Precious metals are a popular way for retirement account holders to diversify their portfolio and combat inflation, but investors must be wary of any associated risks when investing with an IRA in precious metals.
One issue stemming from this legislation is the requirement that precious metal IRAs must be stored with banks; a recent Tax Court case highlighted this concern.
Asset Protection
Precious metals are investments, and as such should be safeguarded from frivolous lawsuits and creditors’ claims. Asset protection strategies used by many investors include legal entities or trusts that serve to separate personal assets from company assets.
Wyoming LLCs can be an excellent way of protecting precious metals. Under state laws, “safe assets,” such as physical bullion coins and bars, can be owned by an LLC – meaning if someone sued you personally their judgment creditor could no longer gain access to your gold or silver; rather, distributions would come directly from the LLC – provided the chain of title has been properly documented.
However, be mindful that the IRS considers precious metals collectable and taxes them at a higher rate than other assets like stocks or real estate. This could hamper marketability of precious metals held by an LLC since dealers may hesitate to deal with a company that must pay tax on its investments.
Taxes
Precious metals have long been an attractive investment option. Not only are they an effective hedge against inflation, they offer like-kind exchanges and can serve to preserve wealth. Unfortunately, however, precious metals also come with various tax repercussions that should be taken into consideration before investing.
Holdings of gold and silver coins, bullion bars, rare coinage, or ingots that qualify as collectibles by the IRS are considered taxable when sold; however, there may be ways to minimize taxable distributions when purchasing precious metals within an LLC structure.
Many IRA precious metals dealers claim they provide services enabling investors to invest in precious metals through an LLC and store assets either at home or bank safe deposit boxes, but these advertisements can put your IRA at risk. Before purchasing any precious metals-based LLCs, make sure you consult an attorney and CPA before making purchases; alternatively consider using an IRA custodian who stores assets securely.
IRAs
Although many companies advertise the use of an LLC to store precious metals within an IRA (known as a “Checkbook Control IRA”, “LLC IRA”, or home storage IRA), this structure has never been approved by the IRS and may even be illegal according to recent US Tax Court case law.
One challenge lies within Internal Revenue Code Section 408 requirements that any precious metals held by an IRA be in the physical possession of an approved trustee or custodian, though few institutions offer such services for self-directed IRAs holding IRS approved precious metal coins and bullion.
Another issue arises if an individual owns assets under their personal name and becomes involved in litigation; their judgment creditor could seize these assets immediately whereas if these are held within an LLC entity then creditors must go through its channels in order to gain access. This process may be time consuming.
Title
Precious metals hold great value due to their rarity, history of use as currency and investment diversification potential. Although many investors invest in precious metals via self-directed IRAs, some choose LLCs for additional privacy and estate planning flexibility.
An LLC provides asset protection to its owners through the separation of its ownership from personal assets, thus shielding them from seizure by creditors in case of judgment debts.
An LLC’s profits and deductions typically pass through to its members who file personal income tax returns rather than being taxed at the company level; this method of taxation is known as pass-through. Holding precious metals through an LLC can present additional tax complications; for example, the IRS treats precious metals collectable investments at a higher tax rate.
