Many retirement investors wish to use their funds for purchasing IRS-approved coins and precious metals/bullion; however, according to IRS rules these items must remain “physically in the possession” of an appointed trustee.
Self-directed IRA LLCs typically store metals and coins in bank safe deposit boxes. While technically fulfilling the criteria of holdings for self-directed IRA LLCs, some tax practitioners consider this an inappropriate form of holding.
Coins and Precious Metals/Bullion
Due to extensive advertising from precious metals and coin dealers, it has become widely understood that IRAs may purchase IRS-approved coins and bullion/precious metals with retirement funds; however, many do not understand how this investment will be taxed.
Physical gold and silver have long been valued as tangible stores of wealth that provide protection from inflation, currency fluctuations and economic uncertainty. When sold, these precious metals may be subject to capital gains taxes calculated based on the difference between what was paid for them initially and their market value when sold.
To avoid paying taxes when selling investments, individuals must abide by IRS Code 408 m3. According to this code, investments must be physically held by an appointed trustee, while Self-Directed IRA LLCs that store precious metals and coins at bank safe deposit boxes may breach this rule since banks do not serve as trustees for these IRAs.
Safe Deposit Boxes
Safe deposit boxes are bank storage spaces people rent to protect items they don’t want in their home, like valuables that might otherwise end up underfoot. Unlike at-home safes, however, the contents of bank boxes remain private with only those renting the box having access to it during bank hours and not being FDIC insured – making safe deposit boxes not ideal options in cases of urgent need or emergencies.
At the bank, cash should ideally be kept in a savings or CD account where it’s protected by FDIC insurance and can earn interest. It’s wise to also maintain an inventory list of everything stored in your safe deposit box as proof that they belong to you if any items become lost or stolen; additionally, consider getting a personal articles floater policy to protect them from potential loss or theft.
Approved Depository or Trust Company
Numerous advertisements by precious metals and coin dealers have raised public awareness that IRS-approved coins, bullion/precious metals and precious metals can be purchased with retirement account funds. According to IRA regulations, however, these items must be physically held by an appointed trustee – some believe depository facilities meet this criterion; most tax practitioners believe a limited purpose trust company provides more protection.
Compliance with IRS rules regarding holding metals/coins owned by an IRA is often accomplished using an approved depository or trust company, such as a bank with safe deposit boxes or private companies specializing in valuable storage. An alternative method may involve self-directing an LLC for metal/coin storage.
To establish a limited purpose trust company, an application must be submitted to the Superintendent of Financial Services with payment and an original and duplicate copies of an organization certificate including personal details about each incorporator, director, major shareholder (owner of at least 5% of capital stock of proposed trust company) as well as legal advice in order to complete this process successfully. It is generally advised that an applicant seek legal advice as this process.
Personal Possession
Personal possessions include any property that can be transported from one place to another and includes both tangible and intangible forms of property, such as clothing, luggage and other regularly used items; intangible personal property may include stocks, bonds, patents or anything else not easily tangible like stocks, bonds and patents.
Possession occurs when someone exercises both control and intention over an object. Often this leads to greater ownership; for example, an item left lying on a train seat could become part of your personal possession if you were aware of its presence and had the intention to collect it up later.
Some believe that when a Self-Directed IRA LLC purchases state minted coins and/or bullion or precious metals from an approved source such as an auction house and stores them in a bank safe deposit box, this meets the physical possession requirements outlined by IRS Code 408. Others counter that since the bank does not act as trustee of their retirement account holding these metals and coins under IRC Section 408, then this does not satisfy this definition of trustee outlined under IRC 408. In order to be on the safe side, never hold these assets personally unless their content has been approved.
