Question Regarding Self Directed IRA
Sorry if this has been addressed in other posts, but I couldn't find anything in my searches. It has been said in various forum replies and on other websites that in regards to self directed IRA's, cetain coins as described in section 408(m)(3) of the code may be held in possession in lieu of a third party; however, I read it differently and wonder if I am simply interpreting things wrong. The code states " For purpose of this subsection, the term collectable shall not include – (goes on to describe the various coins, e.g. gold eagles, etc.) if such bullion is in the physical possession of a trustee described under subsection (a) of this section.." This last part throws me off. I'm not really the trustee of my self directed IRA, am I? So my interpretation is that I am NOT allowed to take possession of my qualififed coins. Any input would be greatly appreciated. Thank you.
Read one interpretation of the IRS position here:
Some are taking the additional step of obtaining an affidavit that asserts the bullion will not be used in any disqualified actions as mentioned on the site in either a FAQ or in the checkbook IRA section.
This information is available elsewhere but it's nicely organized on this site. I have no financial interest or other conflict with the company.
Thank you Robbie! I'll check it out.
IRA owned precious metals should not be in the physical possession of the IRA account holder. If the IRS were to audit this situation the metals would be deemed distributed to the account holder and thereby would be taxable in the year the client took possession. 408(m) is pretty specific in that it states that the metals must be in the physical possession of the IRA trustee (i.e. the custodian of your self-directed IRA).
It is different with an individual 401(k). In that situation the account holder, as trustee of the individual 401(k) plan, could be in physical possession of the metals. However with an IRA that is not the case. Many providers pitch the idea of using an LLC to alleviate this issue however the rules that apply to the IRA will apply to the LLC that the IRA is the sole member of… so you are left with the same issue.
I can send you the direct link to the code that references what I am talking about. I hope this helps.
The Entrust Group
After more than two years of pursuing this issue with several highly specialized tax attorneys well-versed in this area (not associated with the company referenced below), I respectively disagree with you. The IRS regulations are not at all as straightforward as you depict above.
What is your background and experience in this area?
I've been working in the self-directed IRA administration industry for about 10 years. I certainly do not claim to be an expert in the issue however we have carefully read the IRS code sections that address this issue. Additional we have consulted with the department of labor on the issue (the DOL being the regulatory arm of the IRS in respect to prohibited transactions for IRAs).
I certainly would defer to a CPA or an Attorney that is familiar with the situation. There is some 'gray' in this issue. As a self-directed IRA administration company we cannot (and do not) give legal or tax advise. That said we do try to keep up on what the IRS allows and doesn't allow for IRA investing The information I am drawing from is below (see section in bold). I welcome your thoughts or questions.
408(m) Investment in Collectibles Treated as Distributions.
408(m)(1) In general. –The acquisition by an individual retirement account or by an individually-directed account under a plan described in section
401(a) of any collectible shall be treated (for purposes of this section and section 402) as a distribution from such account in an amount equal to the cost to such account of such collectible.
408(m)(2) Collectible defined. For purposes of this subsection, the term '
408(m)(2)(A) any work of art,
408(m)(2)(B) any rug or antique,
408(m)(2)(C) any metal or gem,
408(m)(2)(D) any stamp or coin,
408(m)(2)(E) any alcoholic beverage, or
408(m)(2)(F) any other tangible personal property specified by the Secretary for purposes of this subsection.
408(m)(3) Exception for certain coins and bullion. For purposes of this subsection, the term 'collectible' shall not include
408(m)(3)(A) any coin which is–
408(m)(3)(A)(i) a gold coin described in paragraph (7), (8), (9), or (10) of section 5112(a) of title 31, United States Code,
408(m)(3)(A)(ii) a silver coin described in section 5112(e) of title 31, United States Code,
408(m)(3)(A)(iii) a platinum coin described in section 5112(k) of title 31, United States Code, or
408(m)(3)(A)(iv) a coin issued under the laws of any State, or
408(m)(3)(B) any gold, silver, platinum, or palladium bullion of a fineness equal to or exceeding the minimum fineness that a contract market (as described in section 7 of the Commodity Exchange Act, 7 U.S.C. 7) requires for metals which may be delivered in satisfaction of a regulated futures contract, if such bullion is in the physical possession of a trustee described under subsection (a) of this section.
