Precious Metals IRA

A precious metals IRA is not a distinct kind of retirement account. It is a self-directed individual retirement arrangement, a traditional or Roth IRA held at a custodian that allows alternative assets, that has been used to buy and hold physical precious metals. The tax rules, contribution limits, and distribution rules are the same as for any other IRA; what differs is that the custodian permits a category of asset most brokerages do not offer, and that the metals must satisfy a specific statutory exception.

The name is worth clearing up, because promoters use several. "Precious metals IRA" and "gold IRA" are common marketing labels; the IRS does not use them as account types. Under the umbrella, the account is an ordinary IRA, and the physical metal inside it is permitted only because Internal Revenue Code Section 408(m)(3) carves certain coins and bullion out of the general rule that an IRA cannot hold collectibles.

Start with the general rule the exception modifies. Section 408(m) treats an IRA's acquisition of a collectible, which the statute defines to include "any metal or gem," as a distribution of that amount, effectively banning collectibles from IRAs. Paragraph (3) then carves out an exception: certain gold, silver, platinum, and palladium coins and bullion may be held. The statute does not fix a purity percentage; it requires the bullion to meet the minimum fineness a regulated futures contract requires for delivery, which in practice means at least 99.5 percent for gold, 99.9 percent for silver, and 99.95 percent for platinum and palladium, and it requires the metal to be "in the physical possession of a trustee." Specific coins are also eligible by statute, including American Eagle coins, which is why the American Gold Eagle qualifies even though at 22 karat it is only about 91.7 percent pure, below the bullion fineness standard.

The physical-possession requirement is the point that most often goes wrong. The metal cannot sit in the owner's home safe or safe-deposit box; it must be held by the IRA's trustee or an IRS-approved depository. Promoters have marketed "home storage" or "checkbook" gold IRAs, often using a single-member LLC owned by the IRA, that claim to let the owner keep the coins. The U.S. Tax Court rejected exactly this structure in McNulty v. Commissioner (2021), holding that an IRA owner who took physical custody of American Eagle coins bought through an IRA-owned LLC had received a taxable distribution equal to the coins' cost, because she had unfettered control over them. Taking possession does not merely risk a penalty; it can be treated as pulling the metal out of the IRA entirely.

There is one more wrinkle worth knowing, covered in full on the gold-investing page: the same bullion that is eligible for an IRA can still count as a collectible taxed at the 28 percent maximum rate when held in a taxable account, because the rate rule reads the definition differently from the IRA rule. Inside the IRA, of course, ordinary IRA tax treatment applies instead. Whether owning gold at all makes sense for a given investor is a separate question, addressed on the gold-investing page; this page is about the account mechanics, and the general rules of a self-directed IRA, including the prohibited-transaction traps, live on that page.

An investor opens a self-directed IRA with a custodian that handles precious metals, funds it by contribution or rollover, and directs the custodian to buy eligible metal from a dealer. The metal is delivered to an approved depository and held in the IRA's name. The investor pays the dealer's premium over the spot price when buying, plus ongoing custodian and storage fees, and the metal is sold back through the custodian when the investor takes a distribution or wants out.

A hypothetical example of the cost layers. Suppose an investor moves $50,000 into a precious metals IRA and buys coins at a 5 percent premium over spot, meaning $2,500 goes to the dealer's markup and about $47,500 buys metal. Annual custodian and depository fees might run a few hundred dollars regardless of balance, say $300, which is 0.6 percent of the account in year one and a larger percentage on a smaller account. None of these costs exist in a standard brokerage IRA holding a metal exchange-traded product, which is why the account structure, not just the metal, is part of the decision.

Pros

• Allows direct ownership of physical metal inside a tax-advantaged retirement account, for investors who specifically want the metal itself.
• Same tax-deferred or tax-free treatment as any traditional or Roth IRA on the gains.
• The 28 percent collectibles rate that applies to physical metal in a taxable account does not apply inside the IRA.

Cons

• Extra costs a mainstream IRA lacks: dealer premiums, custodian fees, and depository storage fees, which drag on returns.
• The metal pays no income, so the account holds an asset that only appreciates or declines in price.
• "Home storage" arrangements are a trap that can be treated as a taxable distribution of the entire holding.
• Concentration and marketing risk: the field includes aggressive promoters, and a metals-heavy retirement account is undiversified.