Over the past 15 years or so, I have written about the risks and limitations when using a self-directed Precious Metals Individual Retirement Account (IRA) as a means for owning physical precious metals. It has now been enough years since I last did so that it makes sense to again review the negatives.
1. A Precious Metals IRA is a tax-deferred account. Physical precious metals are tax-deferred assets, meaning you do not realize and pay income taxes on gains in value until you actually sell them. It does not make conceptual sense to put a tax-deferred asset into a tax-deferred account. An IRA is far more suitable for holding assets that generate periodic income such as dividends and interest.
2. Establishing a Precious Metals IRA requires retaining an independent trustee and storage facility. There are costs associated with both of these, which are just about guaranteed to be higher than if you arranged for storage in your own safe, safe deposit box, or vault storage.
3. The forms of physical precious metals you may hold in a Precious Metals IRA are limited — and usually not the lowest premium forms to own. For example, prohibited physical gold forms are the low-premium Austria 100 coronas, Mexico 50 pesos, and U.S. American Arts Medallions. In physical silver products, a precious metals IRA cannot own the low premium U.S. 90% or 40% silver coins.
4. The process of selling assets in a Precious Metals IRA takes more time and is more onerous than selling the same assets if owned personally. It would take longer to gain access to cash from selling such assets.
5. Many people want to have their ownership of physical precious metals to be kept confidential. If held through a Precious Metals IRA, however, the United States government would receive a report every year as to the existence of the account and the approximate value of its assets. The coin dealer handling Precious Metal IRA purchases and sales is required to fully document such transactions, meaning this business would also have information on the financial activities of your Precious Metals IRA.
6. Most assets held in a Precious Metals IRA are placed into lower-cost unallocated storage, which can have its own problems in being able to reclaim the same dates and mintmarks as originally purchased. There are also instances of vaults receiving counterfeit products, where they refuse to accept liability for accepting them. For some specific examples of such problems, refer to my Sept. 17, 2015 column posted at https://www.numismaticnews.net/article/avoid-problems-with-precious-metals-iras. Since the owner of a Precious Metals IRA is not allowed to take delivery of assets purchased for the account, he or she is unable to verify the authenticity of them upon original receipt.
7. Nations such as Argentina, Hungary, Ireland, Poland, and Spain have already seized private retirement account assets. Proposals for the U.S. government to seize private retirement account assets, replacing them with U.S. government bonds or other subterfuges, have been advocated during the administration of Democrat presidents since President Clinton’s term. People such as Forbes editor-in-chief Steve Forbes (in the Oct. 7, 2013 issue, for instance) and commodity guru Jim Rogers have predicted that the U.S. government will eventually seize all private retirement account assets (which includes Precious Metals IRAs) for the simple reason that such accounts hold more than $10 trillion in value.
Almost all coin dealers are willing to sell merchandise into a Precious Metals IRA upon request. In fact, some coin dealers specialize in marketing to such customers. The main attraction for dealers to do so is that often such customers have in their regular IRAs the most funds available for such acquisitions. Thus, by making larger sales, dealers can realize higher profits — even if it is not the best option for the customer.
WARNING: Some companies have marketed what are referred to as “check book IRAs” as a way to reduce costs and increase privacy of establishing a Precious Metals IRA. Such arrangements are of questionable legality, where the companies offering them refuse to guarantee to cover costs of defending government prosecution for having such accounts. Some people who have made such arrangements have voided the tax-deferral status of their other retirement assets, accelerating the payment of taxes owed along with substantial fines and penalties. On Sept. 16, 2016, the Internal Revenue Service issued a warning about these arrangements, which is posted at https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-investments.
There could be some circumstances where a Precious Metals IRA might be the only practical option for someone to own precious metals, at least temporarily. Before going this route, though, be sure to consider the risks and limitations listed above. Some people considering such an arrangement may find it more cost effective and practical to instead purchase shares in a precious metals exchange-traded fund (ETF), which would also have risks and limitations that would need to be considered.
Patrick A. Heller was the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, 2017 Exemplary Service Award, 2012 Harry Forman Dealer of the Year Award, and 2008 Presidential Award winner. He was also honored by the Numismatic Literary Guild in 2017 and 2016 for the Best Dealer-Published Magazine/Newspaper and for Best Radio Report. He is the communications officer of Liberty Coin Service in Lansing, Mich., and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Some of his radio commentaries titled “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 and text archives posted at http://www.1320wils.com).
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