This blog post on physical possession of your IRA’s gold coins is a reprint from the King County Barb Bulletin, which I cannot link to here as it is only available by subscription. I hope you enjoy the baseball word play. More entertaining, perhaps, than watching a Mariner’s game with hopes that they arise from the basement of the American West.
I heard an ad recently from a promotion company stating that, with its IRA account, you may take physical possession of gold coins owned by your IRA. This company’s website also touts that you may physically possess precious metal coins owned by your IRA.
People who do not trust either the government or the direction our economy is headed may consider this idea a home run. As someone who helps clients create self-directed IRAs, I believe hitting on this sales pitch may result in the IRS umpire calling “Foul ball!”
Physical Possession of your IRA’s Gold Coins Is Not Settled Law
If clients want to walk the edge of unsettled law, and some of my clients are willing to take that path, then okay. However, I want clients to know the risks.
If they follow the advice of this Self-Directed IRA (“SDIRA”) promoter, and the IRS ends up disagreeing, SDIRA cases such as Peek and Ellis tell us that the IRS will not allow a “relied on professional advice” excuse as a valid defense against certain tax penalties.
The promoter is not a designated hitter. These promoters are not regulated, such that clients can say one may have violated any regulatory standards. If the tax court, the umpire of this game, calls them out, the promoter is not going to storm the field, kick dirt at the court and yell at them for their lousy play calls.
If someone comes to me as their attorney-coach, and wants my written opinion, I am not going to tell clients to personally possess their IRA’s coins. This is unsettled law. There are legal issues with this idea and we do not have a test case.
IRA custodians must now inform the IRS if an IRA is invested into certain types of investments, including precious metals. In this game, we win when we play by the rules. When we don’t, we face an opponent with an excellent batting average and an umpire that seems inclined to rule for the home team.
Personal Possession of Other Assets Is Known To Be Strictly Prohibited
Suppose a client purchases real estate with his IRA funds. May he title that real estate in his own name? Absolutely not. Everyone knows this. Titling IRA assets in the client’s own name is a prohibited transaction. If discovered, the IRS treats the transaction as a taxable distribution.
How about a boat, stocks, bonds, mutual funds or cash in a bank account? Any asset that has a title needs to be titled in the name of the IRA. The IRA needs to own any account that requires an owner. This is a settled rule, as settled as three strikes and you’re out.
So, how does the promoter mentioned above believe people may possess gold coins owned by their IRA without getting in trouble with the IRS? Their answer is that they advise clients to get a separate strong box, or home safe, with instructions to keep the IRA coins in that separate container.
A client’s personal inventory is in a different strong box. Voila! No commingling assets, no personal transfer, right? The IRA owns the safe. Never mind that the safe isn’t officially titled and is in the personal possession of the IRA owner. I believe that the IRS is going to win if this scenario plays out.
A friend of mine, who is a member of the American Numismatic Society (ANS), told me that he is also concerned about these new ads. The ANS informed its members to not allow their clients to take physical possession of their IRA gold coins or to do so personally. You will not find any ANS member dealer who will help facilitate physical possession of your IRA’s gold.
What If Clients Still Want Personal Control of IRA Gold Coins?
Some people want control of their IRA gold coins in case the economy tanks, coins become the basis of a black market economy, and the government requires their surrender. “This happened under FDR!” they remind themselves on a daily basis. They do not want a regulated institution, such as an IRA custodian, to turn over their coins to the government.
A home run to these potential clients is Physical Possession of your IRA’s gold in case of emergency, while staying safe by running the bases the tax code requires. When it’s game time, missing the plate trying to score a run can mean getting called out by the umpire.
When the only play in the rule book is a separate container, the IRS is likely to win. Fortunately for my clients, this coach has developed a few other plays.