While most IRA investors invest in more traditional assets, such as stocks, bonds and funds, the tax code allows investing in precious metals, such as gold and silver, through specialized IRA accounts. Not all investments in gold can be owned by an IRA. The basic rule is that an IRA cannot own a collector's item and precious metals are defined as collectibles, whether the investment is in ingots or coins. Fortunately, there are exceptions to the general rule for gold, silver, platinum and palladium, which hold true in certain forms, such as an IRA backed by Gold. A gold IRA is a self-directed retirement plan that allows you to invest in many different alternative assets.
You can invest in gold with other self-managed plans. Even in times of economic hardship, you can make sensible investments in tangible assets with gold IRAs that have the potential to generate wealth for your retirement. While the price of gold rose to new highs over the summer, you've probably seen several ads that recommended investing in gold through an IRA. That's a prohibited transaction, because the owner of an IRA is not allowed to make buying or selling transactions with the IRA.
To own gold, either in coins or in ingots, in an IRA you need a true self-directed IRA offered by a few custodians. However, the coins or ingots must be held by the IRA trustee or custodian and not by you as the owner of the IRA. While it's legal to own gold or silver through an IRA or other retirement account with some restrictions, it's not the best or most efficient way to own precious metals. In addition, once the owner of a traditional IRA turns 72, the minimum distributions (RMDs) required by the IRA must be accepted.
The IRS has issued judgments by private letter to major gold ETFs stating that IRAs can own ETFs. The ETF can also buy, store and secure gold at a much lower price than what you or the depositary of an IRA can buy. The big practical concern is to find an IRA trustee who is willing to create a self-directed IRA and to facilitate the physical transfer and storage of precious metal assets. Presumably, when a reputable brokerage firm acts as a trustee of an IRA, it won't allow an IRA to buy shares in an ineligible ETF right from the start.
For example, you can have an IRA that invests in precious metal ingots and an IRA that invests in liquid assets, such as publicly traded stocks and mutual funds. As such, the transaction is characterized, for federal income tax purposes, as a taxable distribution of the IRA followed by a purchase of the metal or currency by the owner of the IRA (that would be you). After doing this research, you'll likely come to the conclusion that gold or bullion and coins shouldn't belong to your IRA. You probably also know that gold is a “collector's item” and that IRAs cannot own collectibles.