For more than a decade I have pointed out conceptual weaknesses with the idea of owning precious metals Individual Retirement Accounts (IRAs). As one example, it does not make sense to place a tax-deferred asset such as physical gold and silver into an account that exists for the purpose of deferring taxes.
Over the years, dealers have told me of problems that owners of precious metals IRAs have experienced. Let me share a couple so that if you want to have such an account, you might avoid the same problem.
In one instance, multiple cases of U.S. Mint-sealed silver Eagle dollars were purchased for a precious metals IRA. Naturally, the owner of the IRA never saw the merchandise. When the depository received the cases, the staff there did a cursory check that the case was sealed with a U.S. Mint seal and that the weight was correct for the contents to be 500 coins. When the coins were later sold, it turned out that the depository had received counterfeit cases. The U.S. Mint seal was counterfeit and some of the cases did not contain any coins, just scrap metal.
The depository refused any liability for having received the counterfeit merchandise, saying it would be the responsibility of the dealer that shipped them to the depository. The owner of the account said that the depository had a fiduciary responsibility to ascertain authenticity of merchandise received for the account. Unfortunately, the account owner had arranged for unallocated storage to reduce costs, which meant that the depository piled up the cases of silver eagle dollars with other cases received for other accounts for unallocated storage. Thus, it could not be determined if the counterfeit cases had been received for this account or for someone else’s account.
In another case, the owner of a precious metals IRA purchased 20,000 U.S. silver Eagle dollars in Mint-sealed boxes in the year 1996, with all of the coins being dated 1996. As we now know, this is the lowest mintage year of all silver Eagle dollars, with the result that nice examples of this date are worth a significant premium to other dates. A few years ago, the owner of this account sold the 20,000 1996 silver Eagles to take advantage of the premium for the date. Unfortunately, this customer had also arranged for unallocated storage, where the coins were mixed with other Mint-sealed cases from other years. The depository did not distinguish the holdings by date so it shipped 20,000 silver Eagles that were not dated 1996. When the discrepancy came to light, the depository determined that it no longer had any cases of 1996-dated silver Eagles in its possession.
In both instances, the owner of the IRA would have been better off to pay for the more expensive segregated storage. That way, it would be possible to identify who had supplied the cases of counterfeit silver Eagles in order to seek restitution in the first instance I described or the 1996-dated coins would still have been available for the second instance.
Merely having segregated storage is not sufficient protection, however. I have heard that counterfeit sealed cases of Mint-sealed U.S. silver Eagle dollars is a growing, though still minor, problem in the industry. For self-protection, owners of precious metals IRAs need to get in writing who is responsible if the depository inadvertently received counterfeit merchandise for a customer account. If it is not possible to obtain that assurance in writing, then perhaps it might be best to avoid establishing a precious metals IRA at all.
Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects
More Collecting Resources
• Download The Metal Mania Seminar with David Harper to learn more about the metals market.
• Come on down to the Chicago International Coin Fair in Rosemont, Ill. on April 14 to 17, 2016 to see impressive world coins, meet new collectors and participate in Heritage Auction’s fantastic coin auction.