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For centuries, investors have deemed gold as the ultimate safe haven during times of economic distress. The precious metal’s ability to preserve the purchasing power of money during times of elevated inflation, the fact that it is a physical asset, and the easiness with which it can be exchanged for currency are some of the traits that make it such an attractive investment.
In the United States, it is possible to open tax-advantaged accounts that let investors buy gold to save for retirement. However, is it possible to store that gold at home? In this article, we answer this question and many others associated with home storage Gold IRAs.
What Is a Gold IRA?
A gold IRA is a type of tax-advantaged account that lets investors acquire precious metals for their retirement portfolio. Instead of relying on a paper investment such as an exchange-traded fund (ETF) or mutual fund, the precious metals bought for these accounts are stored physically at a depository institution.
These accounts exist as traditional individual retirement accounts (IRAs), and 401(k)s do not allow investors to buy physical gold. However, same as with regular IRAs, annual contribution limits also apply to Gold IRAs, and certain conditions established by the Internal Revenue Service (IRS) must be met so the gold that is being purchased qualifies to be added to the account.
In the same way as regular IRAs, there are Traditional and Roth Gold IRAs. In the case of the former, the contributions are made on a pre-tax basis, while those made to the Roth account are after-tax.
How Gold IRAs Work?
Gold IRAs are a type of self-directed retirement account. These accounts give investors more discretion when it comes to selecting the assets that can be incorporated into the investment portfolio.
Aside from precious metals, self-directed IRAs may also be used to invest in other alternative assets such as commodities, real estate, hedge funds, private equity, private debt, and even cryptocurrencies.
Types of Gold IRAs
There are three types of Gold IRAs that investors should know about:
- Traditional Gold IRAs: the contributions made to these accounts are considered pre-tax. Penalties apply to investors who withdraw money from the account before the retirement age, and all withdrawals are taxable.
- Roth Gold IRAs: the contributions made to these accounts are considered after-tax deposits. These contributions can be withdrawn at any time without any penalties or taxes, but any gains made on the investments held within the account are taxable and can only be withdrawn at retirement age. Otherwise, penalties will apply.
- SEP IRA: this is an account created for self-employed individuals who would like to enjoy the same benefits as their employed peers when it comes to building a retirement fund. The contribution limits are typically higher than those of the latter two types of IRAs, as there are no employer-sponsored matching contributions. The contributions are also considered pre-tax, meaning that penalties and taxes apply if they are withdrawn before the retirement age.
Funding of Gold IRAs
There are three ways to fund a Gold IRA:
The easiest way to fund a Gold IRA is to use cash. Investors have the chance to either wire the money from a bank account or write a check to the trustee of their brand new Gold IRA if they would like to incorporate precious metals into their retirement portfolio.
One important thing to keep in mind is that the minimum deposit for most Gold IRAs is relatively high. According to our research, the company that requires the lowest minimum deposit to open an account at the moment is Noble Gold at $2,000.
The rest of the most well-established Gold IRA trustees require from $10,000 to as much as $50,000 to open an account.
Investors should also be aware that the annual contributions that investors can make to self-directed IRAs are capped at $6,500 per year as of 2023.
An individual who has been enrolled in an employer-sponsored retirement plan such as a 401(k) can opt to roll over the funds held in this account to a self-directed IRA such as a Gold IRA by simply making a request to the administrator of the plan.
Not all administrators will approve these transactions if the employee still works for the sponsor company. However, if the person no longer works for the 401(k) sponsor, they can easily request a rollover by contacting the administrator of the plan.
There are two types of rollovers. A direct rollover involves the transfer of the funds and assets held in the investor’s account directly to the Gold IRA company.
Meanwhile, an indirect rollover is performed when an administrator issues a check to the account holder. This money has to be deposited into a new IRA within 60 days, or else the funds will be subject to early-withdrawal penalties and taxes.
Only 80% of the money from the account will be given to the investor initially, as the remaining 20% is withheld and must be claimed by the account holder the next time they file their tax returns with the IRS.
An IRA-to-IRA rollover is similar to the latter case, but it is often easier as the administrators of the accounts typically impose fewer limitations or none at all.
In the same fashion, investors must make sure that any money held within the old IRA is moved to the new one within a 60-day period to avoid hefty penalties and taxes, as failing to do so will immediately categorize the transaction as an early withdrawal.
The money held within the old IRA could be subject to a 10% withholding tax if the old IRA provider issues a check instead of transferring the funds directly to the new trustee. This money can be recovered later when the next tax return is filed.
Even though it may sound as if only gold can be added to a Gold IRA, in most cases, the providers of these accounts allow investors to add other eligible precious metals to it, such as silver, palladium, and platinum.