408(a)(2) The trustee is a bank (as defined in subsection (n)) or such other person who demonstrates to the satisfaction of the Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of this section.
408(n) BANK. –For purposes of subsection (a)(2), the term "bank" means —
408(n)(1) any bank (as defined in section 581),
408(n)(2) an insured credit union (within the meaning of paragraph (6) or
(7) of section 101 of the Federal Credit Union Act), and
408(n)(3) a corporation which, under the laws of the State of its incorporation, is subject to supervision and examination by the Commissioner of Banking or other officer of such State in charge of the administration of the banking laws of such State.
Thanks for the info, I interpret the code the same way you do. While I do not have a financial background, I do have a lifetime of interpreting federal construction regulations and dealing with their ambiguity under my belt. I find the financial regulations actually pretty straightforward, but I've seem so much conflicting information I began to doubt myself.
To all, thank you for the responses. The LLC may be something I review a little more, but it may be beyond the scope of my abilities. I'm just glad that my money is out of the Ponzimarket. We'll be out east for a wedding soon, I'll stop by the depository to check out our stack. Everything is segregated and I'm welcome to make surprise visits……so they say.
Sorry a little late to the discussion. first off, I am in process of creating a self directed IRA. i have an existing employer sponsored 401k which I will roll over to a US custodian who will in turn transfer funds into an LLC owned by the custodian but managed by me. My primary motivation is to allow more flexibility in investments I chose – i.e among other things – PM’s. that said I do not have strong financial background and mainly reading on my own. Regarding ownership of PM’s in a self directed type account I came across an article by Terry Coxon which states the following –
“It's an IRA that directly holds just one thing – a limited liability company that you manage. The IRA custodian is the legal owner of the LLC, but you deal with the custodian only during the setup process. During that process, assets are rolled over from your old IRA to the new custodian and then into the LLC. After that, you as Manager of the LLC have your hands on the steering wheel and can invest and reinvest in just about anything with any broker, dealer or other party, and you can do so without waiting for the custodian to approve anything and without paying the custodian for storage or for handling transactions.”
It goes on to say:
“In the case of gold and silver, since the metal will be owned by the LLC and not by the IRA custodian, you will be limited to American Eagles and Buffaloes. But you are free to buy them from any source that is not related to you, and you can store them in whatever way you think is best – in a safe deposit box, under the floorboards at home, or in the back of your refrigerator. And they don't need to stay or even be purchased in the US.”
I have additional articles that say the same thing and go into more detail regarding IRS law / requirements / restrictions – apologies I only have hard copy and not in front of me at the moment. Mr Coxon has been doing this for many years and regarded as expert on subject and endorsed from other reliable sources that I follow. I have not committed yet as I am seeking more guidance but so far I believe a viable option. I would be interested in any thoughts / comments. Thanks in advance
Many providers pitch the idea of using an LLC to alleviate this issue however the rules that apply to the IRA will apply to the LLC that the IRA is the sole member of… so you are left with the same issue.
"ISSUES:May an LLC that is 100% or 95% owned by an IRA buy gold and the manager, who is thebeneficiary ofthe IRA, physically lake possession of the gold for storage purposes. What gold is allowed to be owned by an IRA and would those items be allowed to be owned and held by an TRA-LLC that's managed by the owner of the IRA?SHORT ANSWER:1. Can the Manager ofthe LLC – beneficiary of the IRA- physically take possession ofgold for storage purposes?ANSWER: 1 contacted Gary Lefkowitz of the Depl. of Labor (202) 693-8546 as a prelude toanswering your question. Gary confirms that the LLC Manager may keep gold in a safe for andon behalf of the LLC as long as there is no "self-dealing" (personal gain by the transaction). SecProhibited Transactions (D) and (E). See also discussion below."