Gold! For centuries, men would kill or be killed to possess it. Today, we are able to procure gold without violence or crime, simply by buying coins and slabs from reputable precious metals dealers. In fact, we can even get a tax deduction on our purchases by buying gold for our IRAs.
Yet even this simple arrangement isn’t enough for some, who would risk the value of their holdings by trying to maneuver around IRA rules. I’m talking about the so-called “home storage Gold IRAs” and the snake-oil salesman who sell them. Before succumbing to their reassurances, stop and ask yourself: Has the IRS ever approved home storage gold IRAs?
The answer is NO!
Anatomy of a Scam
Let’s unravel this scam and see how dangerous it really is.
First, let’s get one thing out in the open right away. There are good gold dealers and bad gold dealers, and knowing the difference will determine whether you prosper or fail.
Bad gold dealers are folks who have no problem defrauding customers. Just recently, the Federal Trade Commission charged an outfit for selling gold to consumers, accepting payment but failing to deliver the goods.
Losses ranged from $1,000 to $300,000.
These folks were so brazen, they actually ran ads on CNN and Fox, and promised pie-in-the-sky purchases with “zero commissions, fees, or expenses,” and at “zero percent above dealer cost.”
The point is, bad gold dealers will say or do anything to defraud you of your money. So, let’s see how this relates to “home storage” Gold IRAs.
For folks new to the subject, let’s recap the basic facts. A traditional individual retirement account allows to contribute pre-tax earnings into a tax-deferred account, and only pay taxes on the money you withdraw. It’s a great way to get a tax deduction and let your investments grow without paying annual taxes on them.
IRAs have to observe certain rules, such as being administered by a custodian (also called a trustee) whose job it is to ensure you don’t contribute more than the annual limits and that you begin taking distributions at age 70 ½. IRAs permit you to contribute cash (currently $5,500 a year, or $6,500 if you’ve reached age 50), take a tax deduction on those contributions, and use the money to buy stocks, bonds and other assets for your IRA.
Only two types of assets are forbidden: life insurance policies and collectables. However, there is a loophole (see Internal Revenue Code, Section 408(m)(3)) in the collectables ban – you are allowed to collect certain forms of gold, silver, platinum and palladium in a self-directed precious metals IRA (commonly called a Gold IRA).
In this arrangement, a metals dealer acts as custodian and sells the IRA permitted coins, such as American Gold Eagles and Canadian Maple Leafs, as well as other pure forms of bullion. The rules explicitly state that the IRA gold must be physically maintained in a depository by the custodian or trustee, not by the IRA owner.
Seems simple enough, doesn’t it? So what’s this talk about “home storage” Gold IRAs, which on their face seem be illegal.
Home Storage Gold IRA Dealers – Selling Snake Oil?
Here’s where the snake oil appears. The purveyors of this idea want you to open a limited liability company, or LLC, to act as the owner of the IRA, and have the LLC name yourself as the trustee. And like magic, your LLC can decide to store the IRA gold in your bedroom. If it reminds you of the folks who tell you to ignore paying taxes because they’re “illegal,” you’re right. When something sounds too good to be true, it probably is.
According to the IRS, a custodian/trustee must be a traditional financial institution (bank, credit union, etc) or “Such other person who demonstrates to the satisfaction of the Secretary [of the U.S. Treasury] that the manner in which such other person will administer the [IRA] will be consistent with the requirements of this section.”
What the flimflammers fail to tell you that the “other person” must jump through several hoops to gain recognition as a trustee from the IRS. You have to fill out a long and detailed written application that describes:
- Your experience and ability as a fiduciary
- Your accounting capacity
- Your fitness to handle assets earmarked for retirement
- Whether you are or have ever been bonded
- Your ability to run audits and to respond to government audits
- Your net worth
You are not allowed to act as a trustee for your home storage gold IRA until, and if, the IRS approves your application.
Don’t Underestimate the IRS
Whatever you might think about the IRS, they are not stupid. They understand that Congress structured IRA rules to keep people from having direct physical control of the retirement assets – that’s why they established the requirement for custodians/trustees. In terms of gold and other precious metals, Congress wanted to ensure that the gold actually existed, and was not a figment of the IRA-owner’s imagination. It also wanted to ensure that distributions from an IRA were properly reported, because they are taxable. These are the responsibilities of the trustee.
Now, if you are going to try and convince the IRS that you (in the guise of an LLC) should control your own retirement assets, you are going to have an extremely difficult time of it.
The home storage gold IRA advocates try to convince you that they have clever solutions to pull the wool over the IRS’ eyes. They recommend ruses like having the LLC rent a safe deposit box. All the little tricks are supposed to fool the IRS into thinking the LLC is a legitimate and disinterested third party. But since you control the LLC, you are responsible for buying, storing and distributing the precious metal holdings.
Guess what – this doesn’t fool the IRS.
If you get mixed up with a home storage Gold IRA that the IRS later deems illegal, your holdings will be immediately distributed and you’ll have to pay taxes on them. If you’re under age 59 ½, you’ll also have to pay a 10 percent early withdrawal penalty.
Need more information? This video and accompanying 15 page report goes in more detail about the home storage gold IRA, in addition to revealing four other gold scams that are currently being pushed by some of the less-than-reputable gold dealers.
Our experience is that folks invest in Gold IRA to protect themselves from all the bad financial things that can happen in this world, not to gamble their wealth away. So here’s the bottom line: Don’t take a chance on a no-name metals dealer and don’t succumb to fairy tales about home storage IRAs. If you feel like gambling, visit Las Vegas, but don’t put your retirement nest egg at risk!