owner must hire a custodian to create all documents for the IRA.
While the owner could take on the task themselves, they have more of a guarantee of IRS compliance through an IRS-approved custodian since these custodians are familiar with the tax code and IRS regulations.
They must pay fees and expenses for the custodian services, including preparing all paperwork to start the account and managing the IRA.
Custodians also liaise between the LLC and the gold company where they buy the precious metals. These services could present fewer difficulties for the account holder since they want to maintain their home storage status and avoid facing excessive penalties or financial losses.
Securing Your Precious Metals
Misunderstanding what home storage entails has led to many misconceptions for investors. They may see ads for gold companies that state that the LLC or the account holder can buy a safe and store the precious metals at their home or physical business location.
The IRS has strict restrictions for what they deem as home storage. Home storage indicates that the precious metals aren't stored in a depository or possibly in a different state, and the owner can access the precious metals directly.
Under the IRS regulations, the LLC owner would need a security deposit box, preferably at the bank where they set up their business checking or savings accounts. Before the LLC or account holder purchases precious metals for their gold IRA, they must get IRS approval for home storage.
The custodian or tax attorney can discuss these opportunities with an IRS agent to get approval before starting the gold transaction.
What Is Involved in Alternative IRA Creation and Management?
Investors who set up a self-directed gold IRA by hiring a custodian can use existing IRA funds from a separate account to open the gold IRA. Instead of paying upfront fees, coming up with different capital, and meeting additional IRS requirements, they can allow their custodian to quickly contact their IRA provider and transfer the funds into the new gold IRA account.
Once the funds are available in the new gold IRA, the custodian contacts the gold company and coordinates the purchase of the precious metals. Once the gold company receives the payment, they send the precious metals to a depository. The precious metals remain in the depository until the account holder becomes 65, and they can start distributions.
The custodian sets up the distributions based on the tax implications and what the account holder can afford. The process is simple as compared to setting up home storage IRAs.
With home storage IRAs, the account holder faces a never-ending process of proving to the IRS that they haven't used or liquidated the IRA account, and they must retain an attorney throughout the lifespan of the IRA just in case the IRS wants to penalize them or make accusations against the account holder.
In comparison, a self-directed IRA stored in a depository helps the account holder secure their wealth for their heirs if they don't use the funds before they die. While yes, they set up a trust for the LLC, it is not the same as setting up a trust through estate planning as an individual.
The successor of the home storage IRA must deal with a trustee that could impose limitations on how the IRA funds are used within the trust. With a trust set up for an individual instead of a business, the owner can use the trust to separate personal assets from their estate and give them to a specific heir, and the heir avoids inheritance taxes.
With a trust associated with an LLC, things could get tricky, considering it's a business and not an individual account, and there could be far more tax implications based on business-related income, expenses, and employee-related responsibilities. Business debt is another consideration that could lead to complications for the beneficiaries and how they access IRA funds through home storage accounts.
A self-directed gold IRA that doesn't involve home storage is also rolled into an inherited IRA for a specific heir who can get distributions from the IRA after the original owner dies. A custodian manages the rollover for the heir instead of a trustee.
If the heir doesn't get contributions from the inherited IRA within five years, the custodian liquidates the account, but the heir does receive the funds. If the trust is for an LLC, there could be more red tape for the heir to go through to get access, and they wouldn't get complete control over the IRA or the trust.
What Are the Drawbacks of Home Storage IRAs?
First, not all home storage IRAs are managed through a custodian, although they should be.
Only a few laws offer protection for account holders who go down this route, and the IRS could present unforeseen difficulties, such as taking penalties without warning.
Next, the account holder would face complete liability for the precious metals, which means that if they were to store them onsite at a business location and an employee stole them, the account holder faces the legal and possibly criminal liabilities of these actions.
If they move the metals to another location, the IRS could see this as a tactic to avoid tax liabilities while getting unlawful distributions from the IRA. If that happens, the account holder faces more administrative issues that could prove costly.
Unlike other gold IRAs, the account holder is limited to only certain types of precious metals. For instance, if they set up a gold IRA through a custodian and stored the metals in a depository, the account holder could get any of the IRS-approved metals, including American Eagle, American Buffalo, British Britannia, Canadian Maple Leaf, or South African Krugerrand.
But, if they choose home storage IRAs, they can only buy American Eagle. When examining minimum purchase requirements for most gold companies and the current price of American Eagle, the account holder could ultimately pay far more than expected and get a more limited quantity of the precious metals for their gold IRA.
Many investors want various precious metals for their IRAs that aren't limited to one coin or metal type. When they start contributions later, they are limited in how much they can contribute annually, and some investors may need more capital every year to buy American Eagle gold coins as they'd like.
Again, the IRA owner must jump through many hoops to become eligible for the home storage IRA. If they choose to set up a traditional or Roth gold IRA without home storage, they don't have to start an LLC, hire an attorney, or meet any previous prerequisites.
Overall, these requirements present higher investment costs upfront. If the investor wants to avoid opening, operating, or maintaining a separate business, home storage IRAs might present a costly and unnecessary retirement savings method.
Ultimately, the investor must weigh their options and determine if these extra steps and strict oversight are appealing to them or worth all the additional steps.
Precious metals IRAs are a beneficial way to save for retirement and generate considerable wealth. However, home storage IRAs aren't for everyone. There is far more red tape and more profound IRS oversight and the potential to face additional audits or financial losses with just one simple mistake. It's common knowledge that the IRS isn't a fan of home storage IRAs, and investors have faced unnecessary difficulties.
Investors must incur the cost of becoming a business owner if they aren't already, and home storage doesn't mean what many gold companies imply. Overall, it depends on the investor's financial standing, what they can tolerate, and how much they intend to invest in determining if home storage IRAs are worth it.
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