Home Storage IRA Facts

Transcription

1 Home Storage IRA Facts Los Angeles (February 19, :31 PM PST) Home Storage Gold IRAs are now accessible to the average American investor, and with this, myths and misinformation have also developed around the program. The reality is, offering the Home Storage Gold IRA (also known as Personal/Self/Private Storage Gold IRA) program requires a sophisticated and disciplined financial conduit. As a result, most basic gold firms, are nothing more than simple coin shops that generally can only buy and sell metals, and are apt to cutting corners, and in the process misinform potential buyers on Home Storage Gold IRAs. It is unfortunate that these companies have elected to rely on misinformation, rather than invest in the required infrastructure, licensing, bonding and insurance needed to provide you a safe and perfectly viable opportunity. Don t Fall Prey to False Arguments If you have been researching the concept of a Personal Storage Gold IRA, you have likely come across literature on the internet or have been told by certain precious metals dealers that this concept is not legal, or that by doing so you are putting a target on your back for an IRS audit, with great risk of IRS penalties. Some gold dealers have gone so far as to hire attorneys to draft articles that run misinformation campaigns. It is important to note, that the authors of these false arguments are attorneys specializing in consumer class action law, not tax attorneys. The firms circulating these articles incorrectly refer to them as a Legal Opinion Letters, which they clearly are not. They are simply written to promote a particular point of view held by the companies that paid for them. Their core argument is that IRC Section 408(m)(3) requires all precious metals to be in the physical possession of a trustee. They do not include any of the code language, and simply expect the reader to take their word. These articles state that firms offering Personal Storage IRA programs are promoting the idea the IRA-owned-LLC qualifies as an IRA trustee. They posit that Personal Storage IRA providers intentionally hide the complexities of such qualification. None of this is true, but it serves the purpose of providing false representations that promote the argument they are paid to make. They also outline the requirements of being such a trustee as described in IRC section 408(a). These requirements are suitable for an institution holding the IRA accounts of many individuals, (such as big Wall Street brokerage houses or banks), but would be ridiculously onerous for an individual investor. The requirements include things like: IRS certification for fiduciary ability, demonstrated experience managing retirement accounts, fidelity bonds, etc. Clearly no individual would be able to qualify, so therefore they must be in violation of the tax code when holding precious metals, and at risk of serious penalties. Pretty scary stuff! Except for the fact that it is just plain wrong. The Personal Storage Gold IRA is not presuming to act as an IRA trustee in any way. 1

2 A clear reading of the tax code does not require that US Eagle coins be stored in the possession of an IRA trustee. As such, the LLC does not need to qualify under the prohibitive criteria outlined in these so-called legal opinion letters. These articles are an intentional misdirection, and are relying on the premise that most investors won t actually read the tax code (or be smart enough to understand it if they did). The reality is that offering the Personal Storage IRA program is a complex endeavor, requiring a high degree of legal expertise and qualified staffing for both the implementation and support of such plans. It is a big investment in infrastructure and not something all precious metals dealers are capable of or willing to take on. It is unfortunate that some firms have elected to rely on misinformation and fearmongering as a means to counter a perfectly viable alternative in the marketplace. The Legal Basis for Personal Storage Prior to 1997, precious metals were not allowable as an investment for IRA plans. This was because precious metals were included in the disallowed investment class of collectibles. The theory suggested that things like jewelry, artwork, antiques, stamps, etc. were very subjective and volatile in value and therefore not suitable as a reliable asset for retirement savings. With the passage of the Taxpayer Relief Act of 1997, the tax code was changed to allow for certain distinctly valued precious metals assets to be held in IRA plans. Chapter 26, Section 408 of the Internal Revenue Code defines IRA plans, and subsection 408(m)(3) was added per the 1997 act to define this new capability. The language excepting certain precious metals from the collectibles prohibition follows: (3) EXCEPTION FOR CERTAIN COINS AND BULLION For purposes of this subsection, the term collectible shall not include (A) any coin which is (i) a gold coin described in paragraph (7), (8), (9), or (10) of section 5112(a) of title 31, United States Code, (ii) a silver coin described in section 5112(e) of title 31, United States Code, (iii) a platinum coin described in section 5112(k) of title 31, United States Code, or (iv) a coin issued under the laws of any State, or (B) any gold, silver, platinum, or palladium bullion of a fineness equal to or exceeding the minimum fineness that a contract market (as described in section 7 of the Commodity Exchange Act, 7 U.S.C. 7) [2] requires for metals which may be delivered in satisfaction of a regulated futures contract, if such bullion is in the physical possession of a trustee described under subsection (a) of this section. When interpreting this code language, it is critical to note the clear distinction between the two classes of precious metals included: coins and bullion. The section heading mentions both coins and bullion separately, and each is described in a separate subparagraph. 2

