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What Does IRA Eligible Gold Mean?

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Anyone looking to open a precious metals IRA should begin speaking with a financial advisor to explore their options.

There are many misconceptions about how to properly diversify a self-directed IRA portfolio. 

Although some professionals outside of an advisor may offer advice, the information may be biased to earn a commission.

Consumers should also look into neutral resources before opening an IRA, such as the Commodity Futures Trading Commission (CFTC) website.

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For more than 5,000 years, gold has not lost its value. While paper currency and other legal tenders may drop to astronomical rates, gold rarely hits a bottom. Throughout history the value fluctuations are minimal. This is why some investors choose gold bullions or coins as part of their gold or precious metals IRA portfolio. 

Getting IRA-Eligible Gold vs. non-IRA-Eligible Gold

New investors tend to think pre-owned gold or other precious metals can be added to their investment portfolio. Unfortunately, this isn’t the case. Even in the case of rare or foreign coins that may have a high appraisal value, there are a few standards that must be met. 

One is that only specific coins may be chosen by a designated dealer. The process is very detailed and except for a few options, there are no shortcuts. These guidelines are created by the Securities Exchange Commission (SEC) and Internal Revenue Service (IRS).

What Qualifies as IRA-Eligible Gold

The standards by which the IRS adheres are very detailed and should be confirmed by a financial advisor before opening an account. Financial advisors can also make recommendations based on simple investment trends and other factors based on the market.

IRA-Eligible Gold

Buying bullion and coins is the preferred choice for a self-directed IRA but here are the precious metal types that qualify for portfolio inclusion -

  • Bullions or rounds with a purity of 99.5% or greater
  • Coins with a purity of 99.5% or greater (except for the American Eagle)

According to IRS guidelines, rare collectible coins cannot be included in a gold IRA. This also applies to other gold collectibles that may hold substantial value. Prospective investors should be provided with a current list by either their financial advisor or custodian. A custodian is the person who begins the process of opening an IRA. This individual may work for a bank, trust, or any company approved by the IRS. 

The Benefits of Opening a Precious Metal IRA

A self-directed IRA is appealing for several reasons. One of which is the variety of assets that can be included in the portfolio. This includes cryptocurrency, real estate, tax liens, and deeds on foreclosed property. While foreign currency may be included, it cannot be included in a gold or precious metals IRA. 

Precious Metals

Account holders also save on taxes while they contribute and receive a tax break after the withdrawal of funds. This is most beneficial to persons who can contribute funds regularly. Also, they should be in a position to let the account sit without drawing against it before the age of 59 1/2.

How to Open an Account

This process should start with either conducting extensive research on IRA accounts by meeting with a financial advisor. They assist clients in making the right choice based on several factors. From there, a financial institution like a bank or trust acts as a custodian who gets the process going. While the financial advisor may have a custodian in mind, the consumer should consider shopping around.

Since the precious metals IRA only works with the self-directed IRA, the investor gets a list of acceptable bullion types or coins to include. Once a dealer is found, it’s up to the investor to ensure their gold or other precious metal is stored in an IRS-approved depository.

This is non-negotiable, as a safe deposit box or vault isn’t a substitute, as the safety of the asset is guaranteed. Anyone who chooses to store their gold at their home or office violates the rules set by the IRS. Depending on the severity, this is punishable by account closure, fines, or both.

Gold IRA Account Fees

Opening this type of account costs considerably more than the traditional or Roth IRA, since there’s more overhead. Again, these are mandatory, and comparing account plans is highly recommended. Most of these fees are collected upon opening but some charges are by a designated period.

  • Account Setup – a one-time fee paid to the financial institution for their services
  • Custodian Fees – an annual fee for account maintenance
  • Storage Fees – for use of the depository
  • Insurance Fees – may be included with storage fees or as a single flat-rate payment
  • Dealer or Seller Fees – apply to any markups made during the gold or precious metal purchase
  • Cash-Out Costs – in the case the gold or metals are sold to a third-party dealer before the required minimum distribution (RMD)

Sometimes banks may waive fees for new customers or investors depositing a large amount. This is where research and some basic math come in handy. New investors should also read the fine print when it comes to offering loss leader promotions, such as free storage or waiver for a specific amount of time.

Where’s the Best Place to Learn More

According to the CFTC, other professionals that can offer essential information include certified public accountants, financial advisors, and investment planners. Friends and family can also be a secondary resource but it helps to act cautiously even when intentions are good.

Sometimes colleges and universities offer short-term, noncredit classes that discuss the basics in more detail. This is a nice option because it allows consumers to get questions answered without bias.

Things to Watch for During the Process

Like anything else, if it sounds too good to be true, it most likely is a scam. Predators know the average consumer is always looking for a way to grow their money and may be vulnerable. If something sounds unfamiliar, try to get it in writing, along with contact information. In the meantime, here are some resources that may be able to answer most consumer inquiries.

 Besides the CFTC, other government entities that are open to the public are the SEC and the U.S. Aid International Development (USAID). These, along with well-recognized sites like Investopedia and Motley Fool are considered authorities in the consumer finance industry.

Alternatives to a Precious Metals IRA

There are some instances where it may not be the right time for a consumer to invest in an IRA that requires great overhead. This type of investment is best for the person who makes regular annual contributions and doesn’t withdraw until they reach the required minimum age. 

Anyone unable to commit may be able to invest in gold using a traditional, Roth, or rollover investment account. The advantage of these is the easy setup and fewer fees. Some people like rollover IRAs because they can transfer their 401K or another eligible account. This way, a person can still experience some of the benefits, like reduced taxes.

Other Things Account Holders Need to Watch For

*IRA custodians are only responsible for administering and holding assets. They cannot advise their clients as to which assets should be included in their portfolios. Nor can they confirm the legitimacy or quality of investment options.

*Since the IRS sets the guidelines, it helps the consumer to understand how every rule may impact their life. The funds are designed to not be withdrawn before the age of 72 but should the consumer need to close their account, stiff penalties will result. Anyone who predicts they may not be able to keep their funds intact for some time should consider other options.

*Investing in gold or other precious metals is great for balancing other stocks or assets that greatly fluctuate. However, it’s not wise to make these assets the main, or only, part of your portfolio. Most financial advisors or tax professionals often encourage diversification or making gold more than 10-15% of your entire portfolio.

*If a consumer runs across someone who calls themselves an “IRA expert”, they need to investigate before signing anything or paying any money. According to CFTC, these are not custodians but salespeople who aren’t qualified to give investment or trading advice to consumers. Again, if something sounds too good to be true, further investigation is the best prevention against fraud.

*Should a dealer call about a “once in a lifetime opportunity” or a deal that requires a down payment with the promise that the dealer will finance the remainder, this is most likely a scam. If the consumer can’t the deal in writing or confirm the legitimacy, this is most likely a scheme that costs the consumer in the long run.

When the price of metal goes down, it’s the consumer pays the price. They can either be subject to fees or lose their entire funds. This is called a leveraged account and is a form of business fraud.

These days, investing in the future is easier than ever. Not only are valuable resources readily available with a click of a mouse but many online entities assist with the process. While most consumers are happy to say they invest or contribute regularly, there’s still a risk involved. 

While no one can predict when or if the market will crash, consumers owe it to themselves to make responsible decisions. As the IRS guidelines for investing in a self-directed account are rigid, getting this type of account may not be compatible for every individual. This is why conducting research and speaking with professionals early pays in more ways than one.

Remember to read out list of the Top Gold Companies.

>> Click HERE to read our Best Precious Metals IRA Companies list <<


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