Investing your IRA in collectibles -- stamps, jewelry, rare coins -- is a big mistake. The federal government doesn't allow such investments in IRAs and you'll pay a tax penalty if you try. The government makes an exception, however, for silver, platinum and gold coins and bullion that meet purity standards: Gold must be 24 karats, for example, except for the 22-karat U.S. Gold Eagle. Regular IRAs don't dabble in precious metals. You must open a self-directed IRA to go for the gold.
Talk to your bank's trust department or an IRA custodian company about opening a self-directed IRA. With a self-directed account, the custodian handles the administrative details, but it cannot give you investment advice. You can invest a self-directed IRA almost any way you choose -- except in collectibles -- and that the custodian allows.
Fund the IRA. You can deposit money tax-free up to the legal annual limit -- $5,000 in 2012 and $5,500 in 2013 -- or you can roll over any amount of money from an existing IRA into the self-directed account. If you direct the custodian of the existing IRA to transfer the funds, you avoid any tax problems with the rollover.
Ask your custodian about finding a depository to hold your gold. IRS rules say you must put precious metals in a secure depository rather than, say, keeping them under your bed. If your custodian is willing to handle gold, she should be able to recommend a depository.
Direct the account custodian to invest in metal coins or bullion that meet the IRS requirements. The custodian will take the money from your account, buy the gold and have it shipped to the depository. If the custodian has his own restrictions on the types of precious metals he'll invest in, you'll have to meet those rules too.
- Rather than buy or sell precious metals directly, you can also invest in gold-mining stocks. You can also invest in exchange-traded funds, which buy and sell gold on the open market.
- If you buy gold that doesn't qualify as an IRA investment, the IRS treats whatever you invested as if you'd withdrawn it from the IRA -- which makes the money taxable.
- Even if you have a sizable gold stockpile already, you can't sell it to your IRA. The IRS counts that as "self-dealing" -- taking money out of the account to benefit yourself -- and doesn't allow it.
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.