Are you a current or aspiring coin collector? Of course this can be a satisfying hobby in its own right, but what if you want your coins to be protected as an investment? You may already be familiar with, or even already investing with a Self-Directed IRA LLC. But many investors don't know that sometimes you can hold certain types of coins within a Self-Directed IRA LLC. Of course, holding your coins with this type of account is not without heavy restriction from the taxman. Ensuring with your compliance with the law can be a complex matter, but we're here to break it down as simply as possible.
When it comes to investing and holding coins or metals with your Self-Directed IRA, Internal Revenue Code Section 408 outlines what your friends at the IRS say you can and can’t do. Items classified as "collectibles" can't be held within your Self-Directed IRA LLC. These include, but aren't limited to, the following:
But wait, there are some exceptions.
The IRS makes specific allowances fors specific types of gold or silver coins, as well as any coins minted or issued within the U.S. This will be a recurring theme in the life of a coin-collecting investor. All of the coins allowed in a Self-Directed IRA have to originate and have been crafted by either the federal or a state government.
So what defines these exceptions? Here are the rules, which you can read for yourself (scroll down to section "m" for the exceptions). And yes, this will involve some serious reading. As you read, remember that collectibles are NOT fair game. This should help you determine what items in your collection meet the specifics. Don't worry, we'll go over all of this in more detail below.
Here's a quick summary of everything above you just read. Or, more likely, skipped right on over. And I don't blame you, at least I get paid to read this stuff. This portion of the tax code is basically saying any metals must be in the "physical possession" of an American institution, such as a bank. This, however, doesn't apply to specific coins, such as you might have in your own collection. More details about the physical possession requirement can be found below.
31 U.S.C. 5112 gives a comprehensive list and definition of the types of coins that the IRS allows. Refer to it in the link above if you're unsure whether your coins are permitted in your Self-Directed IRA LLC.
Hopefully you now have at least some understanding about how the IRS views Self-Directed IRA’s holding coins. If you don’t, I can’t blame you. There’s a reason people pay me money to interpret these IRS rules for them!
Did you know that a coin can be treated as bullion? This means that, it's essentially going to be treated similarly to precious metals (such as raw platinum, etc.). That "physical possession" requirement we discussed above will apply if this is the case.
Think of bullion as raw material. Gold, as we all know, can be made into lots of stuff: jewelry, coins, nuggets, bars, even a lovely commode if you're ultra-wealthy and eccentric. Bullion is distinguished from money based on the fact that it is appraised, bought, and sold at a given price based on mass and purity. The smart-alecks reading this are likely already aware that the value of these kinds of items can fluctuate substantially.
Money, however, only has a face value. Most of the time, what you see is what you get. Whether we're talking a $20 bill or a quarter, you know exactly what it's worth and can exchange it for items of equivalent value basically anywhere in the U.S.
It appears those requirements regarding where IRA-held coins are stored apply both to bullion and coins. This includes the IRS-approved coins, such as the American Eagle gold coins collectors know and love. The rationale behind this is the fact that many of these coins are worth far more than their face value, based on the fact that their materials are worth more than however much they were stamped to be worth when they were minted.
Which means, legally speaking, you should put all IRS approved coins in a bank or other trust.
Banks are a smart place to hold your coins. They're also often the only legal place to do so, at least if you want the coins in your Self-Directed IRA LLC. There's some debate over whether safe deposit boxes are compliant with the Taxman's requirements.
Many people believe a safe deposit box held within your Self-Directed IRA LLC (complete with its name on it, not yours) will be okay with Uncle Sam. IRS-approved precious metals should not be stored at home or in the personal possession of an individual the IRS wouldn't consider a trustee. So if you own the coins, don’t keep them at home or at your friend's house.
Here’s my personal take on this issue. So before I give you my perspective from a legal standpoint, just remember, it’s my job to help you avoid costly fees and penalties. Also keep in mind that unless you've paid a retainer and have a signed contract with both of our names on it, I'm not your lawyer.
Your best option when it comes to IRS-approved precious metals or coins which are owned by your retirement account is to keep them in a depository approved by the IRS. This will eliminate any doubt that you're keeping in line with the physical possession requirements.
If you would like answers to any questions you have about owning coins, collectables, or anything else with your Self-Directed IRA LLC, call Royal Legal Solutions at (512) 757–3994 to schedule your consultation.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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