Updated
Apr 05, 2023 If you’ve been considering investments in gold and other precious metals such as silver, platinum, and palladium, then you might have seen ads for so-called “home storage” gold IRAs.
Though their claims may be tempting, it’s important to proceed with caution before interacting with these dealers. In many cases, these accounts violate IRS rules and could even be illegal.
On this page:
- An example of a deceptive ad
- What does the IRS say about home storage gold IRAs?
- Are there penalties for incorrectly opening a home storage gold IRA?
- Why is there so much confusion about home storage gold IRAs?
- How does a gold IRA really work?
- Where can I open a gold IRA account the right way?
Here is an example of a deceptive ad
The home storage gold IRA ad below is an example of a deceptive ad. It shows dozens of gold bars in what looks to be a man’s personal safe, and account holders even get their own free safe included, too.
Unfortunately, this is either highly misleading or encouraging illegal activity. The IRS clearly states that IRA-purchased precious metals must be held with IRS-approved banks and trustees. Keep reading for more detail.
What does the IRS say about home storage gold IRAs?
Though investors can undoubtedly purchase and hold physical gold in a home safe, the IRS strictly prohibits this with IRA-purchased gold (and other precious metals). Section 408(m) of the IRS code defines what types of precious metals may be purchased with a self-directed IRA. The code also says these items must be “in the physical possession of a trustee.”
The IRS even issued a further explanation on the subject on this FAQ page. It reads: “Gold and other bullion are “collectibles” under the IRA statutes, and the law discourages the holding of collectibles in IRAs. There is an exception for certain highly refined bullion provided it is in the physical possession of a bank or an IRS-approved nonbank trustee.”
In further proof that home storage is not allowed when using an IRA to purchase gold, the Industry Council for Tangible Assets — an industry watchdog — issued a white paper in 2018. The title? “The Prohibition on Home Storage of Bullion Held in an IRA.”
Are there any penalties or taxes for incorrectly opening a home storage gold IRA?
There are consequences for investors who don’t comply with IRS rules. Here’s how Jeffrey M. Christian, precious metals investing expert, explains it in the ICTA white paper:
“This is a big risk to individual investors. You may face taxes, penalties, and fees on your entire IRA should the IRS decide to call you on your self-storage of precious metals. And, the IRS has the ability to pursue investors doing this at any time. They know it is a violation that they can pursue whenever they want to.”
Investors who break the rules and keep the IRA-purchased gold at home could first face distribution penalties. Keeping your gold at home will qualify as a distribution, which means a 10% penalty if you’re under age 59.5. The investments will no longer be tax-deferred either, so you’ll owe income taxes on the distribution. In many cases, it’s a hefty amount of cash.
The move could also lead to a potential IRA audit. If the IRS finds out about your improper account activity, you could find yourself getting audited. An audit could mean additional fines and penalties, depending on what it finds.
Why is there so much confusion about home storage gold IRAs?
There’s a lot of confusion surrounding gold IRAs because of these “home storage” IRA ads. While you can technically set up an LLC and control your IRA purchases yourself (as long as you meet some stringent requirements), you still can’t store the gold at your house. It has to be in a secure, depository location under the LLC’s name — like a safety deposit box, for example.
Putting the gold in a safe or under the mattress at home would technically qualify as a distribution. If you’re under 59.5 years of age, distributions are viewed as an early withdrawal and come with a 10% penalty.
How does a gold IRA really work?
Gold IRAs are called self-directed IRAs, but you can use them to purchase particular IRS-approved gold bullion and precious metals. They can also be used to purchase real estate, businesses, and other assets.
To open one, you’ll need to work with an IRS-approved custodian — usually a bank or other financial institution. They’ll handle the disbursements, keep records for the account, and do the required IRS reporting on it.
Once opened, you can fund your account using a rollover or transfer from an existing retirement account, or you can contribute via check or wire payment. The maximum annual contribution is $7,000 (if you’re at least 50 years of age.)
After funding your account, you can direct your IRA custodian about what gold bullion to buy (and how much). The gold will need to be stored in an approved depository location once purchased.
>> Read More: How does a gold IRA work?
Where can I open a gold IRA account the right way?
With many scams and misleading advertisements out there, it’s essential to do your research before opening a gold IRA account. Compare several options, check out reviews and ratings, and make sure the company is reputable and experienced before moving forward.
Need help getting started? Check out our guide to the best gold IRA companies.