The IRS requires that all the precious metals bought for these accounts must be 99.5% pure, and they must be stored at an IRS-approved depository. The most usual products bought for these accounts are coins and bullion.
As per the rules established by the IRS, home storage is not permitted if an investor plans to hold gold in a self-directed individual retirement account (IRA). These rules determine that all the gold purchased for this purpose must be stored physically at an IRS-approved depository institution.
Meanwhile, there are two types of storage that investors should be aware of. Segregated storage means that your assets are stored apart from those of other account holders at the depository.
This typically means that you are assigned an individual vault or safe deposit box. This makes it easier for you to access your assets. However, this option is usually more expensive.
Meanwhile, commingled storage means that your assets are stored alongside those owned by other customers. This usually means that they are held in the same vault, although they will be appropriately identified and segregated physically. This alternative is typically the least expensive of the two.
Some of the most common IRS-approved depositories include:
- Delaware Depository
- Brink’s Global Services
- HSBC Bank USA
- J.P. Morgan Global Metals
- CNT Depository
- A-M Global Logistics
What Is a Home Storage Gold IRA?
Even though the IRS expressly requires that all the precious metals held within a self-directed IRA are physically stored with a depository institution they have first vetted, some regulatory loopholes have been exploited to come up with a method through which investors can legally store their gold at home.
In a home storage Gold IRA, the trustee will be an entity incorporated by the investor — or a group of them — that has met the strict requirements imposed by the IRS to store the assets that will be held in these precious metals IRAs.
Home Storage Gold IRA Qualifications
While the concept of storing gold at home may sound simple, the issue of regulatory compliance is quite robust for gold IRAs — not to mention all the risks associated with tax penalties from the IRAs. The IRS provides the minimum requirements to become a non-trustee or custodian. In summary, here are the minimum requirements:
- State and date of incorporation: show how long the applicant has been in business.
- Continuity: the applicant must assure its uninterrupted performance of fiduciary duties notwithstanding the death or change of owners.
- Established location: a business location, with a street address, that is accessible during every business day.
- Fiduciary experience: the applicant must demonstrate that it has fiduciary experience or expertise with retirement plans.
- Financial responsibility: the applicant must show a high degree of solvency.
- Capacity to account: the applicant must demonstrate its experience and competence in accounting for a large number of individuals.
- Fitness to handle funds: the applicant must demonstrate its experience and competence with respect to activities normally associated with the handling of retirement funds.
- Rules of fiduciary conduct: the applicant must have a written document for the rules of conduct to be used in administering retirement plans
- Fidelity bond: all employees taking part in the performance of fiduciary duties are adequately bonded and the minimum bond amount must be at least $250,000.
- Net worth: the applicant’s net worth, based on the most recent audited financial statements, must be at least $250,000.
Based on the above, for a home storage gold IRA to work, the investor or group of investors must create an entity that will act as the appointed trustee or custodian for their accounts.
The first step to accomplish this would be to incorporate a limited liability company — also known as an LLC. This company will operate the “facilities” — which are, in most cases, a secure vault —where the precious metals will be stored.
The requirements to set up such a scheme are quite extensive, and it is not a cheap alternative. For example, the rules set forth by the IRS indicate that the owner of the assets much have a net worth of at least $250,000, and all of the employees and trustees appointed by the LLC must pledge a $250,000 fidelity bond for insurance purposes.
Moreover, the investor who sets up a home storage Gold IRA must have some kind of financial background and experience as a fiduciary. In addition, accounting reports must be provided annually, and the LLC that will act as trustee for the Gold IRA must be located at a place that is open to the public.
The reality is that the ability to start a home storage IRA for most individuals is out of reach and may not even be worth it considering the risks, penalties and administrative costs associated with it.
IRS Rules On Gold IRAs
The IRS is the agency in charge of regulating how individual retirement accounts (IRAs) work, as these investment vehicles have a tax-advantaged status. This is a summary of the rules that the regulator has established for precious metals IRAs.
How The IRS Defines What Precious Metals Can Be Held in a Self-Directed IRA
As per the IRS (IRC Section 408m), gold and other precious metals qualify as “collectible items.” These metals include gold, silver, platinum, and palladium. When it comes to purity, the requirements state that all gold must be 99.5% pure. Meanwhile, silver items must be 99.9% pure, while platinum and palladium assets must have a purity percentage of 99.95%.
How The IRS Defines a Trustee
A trustee is an entity that facilitates all of the transactions required to purchase and store the physical gold that will be added to the customer’s self-directed retirement account (IRA).
These organizations typically take care of all the paperwork involved when rolling over a 401(k) or another IRA, and they also coordinate the shipment of the precious metals that the investor purchases for the account.
In some cases, trustees coordinate with the depository institution appointed by the customer to make all the necessary arrangements to open and maintain an account. In exchange for their services, they usually charge an annual management fee and, in some cases, a one-time setup fee to new clients.
