Home storage gold IRAs seem like a great idea because, as the name implies, they allow you to store physical gold in a safe at home. It’s appealing to keep your gold near you, but you could face IRS penalties if you do it the wrong way. The IRS also has strict rules regarding who can legally store IRA-purchased gold at home.
Types of Gold Allowed in a Home Storage IRA
Home storage IRAs heavily restrict the types of gold you’re allowed to store. Under the IRA statutes, the IRS considers gold coins and other types of bullion as “collectibles.” The IRS discourages the holding of such collectibles in an IRA.
However, the IRS makes an exception for some kinds of highly refined bullion. To qualify for the exception, a bank or IRS-approved non-bank trustee must physically possess the gold.
To request non-bank trustee status, you’ll need to file a written application with the IRS. In your application, you’ll have to demonstrate your ability to act as a trustee by complying with IRS requirements on a line-by-line basis.
You’ll need to describe your net worth, experience with retirement plans, and fitness to handle funds in the IRA.
Pros and Cons of Home Storage Gold IRAs
Home storage gold IRAs benefit investors because the price of gold tends to remain fairly stable. Gold prices usually rise when the dollar’s value drops, so owning gold could shield you from inflation.
If you value security over profits, investing in gold could make sense for you. Financial analysts call gold a low-risk investment, and knowing that can help you rest easy during your retirement years. Gold storage IRAs don’t pay interest or dividends, though, so don’t expect to earn millions from your investment.
A home storage IRA lets you keep gold on your property. Depending on how you look at it, that can be both good and bad. Many investors would rather keep their gold close by instead of stashing it at the bank. If you’re one of them, you’ll probably feel better knowing your gold is always there when you need it.
But if you’re robbed, that gold could vanish in an instant. And if you live somewhere that’s commonly hit by natural disasters, you could lose your gold in the aftermath. Digging through debris to find your gold is likely the last thing you want to do.
The IRS also puts hard limits on who can set up a home storage gold IRA. If you don’t qualify but try to create a home storage gold IRA anyway, you could suffer heavy penalties from the IRS. You might also face an audit, which can turn into an expensive nightmare if the IRS finds things it doesn’t like.
How to Set up a Home Storage Gold IRA
To set up a home storage gold IRA, you’ll first need to find a company that can create an LLC for the IRA. This company will appoint you as the non-compensated manager.
After the company creates your new LLC, you can head to your bank and open a checking account in the LLC’s name. When you buy gold or other types of metals for your IRA, you’ll do so using a check from the LLC.
Next, you’ll open a self-directed IRA and fund it using your LLC account.
Lastly, you can purchase IRA-approved gold and have it shipped to your home or another secure location.
Fees and Costs of a Home Storage Gold IRA
Setting up a home storage gold IRA comes with several fees. You’ll usually pay a setup fee, wire fee, and annual maintenance fee. Setup fees cost an average of $50 to $300, and for the wire fee, expect to pay around $25. Annual maintenance fees cost $75 to several hundred dollars per year.
You’ll likely also pay a fee when you buy or sell gold within your account. This fee averages about $40.
If you choose to transfer gold from your home to a depository, you’ll have to pay storage fees as well. This varies, but you could pay about 1% of the total value of gold stored in the depository. You’ll also pay for liability insurance, which could cost an average of $300 per year.
Factors That Affect the Fees and Costs
One of the biggest factors affecting IRA fees is the company you choose. Some companies might have lower or higher fees than others. Do your research before committing so you’re not hit with unexpected charges down the road.
How often do you plan to buy gold for your IRA? If you plan to purchase frequently, those transaction fees can add up quickly.
If you decide to keep your gold in a depository later on, the administrator will charge you a storage fee. These fees can be expensive if you store a large amount of gold in the IRA.
What Are the Tax Implications of Home Storage Gold IRAs?
Keeping gold in a home storage IRA comes with tax implications, including both benefits and potential penalties.
Depending on the specific IRA you choose, you’ll see tax benefits when you either contribute to the IRA or withdraw from it. With a Roth IRA, you’ll pay taxes on contributions but not withdrawals.
For Simple Employee Pensions (SEP) and traditional IRAs, you only pay taxes when you withdraw funds.
If you fail to meet IRS reporting requirements for your home storage gold IRA, you’ll likely face pricey penalties that can reach thousands of dollars. You could lose the tax advantages that convinced you to open a home storage gold IRA in the first place.
The IRS also penalizes you for not opening your home storage gold IRA properly. The IRS can treat your home storage as a distribution or withdrawal from your IRA account. If you’re below age 59 ½, you’ll pay a 10% tax penalty on the value of your gold.
The IRS may also choose to audit you. This could put you at risk of a higher tax burden and maybe even jail time.
Rules and Regulations
While opening a home storage gold IRA may seem like it’s not worth the risk, it’s possible to avoid consequences as long as you don’t run afoul of the law.
The IRS has certain regulations that you’ll need to meet to keep precious metals in a home storage gold IRA. Of these, the most important requirement is that you set up an LLC in your name. The company will notify the IRS that you meet the requirements for a home storage gold IRA, which serves to protect you against penalties and audits.
Rules for Home Storage
The IRS rules for storing gold at home are as follows:
- You must have an LLC with a specially written operating agreement.
- You need corporate insurance in the form of a $250,000 fidelity bond.
- You need a net worth of at least $250,000.
- Your trustee corporation must have an ownership structure that’s divided among several people.
- You must retain a qualified public accountant in case of an audit.
- You must keep corporate legal counsel on retainer.
- You must have experience handling retirement funds and a reputable financial background.
The IRS requires you to report most precious metal transactions on Form 1099-B. For gold to qualify for reporting, each total purchase must weigh at least one kilogram. Individual pieces of bullion need a fineness of at least .995.
Your IRA custodian will also need to file Form 5498: IRA Contributions Information with the IRS every year. This form shows the contributions you made to an IRA or Roth IRA. The form reports rollovers and conversion of assets from a retirement plan into an IRA as well.
Can You Transfer Funds From an Existing IRA into a Home Storage Gold IRA?
If you’d like to transfer funds from your existing IRA into a home storage gold IRA, you can do so with the help of a self-directed IRA custodian who offers gold as an investment. You have two options to accomplish this: a transfer or a rollover.
Using a transfer, your current IRA custodian sends money directly to your new custodian.
With a rollover, your IRA custodian gives you the money to deposit into your new account. But it’s important to know that you have only 60 days to do so. If you miss the window, you’ll pay a 10% penalty on the withdrawal if you’re younger than 59 ½.
Home Storage Gold IRA vs. Other Types of Gold IRAs
Compared to a regular gold IRA, home storage gold IRAs can be rather risky. You’ll have to meet strict rules and requirements for home storage of alternative assets. Most people don’t know how to handle an audit, and not everyone has a net worth of $250,000 or more.
If you’d rather not use a home storage gold IRA, you can still choose to keep gold as a physical investment in your portfolio. A third-party custodian will keep your gold safe in a depository, and you won’t have to worry about breaking IRS rules.
Your second option is an exchange-traded fund (ETF) that tracks a gold index. An ETF holds gold assets and trades them on the stock exchange as with any other stock. With an ETF, you buy shares of gold, the value of which can go up or down depending on market rates.
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