What Is IRS Code 408 M3?
The IRS Code 408m3 can have far-reaching ramifications on how individuals manage their Individual Retirement Accounts (IRAs). It outlines exactly which assets may or may not be held within an IRA and by whom.
Retirement funds may be used to purchase coins, bullion and precious metals; however, under IRS rules they must first be placed physically in the custody of an appointed trustee. Depository facilities technically fulfill this criteria; however some tax practitioners do not.
Coins
As IRA investors search for alternative investment options, many have turned to precious metals and coins – American Eagle coins as well as U.S. state minted coins with particular finesse or luster are among the options being explored by some investors. According to Internal Revenue Code 408(m)(3)(B) and Technical and Miscellaneous Revenue Act of 1988 (“TAMRA”) regulations, such coins, bullion or metals must be held “physically in possession” by their trustee. This could mean keeping them at an approved depository facility.
Any individual looking to invest in IRS-approved coins or precious metals/bullion within their retirement account should seek advice from a tax professional in order to remain compliant with IRS rules. To protect themselves and their investment, IRA owners are advised to place coins and metals/bullion in an approved depository or trust company for safe keeping. Some Self-Directed IRA LLCs keep metals/coins stored in bank safe deposit boxes, but this may not meet the physical possession requirement under IRC Section 408(m)(3)(B). For instance, if an IRA owned the safety deposit box itself without being an approved trustee for their IRA then this would violate this rule of IRC 408. Likewise if these items were held personally.
Bullion/Precious Metals
Through the aggressive advertising by precious metals and coin dealers, it has become widely understood that IRA investors may use their retirement funds to purchase bullion and coins not considered “collectibles” by the IRS. Unfortunately, many people fail to realize that actual regulations can vary.
Bullion refers to gold, silver and platinum considered solely as metals rather than collectibles. Investment-grade bullion investments come in standard forms like bars, rounds and coins; however, other irregular items like silver figurines or granular gold also hold value as bullion investments as long as they are marked with their weight and purity levels.
For optimal decisions that comply with IRS guidelines, professional advice is always worth seeking. This is particularly important when investing in alternative assets like gold that require greater knowledge of both tax regulations and an individual’s unique financial circumstances.
Approved Non-Bank Depository
IRS Code 408 m3 is an integral component of America’s tax system, yet can be challenging to comprehend and abide by. But this rule can prove especially advantageous to investors in precious metals using retirement funds. According to this section of the code, collectibles or precious metals may be held within an IRA provided they are physically held by an appointed trustee.
When it comes to keeping IRS-approved coins and bullion/precious metals safe from IRS seizure, the safest approach is using an approved depository bank that agrees to implement the United Deposit Account Agreement (UDA), has an on-site collateral area reporting back daily to Federal Reserve’s Treasury Tax & Loan Plus System, allowing United States Trustee daily access to each district’s collateral.
Approved Trust Company
Many individuals are becoming aware that IRS approved coins and precious metals/bullion can be purchased with retirement funds through bullion dealers’ marketing. According to IRA code requirements, assets purchased with retirement funds must be physically held by an appointed trustee – although depository facilities meet this criterion, some tax practitioners believe that trust companies provide a safer solution.
State-chartered trust companies are usually allowed to engage in a wide array of fiduciary activities. As a result, they often provide more options for individual investors. Due to state and federal laws regarding pooled or commingled investment activities, it is wise to evaluate proposals on an individual basis before accepting. Typically these entities specialize in products/services amenable to standardization with relatively low overhead (common/collective funds, employee benefit trusts, asset allocation programs). This results in more efficient operations with lower fees charged directly back onto investors.
Comments are closed here.