I was recently contacted by a reporter for the Wall Street Journal named Laura Saunders regarding my view on the growing promotion of so-called “Home Storage Gold IRAs” (see resulting article by Ms. Saunders below). The companies promoting this idea are generally precious metals dealers (conflict of interest anyone?!?) who would like to take advantage of the fact that some people do not trust the government (or any company under government control, e.g., IRA custodians, metal depositories, etc.). The methodology used to store precious metals in the IRA Accountholder’s home (or a safe deposit box at a local bank) is to have the IRA purchase an LLC and have the LLC take possession of the metals. Although an IRA-owned LLC setup has been widely accepted as legitimate by Tax Courts (and more begrudgingly so, by the IRS), that does not mean that the LLC has unlimited freedom.
My concerns regarding the promotion of “Home Storage Gold IRAs” are numerous, but a few highlights include:
(1) The IRA-owned LLCs are often established by a non-attorney (similar to an “IRA/LLC Facilitator”), with that company’s only goal to get the IRA-owned LLC established and invested into precious metals. Operating an IRA-owned LLC legally over the long-term requires careful precision, but it’s likely that most of these IRA Accountholders (who are also serving as the IRA-owned LLC’s “Manager”) are not being adequately educated on the intricate legal and tax rules. In other words, the problem is not just the precious metals that the IRA-owned LLC will purchase, but how the IRA-owned LLC will be handled over the following decade or more.
(2) Storing certain types of precious metals coins (e.g., American Eagles) is legal within an IRA, but the legality of holding the coins within an IRA-owned LLC, particularly at the LLC Manager’s house and/or LLC safe deposit box has not been clearly established by Tax Courts. Certainly the IRS is skeptical (see article). To say that something is okay because the government hasn’t specifically said that it’s not is a concerning line of thinking, particularly when promoted by companies that have a clear conflict of interest (i.e., if you don’t setup an IRA-owned LLC, they can’t sell you the precious metals).
(3) Storing precious metals bullion is also legal within an IRA (assuming it is of a required purity level), but the rules specifically say that the bullion must be held by a “trustee” (i.e., the rules are more expansive than with the coins referenced above). When defining what a “trustee” is, the Code references a “bank or such other person who demonstrates that the manner in which such other person will administer the trust will be consistent with the requirements of this section”. The promotors of “Home Storage Gold IRAs” (and even their attorneys) claim that bullion can be held in an IRA-owned LLC’s safe deposit box at the LLC’s bank, because “a bank is a trustee”. However, this logic is flawed because the Tax Code section that says that a bank falls under the definition of a trustee is assuming that the bank is “administering the trust” (i.e., holding the IRA). In the case of an IRA-owned LLC, the LLC’s bank almost always is clueless about the fact that the IRA owns the LLC – they only know that the LLC’s “Manager” is the individual standing in front of them asking to open an LLC checking account and an LLC safe deposit box. Further, I don’t believe that an IRA-owned LLC’s bank is analogous to a precious metals depository company hired by the IRA’s custodian, because the LLC’s bank is not under any level of supervision of the IRA custodian (after all, the LLC’s Manager can easily switch banks immediately after the IRA invests into the LLC – which many people do in order to spread FDIC insurance coverage over numerous LLC bank accounts).
To read the complete article here: http://www.wsj.com/articles/want-to-keep-gold-in-your-ira-at-home-its-not-exactly-legal-1472835458