coin guide

How a Precious Metals IRA Works

A precious metals IRA is a self-directed IRA that holds physical gold, silver, platinum or palladium. Under section 408(m) of the tax code, it can hold a short list of named U.S. coins, plus any bullion that meets a futures exchange's purity standard: 995 fine for gold, 999 for silver and 99.95% for platinum and palladium. Whatever it holds has to stay in the physical possession of the IRA's trustee.

"Gold IRA" and "silver IRA" are everyday names for this same account, and none of the three is an account type in the tax code. What you open is a traditional, Roth, SEP or SIMPLE IRA whose custodian is willing to hold metal, and the IRS says the investment restrictions apply equally to all types of IRAs. "Self-directed" isn't a tax code term either. The SEC defines a self-directed IRA as one "held by a custodian that allows investment in a broader set of assets than most IRA custodians permit."

The Law Starts With a Ban on Metals and Coins

Section 408(m) opens with a ban, not a permission. It bars collectibles, a list that includes "any metal or gem" and "any stamp or coin." An IRA that buys one is treated as having paid out a distribution, and the statute's measure of it is "the cost to such account of such collectible."

An IRS FAQ states the result plainly: the amount invested is considered distributed in the year invested, and a 10% additional tax on early distributions may apply. So gold and silver start out banned. Every coin or bar an IRA can hold gets in through an exception, and Congress wrote two.

Route One Is a Short List of Named Coins

Coins on the first route are named by their place in the federal coinage law, 31 U.S.C. 5112. A listed coin qualifies because it's listed, whatever its purity.

For gold, section 408(m) names the four coins in paragraphs (7) through (10) of section 5112(a): the 1 oz, 1/2 oz, 1/4 oz and 1/10 oz American Gold Eagles. NGC lists the 1 oz Gold Eagle's composition as 91.67% gold, below the 995 standard that every other form of IRA-eligible gold has to meet.

For silver, one coin is named: the coin described in section 5112(e), the 1 oz American Silver Eagle. Any other IRA-eligible silver comes in by the second route.

For platinum, Congress named the coins minted under section 5112(k), which covers the U.S. Mint's platinum bullion coins and its proof platinum coins, the platinum Eagles. No palladium coin is named.

One more entry isn't a federal coin at all. Section 408(m) also excepts "a coin issued under the laws of any State."

Route Two Is Bullion That Meets an Exchange's Fineness

Under section 408(m)(3)(B), any other gold, silver, platinum or palladium qualifies only as bullion, and only on two conditions. Its fineness can't fall below the minimum a regulated futures exchange sets for metal delivered against one of its contracts, and it has to be "in the physical possession of a trustee."

No percentage appears in section 408(m). Every number people repeat comes from an exchange rulebook. COMEX requires gold delivered under its gold contract to "assay to a minimum of 995 fineness," and its silver contract sets a minimum of 999 fineness. NYMEX requires platinum and palladium delivered under its contracts to be "a minimum of 99.95% pure."

Congress borrowed the fineness and nothing else. COMEX's rule also says delivered gold "must be a brand approved by the Exchange," but section 408(m) doesn't import the condition, and it names no refiner, bar size or packaging. A requirement that goes beyond fineness and trustee possession is a custodian's policy, not the tax code's.

One U.S. Mint coin shows the second route at work. Congress defined the American Gold Buffalo in paragraph (11) of section 5112(a), one paragraph past the four Gold Eagle paragraphs, so the Buffalo qualifies on its 99.99% purity and not by name. Foreign government coins get no mention in section 408(m) either. Those that meet the fineness come in the same way, subject to the custodian's acceptance.

Platinum and Palladium Qualify in Different Ways

Platinum and palladium share a 99.95% minimum and split on coins. Platinum's coins are named, and section 5112(k) leaves their specifications to the Treasury Secretary, so eligibility rests on the name.

Palladium has no named coin. Congress defined the American Palladium Eagle in paragraph (12) of section 5112(a) as a coin that "weighs 1 troy ounce and contains .9995 fine palladium," and the IRA coin list doesn't reach that paragraph. So palladium Eagles qualify the way a bar does, on purity: .9995 fine is 99.95%, exactly the NYMEX minimum.

Platinum bars and palladium bars have only the bullion route. For the metals themselves, see our guide to what makes platinum and palladium unique.

The Rule Was Built in Steps From 1981 to 1997

Congress wrote the rule in stages, which explains its odd shape. IRAs date to a law enacted September 2, 1974. Section 408(m) was added in 1981, applied to property acquired after December 31, 1981, and had no exception for any coin or bullion.

Eagles came first. With the Tax Reform Act of 1986, IRAs could acquire American Gold and Silver Eagles after December 31, 1986. As the U.S. Tax Court noted in McNulty v. Commissioner, the 1986 amendment coincided with the Mint's launch of the American Eagle coin program that year. State-issued coins followed, for acquisitions after November 10, 1988.

