Self Directed IRAs and IRS Code 408 M3
Many Self-Directed IRA investors are curious as to whether it is possible for them to store IRS approved coins or bullion/precious metals in a safe deposit box at a bank that does not serve as the trustee for their IRA. This argument may hold some weight since IRC 408 defines depository as meeting physical possession requirements for their IRA.
Coins are pieces of metal (or occasionally other materials) with marks that indicate its intrinsic or exchange value. IRS approved coins which may be bought using retirement funds include American Eagle coins as well as specific state minted ones with certain characteristics. Under the Technical and Miscellaneous Revenue Act of 1988, state minted coins are also available for purchase. Though tax professionals recommend that IRA holders avoid personally holding IRS approved coins or precious metals/bullion, some tax practitioners contend that fulfilling the physical possession requirement in IRC 408(m)(3)(B) could be met if coins were stored with a trustee such as an approved depository – something which makes sense given that the definition of trustee in IRC 408(a) includes banks, financial institutions and depository.
Precious metals are perceived to be safe investments, so their prices usually increase during times of geopolitical instability.
Gold remains the premier precious metal, but silver has also become increasingly popular as an economical alternative. Silver also finds use in electronics, engineering, hygiene and medical equipment industries.
IRS guidelines permit individual retirement accounts (IRAs) to purchase precious metal bullion and coins from various dealers; however, any purchased using retirement funds must be held physically by a trustee, such as a US bank, financial institution, depository institution, or approved trust company.
Self-Directed IRA owners who opt to store their metals and coins at their personal banks instead of a depository can potentially face retailing and wholesaling taxes when selling directly; to minimize these fees it may be beneficial to collaborate with a firm with expertise in precious metals and bullion investing.
As defined in IRC section 408, an IRS-approved trustee or approved depository should be the best place for coins or bullion/precious metals held according to IRS rules. While an individual could technically store their coins themselves personally, IRC section 408 doesn’t specifically state this point so one could argue that placing coins into bank safety deposit boxes in your name as part of an IRA LLC Plan meets “physical possession” definition set forth.
However, it should be understood that your case may be less strong if you choose a private depository as opposed to banks in which to store precious metals or coins for an IRA account. An LLC cannot act as its own trustee and thus would fail to satisfy physical possession requirements; we strongly advise avoiding this option at all costs and suggest instead using either self-directed IRA custodian or third party administrator as trustee in this instance.
Personal possession in law refers to an individual’s ability to control an object and is the defining characteristic of personal property ownership.
Personal and constructive possession differ considerably; constructive possession refers to one person having the power and intent of controlling an object even though it may not physically reside within her grasp at any one moment – for instance, an IRA owner could possess constructive possession over coins stored in her bank safe deposit box if she holds onto its key.
Under IRC 408 the definition of tangible personal property includes “all machinery, equipment, tools, vehicles, furniture, leasehold improvements, office equipment supplies and components parts thereof”. With regards to IRS approved coins or bullion/precious metals stored at an U.S. bank and held within an IRA LLC’s safe deposit box does this satisfy physical possession?