Considering a “Gold” IRA? – Choose Wisely
There are probably 101 good reasons to own precious metals right now, and for the average consumer/investor, almost as many choices to be made.
One option that is currently very attractive is the purchase of gold and precious metals within a Self Directed IRA account. There can be material benefits to this form of Gold ownership, but as with everything these days, there are also some specific rules that must be followed in order to have the investment be qualified.
For example, only specific US gold, silver and platinum coins are allowed like the US Gold and Silver Eagles, along with other bullion coins that meet specific fineness standards (.999 pure) such as the Canadian Maple Leaf.
Numismatic items and coins certified for grade or items that carry a numismatic premium are not allowed. However beware of a common mistake many buyers make, namely purchasing Proof Gold.
The US and other mints generally manufacture both a standard MINT STATE and PROOF version of their bullion coins, however the proof coins are manufactured to a much higher standard, with specially prepared planchets (blanks) and multiple striking. They are beautiful, but this process makes them more expensive that Mint State coins with an equal amount of gold.
The trap is this, if you purchase proof gold for your IRA account, you will end up paying a premium above the actual value of the gold itself. However this premium does not increase as the spot price of the underling metal increases, so in effect you are buying less gold “value” for every dollar. Your best deal is to just purchase regular old mint state gold and silver bullion coins and you will be way ahead of the game.
However, you can’t just drop down to a local coin dealer and buy the coins yourself. In order to qualify as an IRA investment, you need to set up a Self Directed IRA account.
Self Directed IRA’s actually can hold any number of different types of assets, but the two best known and most reputable precious metals administrators for individual investors are GoldStar and New DirectionIRA. Yes several of the big banks also offer administration services, but for anyone that wants to make their own choices and avoid the big fees and bureaucracy, I’d stick with the specialized companies such as NewDirection or Goldstar.
Now. what does an Administrator do? Well for one, they handle all the money. Once you open your account and fund it either with a direct deposit or a rollover from another 401K or existing IRA, they will make the actual payments to the Bullion/Coin Dealer from whom you are buying your gold.
They don’t care what you buy so long as it qualifies under the IRS rules mentioned above. They will also provide monthly account statements to you, handle the paperwork, etc. All the usual stuff you don’t want to be bothered with.
All this is well and good, but who holds the actual Gold coins in your account?
Under the IRS rules, as the IRA account owner, YOU CAN NOT have control over the underling assets (your coins), nor can the administrator. All the coins, bars and assets in your self directed IRA should be held in a depository, an ultra secure location that is both insured and approved to store precious metals.
The depository has two forms of storage, Fungible meaning your coins are grouped in with other peoples coins and Segregated, where your coins are separate from others within the storage facility, insuring that the exact coins you purchased are the ones returned to you or sold on your behalf at sometime in the future
Depositories charge a small annual account fee plus a storage fee based upon the total value of the account, with a slightly higher amount for segregated storage.
Goldstar, based out of Texas used to use HSBC as its depository, but on July 3rd 2009, HSBC announced that they were no longer going to accept coins for storage, only bars and ingots. Basically they ran out of space.
Goldstar has since signed an exclusive agreement with DDSC (Delaware Depository Service Center) as the sole depository that Goldstar uses.
On the other hand, NewDirectionIRA also does not have an exclusive agreement with any single Depository. The customer is free to select which depository to use, and by extension, shop for the best storage fees possible.
One such depository is First State Depository in Wilmington Delaware. I must state that I am biased, as I know the owners at First State. They run a very clean operation. All of their storage agreements are for segregated storage so you coins are never co-mingled with others, and their fees are significantly lower than similar depository services.
Remember, You are the one who should be making ALL the decisions in your Self Directed IRA. That’s why you set it up in the first place!
1) Choose a Bullion Dealer to work with that can deliver the product you order, and remember, stay away from the proof coins. If the dealer tries to sell you these for your IRA, keep shopping.
2) Make sure the coins you purchase are “Qualified” to be included in an IRA
3) Select an Administrator that gives YOU the ability to choose how reports are sent, Offers YOU options as to storage facility, Type of Storage and Timely execution and processing of your purchase orders
4) Shop for the best Depository that is going to suit YOUR needs, and do not settle for the one that is most convenient for your Administrator or Bullion Dealer.
5) Most importantly, develop good solid working relationship with ALL Three of the organizations you need to make your IRA work for you, The Bullion Dealer, The Administrator and the Depository.
The more that each of these are responsive to your needs and requirements, the better off you will be and the easier it will be to sit back and enjoy your Gold investment performance.