Can a Self-Directed IRA Hold Gold Coins?

Precious metals IRAs are popular. This includes silver IRAs, gold Roth IRAs, and even gold-backed IRAs.

These accounts allow investors to invest in these alternative assets. This in turn allows the investors to diversify their exposure to stocks and bonds. For those with special interests and knowledge to make these investments, they can also allow targeted investments to profit from timing and other events that can increase the value of their IRA accounts.

Since most traditional brokerage companies and banks do not allow these types of investments, investors have to use self-directed IRA custodians for these investments. There are self-directed IRA providers who focus on helping with these types of investments. You can search for “gold IRA reviews” or “gold IRA rollover” to find these custodians.

One unanswered question with respect to these IRAs is whether the IRA account owner can take physical possession of the gold, silver, or other precious metals. The self-directed IRA providers have taken different positions on this topic.

The court finally answered the question in McNulty v. Commissioner, 157 T.C. No. 10 (2021).

Facts & Procedural History

The taxpayers in McNulty were not retired. They were both employed and still working.

They both had self-directed IRA retirement accounts.

This court case focuses on the wife’s self-directed IRA. The wife formed a standard checkbook IRA. She used a third-party custodian, the custodian caused the IRA to form an LLC, the LLC set up a bank account, and the bank account was used by the account owner to make investments. This is the basic setup for rolling over an existing IRA to invest in gold, silver, or other precious metals.

In this case, the taxpayer-wife, the account owner, invested in gold and silver coins. As noted by the court, third-party custodians were advertising that their clients could take physical possession of the coins purchased by IRAs. One can still find articles that say this on the internet. The court described the language included on Check Book IRA LLC’s website as follows:

During 2015 Check Book’s website advertised that an LLC owned by an IRA could invest in AE coins and IRA owners could hold the coins at their homes without tax consequences or penalties so long as the coins were “titled” to an LLC. There are in the record no certificates of ownership for the AE coins or any other documentation that establishes legal title.

The taxpayers took physical possession of the coins purchased by the wife’s self-directed IRA. They stored them at their house in their personal safe along with other valuables.

The IRS audited the taxpayers’ Form 1040 individual income tax account. It discovered the gold coins and concluded that the coins were distributed to the taxpayers given that they had physical possession of the coins. Litigation ensued in the U.S. Tax Court.

About Self-Directed IRAs

Before getting to the investment in gold coins by the taxpayers in this case, it’s helpful to pause to consider self-directed IRAs and the self-directed IRA rules generally.

Self-directed IRAs are just IRAs that are offered by custodians that allow the account owners to have more control over the investments in the IRA. These IRAs are usually not offered by the large brokerage companies or banks as they allow investments that these firms cannot profit from. A brokerage company makes money off of selling investments, such as stocks, bonds, or mutual funds. They also make money off of managing these assets, such as being a manager for a mutual fund that buys and sells underlying securities. This business model is not set up to work with alternative assets, such as real estate, gold coins, etc. that are more difficult to buy and sell.

Self-directed IRAs can go a long way in helping the owners achieve their financial goals. This is particularly true if the owner is able to use their experience and knowledge to produce above-average returns.

Those who invest in alternative assets are often able to do this. Whether it is a hedge fund manager who invests in start-ups, a real estate investor who invests in real estate, or an investor who puts money into precious metals (bullion) or coins, as in this case.

What Assets Can Be Held in a Self-Directed IRA?

This brings us back to the question as to what assets can be held in a self-directed IRA? The short answer is that just about any investment can be held in a self-directed IRA. That is, any investment that is not prohibited.

Section 408(m) prohibits holding coins and precious metals using a self-directed IRA.

Section 408(m)(3) provides:

(3) Exception for certain coins and bullion.—For purposes of this subsection, the term collectible shall not include

—(A) any coin which is—(i) a gold coin described in paragraph (7), (8), (9), or (10) of section 5112(a) of title 31, United States Code,(ii) a silver coin described in section 5112(e) of title 31, United States Code, [or]* * * * * * *

(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.

We’ll come back to this language below.

Can I Buy Physical Gold in a Self-Directed IRA?

Gold has been a great investment over time. It has had several run-ups in price and it is volatile enough that those in the know have been able to profit from it.

As to the question of whether you can buy physical gold in a self-directed IRA, the answer is “yes!” The rules allow IRAs to invest in gold coins and precious metals.

These rules do not, however, say that the self-directed IRA account owner can take physical possession of the coins or metal. This is the very issue in this case. Can the account owner actually take possession of the coins or metal?

Can I Take Possession of Gold Coins Owned by My IRA?

The court approached the question by looking at the trustee requirements in the Code. It noted that IRA custodians have to meet quite a few requirements.

Specifically, the custodian has to keep separate and distinct records with full information on each IRA. If assets require safekeeping, the custodian has to deposit them into an “adequate vault” and keep a permanent record of deposits and withdrawals from the vault. There is even an exception for the no-comingling rule. This exception says that the IRA assets cannot be commingled with other property except in a common trust fund or common investment fund. Thus, a qualified custodian or trustee is required to be responsible for the management and disposition of property held in a self-directed IRA.

Given these requirements, the court concluded that the taxpayer taking physical possession of the gold coins was a distribution to them. A contrary conclusion would render the trustee requirements moot.

The taxpayers countered that Section 408(m)(3) (cited above) creates an exception to these rules. They pointed to the last sentence in that subsection which says that bullion has to be in the trustee’s possession. It does create an inference that only bullion–and not gold coins–has to remain in the trustee’s possession.

The court did not go for it: According to petitioners’ argument, the flush text negates the basic requirement of section 408(a) that there be a trustee that acts as a fiduciary and administers IRA assets. We will not apply such a negative inference to override the basic fiduciary and custodial requirements of section 408(a) that are fundamental to the retirement savings scheme, particularly in the absence of clear statutory text. The flush text does not create an exception to the well-established rules that IRA assets must be held by a trustee and that an IRA owner who takes possession of IRA assets receives a taxable distribution. Accordingly, Mrs. McNulty’s receipt of each purchase of the AE coins paid for with her IRA funds was a taxable distribution pursuant to section 408(d).

Thus, the owners of self-directed IRAs cannot take physical possession of gold coins their IRAs own. They can invest in gold coins, but the coins have to remain in the custody of the IRA trustee or custodian.

Where Can I Store My IRA Gold?

There are several IRA custodians that work with investors who invest in cold coins. This can be as easy as the custodian setting up a safety deposit box with a bank.

If the custodian does not have the ability to hold gold coins, they can contract with third parties for this service. Most banks and trust companies offer this service.

Those who do not want to deal with physical possession issues may also try gold or silver ETFs. These funds generally invest in gold, silver and/or precious metals and then make shares in their funds available to investors. These funds can be used to diversify risk for the account owner while avoiding the complications that come from owning actual gold, silver, or precious metals.

Contact an Experienced Self-Directed IRA Attorney

Not all transfers or gold IRA investments are the same. Those who are using self-directed IRAs to invest in gold, silver, or other precious metals should consult with an experienced self-directed IRA attorney.

The same goes for those who have taken physical possession of gold, silver, or other precious metals owned by their IRAs. The attorney can address the prohibited transaction rules, distribution rules, and investment rules based on the facts and the myriad of penalties that can apply. This can help limit the investor’s tax consequences and exposure.