The IRS keeps an up to date list of all approved non-bank trustees, with a total of 68 companies operating accorss the country.
Penalties Associated with Home Storage Gold IRAs
Failing to comply with the strict requirements imposed by the IRS to store the physical gold held in a self-directed IRA at home can lead to hefty penalties and tax implications. For example, if the investor fails to make the appropriate arrangements, all of the gold stored in the home storage Gold IRA can be treated by the IRS as an early withdrawal from the account.
As a result, traditional IRAs will be subject to a 10% penalty, and all of the applicable taxes on those proceeds will have to be paid. In addition to this, you will likely be audited by the IRS at some point.
Are Home Storage Gold IRAs Legal?
Yes. As long as the minimum requirements set forth by the IRS are met, it is entirely legal to store the precious metals held in a Gold IRA at home. However, investors should speak with a legal counselor and tax professional before engaging in this activity as they could easily fail to comply with these strict rules, and that could lead to financial losses.
How to Avoid Gold IRA Scams?
Home storage Gold IRAs gained popularity after the financial crisis of 2007-2008 as investors were looking for alternatives to maintain the tax-deferred status of their IRA investments without giving up control of those assets to a financial institution.
Bad actors have taken advantage of the growing popularity of this product to advertise Gold IRAs that offer stellar returns and below-average market prices for IRS-approved gold products.
There are some practices and offerings investors should typically avoid as they could end up being a scam:
- Zero risks, guaranteed returns: Some Gold IRA adverts may offer stellar returns on your precious metal investments and no risks. These are usually too good to be true and may end up being a Ponzi scheme.
- Non-eligible gold products: the IRS requires that all gold held within a Gold IRA must be 99.5% pure. Some companies that offer low prices on coins and bullion typically sell counterfeits or tampered pieces.
- Home storage Gold IRAs: scammers may take advantage of the public’s ignorance regarding this topic to offer packages that include the incorporation of LLCs and other similar proceedings that may not necessarily comply with all of the requirements imposed by the IRS for you to store the precious metals held in the self-directed IRA at home.
How to Open a Gold IRA Account the Right Way
The best way to open a Gold IRA is to rely on the services of a well-reputed custodian. Once you have opened an account with one of these organizations, they can provide you with the instructions needed to make your first precious metal purchases or roll over the funds held in another tax-advantaged account, such as a 401(k).
These entities will also facilitate the process of opening an account with an IRS-approved depository, such as the Delaware Depository or the Brinks Depository.
Can I Purchase Gold to Store It at Home Outside My Retirement Account?
Yes. Anyone can buy precious metals and store them at their home for investment purposes. However, if the investor’s facilities and legal arrangements do not meet the requirements established by the IRS to qualify as a suitable depository, the precious metals won’t be eligible to be added to a Gold IRA.
FAQs On Home Storage Gold IRAs
The following are answers to the most frequently asked questions (FAQs) we get on the topic of how home storage Gold IRAs work.
Are Home Storage IRAs Illegal?
No. Home storage IRAs are legal as long as the investor complies with the rules established by the IRS. The list of requirements is lengthy, and most professionals in the industry discourage lay investors from attempting to make those arrangements, as failing to meet these requirements fully can lead to financial losses.
Can I Store I Store My Gold IRA at Home?
Investors must meet a series of stringent requirements imposed by the IRS to qualify as suitable depositories for the gold and other precious metals they have purchased for their individual retirement accounts (IRAs).
Are Gold IRAs a Safe Investment Vehicle?
Yes. A Gold IRA is a type of self-directed IRA. These products are offered by different types of organizations that act as trustees or custodians for the precious metals held within the account. They facilitate the process of managing the purchases, shipments, and storage of precious metals. However, all of the precious metals held in the account continue to be owned at all times by the holder of the account.
Who Should I Contact If I Suspect a Gold IRA Scam?
If you suspect a certain company is fraudulent or is making misleading or false claims about the services they offer in regard to a Gold IRA, you can report it to the Internal Revenue Service (IRS). One way to protect yourself from scammers is to check the agency’s updated list of approved non-bank trustees and custodians in this link.
Perhaps you have seen ads that tell you that home storage Gold IRAs are easy to set up. These are probably from companies that want to charge you elevated legal fees to make all the necessary arrangements to become the trustee of your IRA.
Even though it is both legal and possible to store your IRA gold at home, it is not easy, it is expensive, and most professionals do not advise lay investors to pursue this endeavor as they may experience financial losses if they fail to comply with the IRS’s rules on this matter.
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Alejandro is a financial writer with 7 years of experience in financial management and financial analysis. He writes technical content about economics, finance, investments, and real estate and has also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing and financial analysis.