Another Drawback Of Precious Metals IRAs

I have written multiple times about the limitations and drawbacks of using a precious metals Individual Retirement Account (IRA) to own precious metals. Today, let me add one more potential negative for using such accounts.

As I previously explained, it makes little sense to use a tax-deferred account, such as an IRA, to own tax-deferred assets such as precious metals. Instead, tax-deferred accounts are more suitable for investments that generate income that would otherwise be subject to current income taxes, such as interest and dividends. There has been one exception to this concept, though. When the gold/silver ratio soared to almost 100:1 over the past few years, it was possible to swap the gold in IRAs for silver without generating any current income tax liabilities, such as would occur if doing such swaps with precious metals owned personally.

Precious metals IRAs are also required to have independent trustees and custodians, which means annual fees that people wouldn’t pay if they owned the items directly. The existence of such accounts is also reported annually to the Internal Revenue Service, where many people like owning precious metals for the potential privacy from the government. Plus, the owners are prohibited from having direct custody of these assets.

Another drawback of such accounts is that only a limited selection of products can be owned in them. For gold, low-premium choices such as the Austrian 100 Coronas, South African Krugerrand, and U.S. American Arts Medallions cannot be held by precious metals IRAs. With silver, U.S. 90 percent silver coins can now be purchased at prices several dollars per ounce of silver content lower than would be paid for any silver bar or coin allowed in precious metals IRAs.

However, some bullion dealers persist in promoting precious metals IRA accounts instead of direct personal ownership, as that is where potential customers may have more funds available to spend.

The above drawbacks I have discussed previously. Today, I want to point out another issue that could disrupt the plans of someone who holds assets in a precious metals IRA—the prospect of required minimum distributions in the year after an IRA owner turns 73 or 75.

When an IRA owner reaches the relevant age, they are required to take at least a minimum distribution and pay income taxes that year on the value they receive. It doesn’t matter whether the distribution is in the form of cash or of the actual precious metals. This requirement could force an owner of this account to pay income taxes sooner than might happen if they owned the precious metals coins and bars personally.

There can be circumstances where owning a precious metals IRA would be appropriate for someone. However, only do so once you consider all the limitations and drawbacks compared to the option of direct personal ownership. If a precious metals dealer you check with is unable or unwilling to discuss these negative aspects of such IRAs, you might want to consult a different company.

Last time I asked— Which Michigan governor had his signature appear simultaneously on U.S. currency as he also served as president of a bank that issued National Currency? Fred Warren Green served as Michigan’s governor from January 1, 1927, to January 1, 1931. Green served as president of the National Bank of Ionia, Michigan (charter #5789) from 1919 until it went into receivership in 1934. Green’s signature appears on U.S. National Currency issued during his tenure as the bank’s president. For notes that Green signed personally, he used a green ink pen.  Trivia bonus: Green saved the lives of untold people by being the “inventor” of the solid yellow no-passing line on roads that was first adopted in Michigan and later nationwide.

Here is this week’s question. Which U.S. coins contain manganese as part of the alloy? Come back next week for the answer.

Patrick A. Heller was honored as a 2019 FUN Numismatic Ambassador. He is also the recipient of the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, the 2017 Exemplary Service Award, the 2012 Harry Forman National Dealer of the Year Award, and the 2008 Presidential Award. Over the years, he has also been honored by the Numismatic Literary Guild, Professional Numismatists Guild, National Coin & Bullion Association, and the Michigan State Numismatic Society. He is the communications officer of Liberty Coin Service in Lansing, Michigan, and writes “Liberty’s Outlook,” a quarterly newsletter on rare coins and precious metals subjects. He now volunteers with the National Coin & Bullion Association as its Industry Issues Advisor.  Past newsletter issues can be viewed at www.libertycoinservice.com. Some of his radio commentaries, "Things You ‘Know’ That Just Aren’t So,” and “Important News You Need To Know,” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio archives posted at www.1320wils.com).

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