Individual retirement accounts offer a tax-advantaged way to save for the future, with the usual mix of investment choices: stocks, bonds, mutual funds or cash. If you’re interested in alternative investments for retirement, a self-directed IRA allows a broader scope for building a portfolio.

With a self-directed IRA, you can invest in things like real estate or precious metals. That includes gold coins, gold bullion, gold futures and gold funds. According to an April 2017 Gallup poll, 18% of investors believe gold is the best way to invest for the long-term. Gold may offer a hedge against inflation, but there are some specific rules to be aware of when investing in precious metals through a self-directed IRA.

What Is a Self-Directed IRA?

Self-directed IRAs are available as either a Traditional IRA or a Roth IRA. The biggest distinction between them and the usual bank- or broker-managed IRA is the range of investments offered and how the IRA is managed.

In terms of investment choices, self-directed IRAs allow more variety. In addition to gold and real estate, things like oil and gas limited partnerships, private company stock or intellectual property are available to self-directed IRA investors. Certain assets—including life insurance, collectibles and gems—can’t be held in an IRA. The IRS makes an exception for certain kinds of gold coins or bars.

IRS rules are specific about how you can own self-directed IRA assets. You have to designate a qualified trustee or custodian to hold the assets on your behalf. The trustee or custodian (typically a brokerage or investment company) processes any buy or sell transactions associated with your IRA and is also responsible for maintaining appropriate records and reporting transactions to the IRS.

Self-directed IRAs prohibit a practice known as self-dealing. Essentially, this means you can’t buy or sell an investment if the transaction involves a disqualified person. Disqualified persons include yourself as the IRA owner, your family members, the IRA custodian or a third-party company in which you hold more than a 50% ownership stake. In other words, you or someone you know can’t benefit personally from the transaction.

Gold bars similar to what you would get if you invest in gold.

Holding Gold in a Self-Directed IRA

There are several ways to invest in gold with a self-directed IRA. The first thing to know is that the IRS distinguishes between physical gold investments and gold securities.

Physical Gold Investments

For physical gold investments, such as coins or bullion, there are specific rules about where the gold can be stored and what type of gold you can own in a self-directed IRA.

According to IRS Section 408, self-directed IRA investors are limited to American Gold Eagle coins, Canadian Gold Maple Leaf coins, American Gold Buffalo Coins and gold bullion that has a purity rating of 99.9% or better. Gold bullion must be stored with an approved trustee, which means a bank, credit union or corporation that’s subject to state banking regulation.

Gold coins generally follow the same rules with regard to storage. If your self-directed IRA is set up as a limited liability company or LLC, however, the rules are a bit murkier. You could technically hold those coins by keeping them in a safe-deposit box at your bank rather than turning them over to a trustee. The IRS, however, warns against keeping physical gold assets outside the control of an approved trustee. You can’t keep gold at home in a private safe.

Gold Securities

If you want to avoid storage issues, you could opt to invest in gold funds or invest in gold futures instead. A gold fund is an exchange-traded fund that invests in gold-producing companies or gold bullion. ETFs offer advantages over other types of mutual funds in the form of lower costs and increased tax efficiency. These funds are bought and sold on an exchange like stocks, giving you some flexibility in tracking movements in the precious metals market.

Gold futures are a type of exchange-traded contract in which a buyer agrees to take delivery of a certain amount of gold at a date in the future. Trading in gold futures is largely speculative, giving them the potential to be more volatile than stocks. If gold prices fall rapidly, for instance, you may have to cover the margin which could result in a loss on your investment.

Do Your Homework

Gold can be a tricky investment to manage since it’s difficult to predict which way prices will move. If you’re considering opening a self-directed IRA for gold investing, compare your choice of custodians carefully beforehand. Consider the fees they may charge for managing your account, the level of service they provide and their overall track record. Brokers aren’t all alike and it’s important to choose the one that best fits your retirement investing goals.

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