3 The technical references in subparagraph A equate to US minted Eagle coins in Gold, Silver and Platinum. These specific coins may be held by an IRA-owned LLC and are the only precious metals investment one should make with a Personal Storage Gold IRA. Subsequent to the subparagraph B description of allowable bullion items, the clarifying statement if such bullion is in the physical possession of a trustee described under subsection (a) of this section. appears. By the placement and the specific use of the word bullion, this limitation applies only to bullion items. There are certain foreign minted coins that meet the purity and futures contract market criteria to be allowable as IRA holdings, but these coins are considered bullion in this context, and therefore must be held in the possession of an IRA trustee. If you wish to view the code language in a simplified version to clarify the distinction between coins and bullion, the following paraphrase may help: (3) EXCEPTION FOR CERTAIN COINS AND BULLION For purposes of this subsection, the term collectible shall not include (A) US Eagle COINS in Gold, Silver or Platinum, or (B) Specifically pure Gold, Silver, Platinum or Palladium BULLION, if such bullion is in the physical possession of a trustee described under subsection (a) of this section. The Personal Storage Gold IRA does not meet the code criteria for holding bullion or foreign coins in an IRA. If you wish to hold such precious metals in your IRA, you must have them held by an IRA custodian (generally a specially chartered trust company) and stored in a registered depository. This interpretation, by the way, is something that has been widely accepted in the self-directed IRA community of ERISA tax attorneys for many years. A Time-Tested Model Nobody knows exactly when the first such IRA-Owned LLC structures were implemented, but it was sometime in the late 1980 s or early 1990 s. Back in those days such a program would have been used only by high net-worth investors with access to sophisticated tax and legal counsel. We like to say you needed to be a member of the right country club to know about this strategy. And you could certainly expect to be paying $400 per hour for the legal and tax professionals to setup and operate the structure. With the advent of the internet and a more information-based economy, a handful of visionaries identified an opportunity to specialize in the niche of providing self-directed IRA LLC plans and create a more accessible program for the average investor. In a few firms entered into this new space in the financial services market. The IRA LLC was especially attractive to investors pursuing complex investments such as real estate and venture capital. Even so, fees for the setup and consulting associated with these plans ranged between $2,500-$4,000 simply because it was an innovative concept and there was a relatively small market for such services. 3

4 Since the first mass-market IRA LLC programs were introduced nearly a decade ago, the industry has expanded and matured. The economic challenges of the great recession inspired a lot of investors to look beyond the stock market and seek diversification into solid assets such as real estate, private mortgages and precious metals. As a result, Checkbook IRA programs have become more accessible and prices now typically range from $1,200 $1,800 to establish such a plan. Still, that is a price point that may make sense for a real estate investor wanting to own a few rental houses in their IRA, but may not be justifiable for a simpler portfolio such as gold or silver holdings. The main reason it costs so much to establish this type of plan is because of the wide range of complex investments available to an investor with a Checkbook IRA LLC. It requires considerable education and ongoing consulting support to plan investments and compliance within IRS rules. What is the Personal Storage Gold IRA? The Personal Storage Gold IRA is an exciting new investment platform that gives you full control over your precious metals investments and allows for the added security of personal storage at your home, office, or safe deposit box. The concept behind the Personal Storage IRA is not new, however, it comes with the pedigree of more than 20 years of real world use by sophisticated investors. The structure of the Personal Storage is pretty simple: A special purpose Limited Liability Company (LLC) is formed to serve as an asset holding vehicle. The LLC is wholly owned by your IRA account. You, as the IRA account holder can serve as the manager of the LLC, which allows you full administrative control and signing authority for the LLC. While built a little differently, the structure is not really that different from having a standard brokerage IRA invested into a single fund. The difference is that you get to be the fund manager, and the fund is capable of holding physical gold, silver or platinum coins. Conventional IRA Model Standard IRA or 401k Investment Fund Assets purchased by the fund manager Home Storage IRA Model Self Directed IRA IRA Owned LLC (The fund) Assets purchased by the fund manager (You) 4

5 With the Personal Storage Gold IRA, the LLC is the transacting layer. When you wish to make an investment in precious metals, you simply contact your precious metals dealer and specify the amount you would like to invest and the type of US Eagle coins you would like to place in the IRAowned LLC. The purchase is funded from the LLC, and you, as the LLC manager, can arrange for delivery and storage of the holdings. A Special Tool Just for Precious Metals Investors The power of the IRA LLC is now available in a simplified model suitable for precious metals investing. The Personal Storage Gold IRA LLC uses the same structural concept, with a LLC owned by an IRA. Control of the LLC resides with the IRA account holder. The LLC is specifically created to be simple and affordable by limiting the investment choices to a handful of asset classes that do not require ongoing tax and legal consultations or complex state LLC compliance activities. The Personal Storage Gold IRA LLC is built to hold allowable US Eagle Coins, Bitcoin, and any conventional assets such as stock, bonds, and mutual funds or bank CD s. By eliminating the complexities that come with a variety of assets and geographies, the Personal Storage Gold IRA becomes a simple and effective tool for the explicit purpose of investing in physical precious metals. The opinions expressed do not necessarily reflect the views of the firm, its clients, or Fortress Gold Group, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal or tax advice. 5