Bullion by fineness, platinum coins and palladium arrived with the Taxpayer Relief Act of 1997, for tax years beginning after December 31, 1997. That's why the Gold Eagle is on a list of names: when Congress let it in, no fineness route existed.

The Trustee Holds the Metal, and Its Role Stops There

An IRA's trustee or custodian must be, in the words of IRS Publication 590-A, "a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS to act as trustee or custodian." Under section 408(h) a custodian is treated as the trustee, which is why you'll see both words.

An IRS FAQ says the exception for bullion applies "provided it is in the physical possession of a bank or an IRS-approved nonbank trustee." When the IRA buys, you give the instruction, the custodian pays from the IRA and the metal goes into the trustee's possession. You don't take delivery while it's in the IRA.

What the IRS approves is trustees, not vaults. Its list of approved nonbank trustees and custodians, kept under Treasury Regulation 1.408-2(e), is public, though the SEC cautions that it "is not a complete list of every custodian," because banks and trust companies can serve as custodians too.

Holding is where the role ends. An SEC investor alert says self-directed IRA custodians "are only responsible for holding and administering the assets in the account" and don't evaluate the quality or legitimacy of an investment. A custodian that accepts your purchase hasn't given an opinion on its price.

No IRS List of Approved Products Exists

You won't find an IRS list of approved coins, bars or brands. On its own FAQ page the IRS says "there is no list of approved investments for retirement plans." Its Publication 590-A describes eligible metal only by category: "certain platinum coins and certain gold, silver, palladium, and platinum bullion."

So "IRA approved" or "IRA eligible" on a product, ours included, is shorthand: the item meets section 408(m) and custodians generally accept it. Acceptance matters, because the IRS also says "IRA trustees are permitted to impose additional restrictions on investments." A custodian can decline a product that section 408(m) allows.

Ask the custodian, in writing, before the IRA pays for any product. Proof and graded versions of eligible coins need the question most, because collectible, numismatic (rare or collector) and graded coins generally don't qualify.

What It Costs to Hold Metal in an IRA

No public fee schedule exists, and fees vary by custodian. Costs come in three kinds.

First is the IRA itself. A self-directed IRA's custodian can charge to open the account, to keep it open each year, to administer it, to carry out each transaction and to hold a particular kind of asset. Added up, the SEC warns, those fees "may be significantly higher than those for other types of investment accounts."

Second is holding the metal. A joint CFTC and FINRA bulletin names storage, insurance and administrative fees as ongoing costs.

Third is the cost built into the metal: the premium, which is the amount charged over the spot price, and the spread, the gap between a seller's price and the price it pays to buy the same metal back. Neither shows on your statement. According to the same CFTC and FINRA bulletin, the statement shows the metal's melt value, total bullion weight times the spot price, so the IRA shows less than the purchase amount on day one with no metal missing.

Before the IRA pays, the CFTC and FINRA advice is to get every fee, the commission and the retail price in writing, and to ask what you'd receive if you had to sell the metal back tomorrow.

IRA-Eligible Metal on Our Marketplace

Many of the products in our catalog are eligible when they meet the requirements above, and we can help you choose a custodian and a storage option. We run a two-way market, so our product pages show the price to sell beside the price to buy, and you can see the spread before the IRA pays.

We're not a registered investment advisor and can't give individual investment or tax advice, so speak with a tax professional or financial advisor.

Frequently Asked Questions

Is a precious metal IRA a good idea?

Only you can weigh the factors: how the fees compare with the size of the IRA, how soon you'll need withdrawals and how much price movement you can sit through. CFTC guidance says precious metals prices are just as volatile as those of other assets, and that moving differently from stocks and bonds doesn't make metals low risk. Metals also pay no dividends and don't compound. Before you change a retirement plan, the CFTC's advice is to talk to a qualified financial planner, investment advisor or accountant.

What are the disadvantages of a gold IRA?

Beyond the fees and the spread, the IRA rules add their own. You can't keep the metal yourself. Under IRS Publication 590-B, distributions from a traditional IRA are taxed as ordinary income, whatever the IRA held. Required minimum distributions from a traditional IRA generally begin at age 73, and because metal pays no income, meeting them means selling metal or taking it out as property. An SEC investor alert adds that alternative assets can be hard to sell when a required distribution comes due.

What happens if an IRA buys a coin or bar that doesn't qualify?

Nothing voids the purchase. The IRA is treated as having paid out what it spent, in that year, and the additional tax on early distributions can apply. You aren't taxed on that amount twice, though. IRS Publication 590-A says amounts already included in your income aren't included again when the collectible is actually distributed from the IRA.