The Good, the Bad & the Ugly of Self-Directed Gold IRAs
When we first began investing years ago, you had a very limited number of options. You could invest in stocks, bonds, money markets and mutual funds. Back in those days, ETFs didn’t exist, nor did self-directed IRAs, which have become immensely popular among the investing public. These investment vehicles allow for investors to invest in hard assets, such as gold and real estate. These days, many investors are seeking alternative investments, as they’re concerned about a highly inflated stock market, a declining bond market and a money market or cash equivalent investment not providing enough of a return to keep up with inflation.
In today’s article, we’re going to shed a bit of light on self-directed gold IRAs in case you’re interested in hedging against a potential collapse of the financial markets. To begin with, not everyone can invest in a self-directed gold IRA. For example, if you’re still working for a company with which you have a 401k or IRA, they likely won’t let you leave the plan until you’re no longer working for them. No – this doesn’t necessarily mean you should quit your job! However, if you’ve been investing in an IRA that you established outside of your employment or have a 401k from a previous employer, you can convert these funds to a self-directed IRA.
Your first step is to identify a custodian that specializes in self-directed IRAs. While not a recommendation per se, three of the largest and most well-known custodians in the industry, at least at the time of this writing, are New Direction Trust IRA, Equity Trust and the Entrust Group. These companies should allow you to work with the coin dealer of your choice, which is important, especially if you have an existing relationship with a local coin dealer. We recommend continuing your search for custodians if they limit which coin dealers you’re able to work with.
Transfer of Coins and Bullion to Custodian of Gold IRA
Once you’ve identified the custodian that you would like to work with, you’ll need to request and complete a transfer of funds request form so that the funds will be transferred from your existing provider to your self-directed custodian. Once the self-directed custodian has confirmed receipt of funds, you’ll receive a buy direction letter, which is your indication that you can begin to work with your coin dealer of choice to identify which gold, silver, and/or platinum coins or bullion you would like held in a depository on your behalf. Except for American gold eagles, all coin and bullion investments must consist of 24k gold, or pure silver, platinum or palladium. This rule will prevent you from investing in coins that have traces of base metals, such as South African gold krugerrands and old-world European coins, but there are plenty of other options available to investors.
Once the coins and bullion have been agreed upon, the coin dealer will submit an invoice to the custodian and the custodian will fund the purchase. Once the coin dealer has confirmed receipt of payment, he or she will ship the coins and/or bullion to a depository to be held on your behalf. Upon receipt, the depository will take an inventory of the items shipped on your behalf and will send confirmation to the custodian. We recommend that you insist on allocated and 100% segregated storage to avoid any potential redemption issues down the line.
Depending on which custodian you use, you may be able to select which depository you would like to use. At the time of this writing, six depositories have been approved for gold IRAs, which include A-M Global Logistics/Loomis International in Las Vegas, NV, CNT Depository in Bridgewater, MA, Dakota
Depository Company in Fargo, ND, Delaware Depository Services Company (DDSC) in Wilmington, DE, International Depository Services Group (IDS), and Money Metals Depository in Eagle, ID.
If given the opportunity, we recommend that you always select the depository that is closest in proximity to your residence, as at some point in time you’ll likely want to cash out of your IRA after you reach retirement age. The closer in proximity you are to the depository, the less expensive it will be to ship the items to your residence. However, proximity needs to be weighed against the annual fees that the depository charges. If you plan on having your precious metals stored for years and intend on adding to your holdings over time, a small difference in the percentage of assets under management (AUM) can make a big difference in your out-of-pocket expenses.
Generally speaking, the custodian will work with the depository with respect to payment of the annual storage fees, so you won’t have to worry about keeping track of expenses related to the storage of your items.
On the surface, this sounds like a perfect investment, but there are a few considerations that you should be aware of. If you don’t strictly follow the requirements for a self-directed IRA, you may be required to pay all taxes due, including early withdrawal penalties. A former coin dealer, who will remain nameless, shared with his clients that they could store their metals at home or in a safe deposit box. Unfortunately, this wasn’t the case. Since his recommendation, there have been multiple cases of people who have been cited and fined by the IRS for not adhering to the self-directed IRA requirements.
Annual fees are another consideration. While self-directed IRA depository fees are typically less than fees charged for personal storage, as custodians can negotiate bulk rates with the depository, fees do add up over time, so make sure you understand exactly what they’re going to be to confirm that they’re reasonable.
Accessing Your Precious Metals in a Gold IRA
Another factor to take into consideration is not having your precious metals nearby in the event of a SHTF scenario. This can be unnerving to some people, especially those that believe at some point in time we may revert to bartering with precious metals if we have a currency collapse. We’ve made this statement multiple times, but it bears repeating “if you don’t hold it, you don’t own it.”
Situations may arise that prevent you from gaining access to your metals. Certainly, a SHTF scenario would be one of them, such as a financial collapse, an attack on our electrical grid, a natural disaster, fraud, or a change in government’s policies regarding citizens’ ability to hold precious metals. While we’re not necessarily anticipating a repeat of Executive Order 6102, a desperate government will oftentimes make desperate choices.
This is why we’re proponents of holding and storing precious metals yourself whenever possible. However, it doesn’t do any good to live in fear, so short of cashing out of your 401k or IRA and parking your investments in physical precious metals that you can hold, opting for a self-directed gold IRA appears to be the next best choice. Certainly, much better than any of the other investment options that we highlighted above.
If you’re one of many people who are considering transferring your existing retirement funds to a self-directed gold IRA, we ask that you consider Atlanta Gold & Coin Buyers as your coin dealer of choice for this investment. We have years of experience in the coin and bullion industry, are familiar with the investments that are eligible for gold IRAs and can help to customize an order that is right for you and your investment goals.