Regardless of which investment information you read or the financial experts you follow, you are certain to encounter reasons why you should or should not invest in precious metals such as gold, silver, platinum and palladium.
If you’re inclined to consider this type of investment, it’s possible to purchase “hard metals” or bullion, meaning bars, coins, or rounds produced from these metals. There are also other options, like making “paper investments” by purchasing Exchange Traded Funds, stock in gold mining companies, precious metals mutual funds, or precious metals commodity futures.
As far as bullion is concerned, it’s possible to add these metals to a retirement portfolio by creating a self-directed Individual Retirement Account (IRA) specifically for them. They are one of the investments, generally referred to as “alternative investments,” that are approved by the IRS for retirement accounts. Alternatives are generally non-traditional assets and not traded publicly on an organized exchange.
In addition to hard metals, alternatives also include private (closely-held) stocks, limited partnerships, limited liability companies, promissory notes, real estate, real estate investment trusts tax liens, hedge funds, commodity futures, life settlements, and other investments.
Many people are attracted to hard metal retirement investments because they are generally more liquid. They can thus be purchased or sold more quickly than many alternatives, making it easier to re-balance the account’s investments or take mandatory distribution of a portion of the account’s assets at the required age. It’s important to note that even if you have bullion in your IRA, you may also have other IRS approved investments in the account as well.
The Role Of Custodians
All self directed IRAs must be established through firms known as custodians. These are banks, trust companies, credit unions, brokerage firms or savings and loan associations that have been approved by Federal and/or state agencies to provide asset custody services to individual investors and financial advisors. They undergo special audits to document their financial strength and custodial performance. Be aware that custodians will never offer tax, legal or investment advice related to any purchase or sale, but they will determine the suitability of any investment you are considering in terms of whether it meets the IRS regulations for retirement accounts.
After opening a precious metals IRA with a custodian, you will place funds in the account which, if you like, you many transfer from existing retirement funds. However, if you already own hard metals, you may not use them to open an IRA. It must be opened with a contribution in cash or with funds rolled over from another retirement account. If you currently have a self-directed IRA, you may be able to establish a precious metals IRA with your current custodian.
On the other hand, you may also find that your current custodian does not have the experience, the infrastructure, or the willingness to administer IRAs invested in alternatives, and fewer still serve people wishing to buy precious metals. If your custodian does not handle precious metals IRAs, you can easily identify those who do by searching the Internet or contacting precious metals dealers.
Where Metals Dealers Fit In
This brings up the role of metals dealers. These companies are in the business of selling precious metals to and buying them from the public. When you establish a precious metals IRAs, you will authorize the custodian to purchase the metals from a specific dealer of your choosing at a price you negotiate with the dealer. When you wish to sell metals, you must instruct the custodian to conduct the transaction at a price you have agreed upon with a specific dealer which may, but need not be, the same dealer from which the metals were initially purchased.
So, taking a step back, if you wish to establish a precious metals IRA, you must select a custodian to administer the account and a metals dealer through which to buy or sell metals. If you already have a relationship with a metals dealer, that firm may recommend an IRA custodian with which it already has a working relationship. However, you are also free to initiate the search for a custodian on your own.
Most of them have web sites which describe their services, strengths and explain the detail the process of setting up an IRA. Many have downloadable application forms that you may use to open your account. You might be best served by choosing a custodian with the experience and technology to serve thousands of active IRA account holders, including those invested in metals. They should demonstrate the ability to purchase and sell metals through dealers of your choosing, monitor the physical status of the metals involved in every transaction you make, perform all record keeping functions, maintain 24/7 electronic communications for you and/or your advisor, and file all required reports to you and to the IRS.
Custodians do not select dealers for their IRA clients. This is the investor’s responsibility. However, some custodians have working relationships with several hundred metals dealers throughout the country, and may be willing share that list with you. This presents you with a broad choice of dealers with whom to do business.
Some custodians perform due diligence research and execute approval agreements with the dealers on their approved list. You might ask them if they will do so if you decide to do business with a dealer not on their list. The terms of these approval agreements are often stipulated in written documents between the dealer and the custodian.
While custodians will not recommend dealers, the reverse is not true. Many dealer web sites may have information about one or more custodians to whom they refer their customers for self-directed IRA services. However, you are not obligated to establish your account with one of these custodians in order to initiate purchases and sales through those dealers.
Dealer Marketing Programs Can Prove Helpful
You may already be aware that many dealers use television, newspaper, and Internet advertising to promote specific precious metal offerings, the economic value of precious metals as an investment and their willingness to deal with customers through the Internet. This can be especially beneficial if you live in an area where there are few if any local dealers to talk to personally, or if there are dozens from which to choose.
Call the telephone number that is prominently displayed in most ads and ask the sales person to discuss the investment value and the retirement qualifications of the metal coins, bars or rounds being offered in the advertisements. This is to your advantage, because they will take the time to educate you about the process and usually offer to send you more information.
People who purchase precious metals as a basic investment have the option of having the metal shipped to them or to a depository used by the dealer, where it is insured. When it comes to your precious metals IRA, the most common interpretation of IRS rules is that you may not take possession of the metal while it is in an IRA. Instead the dealer must ship the metals you purchased to a depository approved by your custodian.
These depositories are in the business of receiving, inventorying, and shipping precious metals. They operate highly secure, insured facilities, and have state of the art inventory control measures. Should you still wish to take possession of the metal, your custodian will coordinate the shipping and report it to the IRS as a withdrawal from your account.
Your research may lead you to some firms that offer a “Checkbook IRA,” which do allow you to take possession of your IRA assets, but these custodians rely on you to accurately verify the status of all assets including metals when IRS forms are filed. This leaves no room on your part for a reporting error.
Custodians generate their revenue from fees they charge for their services, such as opening the account, initiating purchase or sales transactions, and for payment to other firms for their services such as shipping and storage of the metals and insurance fees. These fees are usually spelled out in great detail on their web sites.
Experienced custodians maintain extensive data management, transaction, record keeping, administrative, reporting and communications technology operating on a 24/7 basis. You may visit some web sites that feature educational videos that explain precious metals IRAs and make it possible for you to download all of the forms necessary to open your IRA. They also provide you with password protected access to your account information at all times, and maintain a staff of trained personnel you can reach by phone to discuss your account.
The decision as to whether to take advantage of a precious metals IRA may be a decision best reached after research and in consultation with the investment professionals on whom you rely for advice. Should you choose to do this, the retirement industry is well positioned to serve you.