A self-directed individual retirement account is a type of IRA that, like a conventional IRA, offers tax advantages.
Taxes are deferred until you take distributions from both conventional and self-directed IRAs. With a Roth IRA, contributions are made on a post-tax basis, which essentially equates to tax-free withdrawals.
Self-directed IRAs, though, can often provide more flexibility than conventional IRAs in the following ways.
1) You Can Include a Wide Variety of Assets in a Self-Directed IRA
Typically, you’re able to hold stocks, mutual funds and bonds in a self-directed IRA or a conventional IRA. You also, however, can typically hold additional alternative assets in a self-directed IRA — ranging from real estate to promissory notes, private equity, franchises, and even livestock.
You can also hold physical precious metals, such as gold coins or rectangular bars, that meet certain requirements. Gold assets, for instance, must possess a fineness of at least 0.995. Silver items need to have a fineness of 0.999 or greater to be eligible.
Gold American Eagle coins are an exception to that rule. Although they do not possess the standard precious metals content level, Gold American Eagle 1/2-ounce and 1/4-ounce coins, and 1/10-ounce Gold American Eagle Type 2 coins, which all have a fineness of 0.9167, have been approved by the Internal Revenue Service.
Some coins appeal to portfolio holders because of their precious metals content — and the fact they were only produced in very limited numbers.
Proof coins, for instance, are created through a specialized minting process that involves highly polished blank discs being hand-loaded into a coin press, and then struck multiple times to produce a high level of detail. Because of the considerable effort that’s involved, the coins are typically produced in smaller quantities than coins that feature a standard finish, according to U.S. Money Reserve CEO Angela Roberts.
Proof coins’ unique appearance, low production numbers and precious metals composition can help insulate them from some spot price variations, offering a potential for long-term profitability.
Both proof and standard finish versions of American Eagle coins have been struck by the U.S. Mint and can be held in a self-directed IRA.
Other precious metals formats can also be of interest. Gold bars, for example, that have been produced in weights between 1 ounce and 1 kilogram offer portfolio holders a chance to purchase one or more ounces of pure gold. The bars generally cost less to produce and store than gold coins, so they may have a lower premium.
2) With a Self-Directed IRA, You Determine How the Assets in Your Portfolio Are Allocated
Assets such as gold exchange-traded funds — which involve purchasing shares of a fund that is backed by gold-related entities like mining stocks — can be subject to external factors that are out of your control, such as business decisions a gold mining company makes.
With a self-directed IRA, a custodian, such as a bank, credit union, or other financial institution, acts as the trustee for the account, ensuring the account remains compliant with IRS rules.
You, however, can decide what specific types of precious metals will be held in the account. You can browse the items on U.S. Money Reserve’s website or speak with an Account Executive to help you decide which precious metals you’d like, and the Account Executive will then work with you and your IRA custodian to get those items purchased and shipped to a secure IRS-approved depository.
You can choose to adjust the allocation in your account at any time, based on your needs and market prices.
While the precious metals assets you purchase must be securely stored at an IRS-approved third-party facility to enable you to receive the associated tax benefits, you retain full ownership of the items. A number of depositories will allow you to visit and inspect your precious metals on-site, if desired.
3) A Self-Directed IRA Can Serve as a Private Form of Wealth
Unlike paper assets, gold, silver, and other physical precious metals are portable, durable, tangible items you can feel and hold.
Gold is generally easy to trade on a global scale — and as U.S. Money Reserve notes, because physical gold is an essentially untraceable form of wealth, it can offer more privacy than traditional banking methods might.
Physical precious metals assets, such as gold coins and bars, can be discreetly accumulated and passed down from generation to generation.
Bequeathing some other forms of inheritance, however, to subsequent generations can trigger tax or other financial considerations and reduce the amount family members ultimately receive.
Portfolio holders may also opt to own precious metals because of concerns about the vulnerability of the banking system.
In March 2023, Silicon Valley Bank — which was the first Federal Deposit Insurance Corp.-insured institution to close in more than two years — and Signature Bank both collapsed.
A 2023 Gallup survey conducted about a month later found nearly half of Americans were worried about the safety of the funds they had in accounts at financial institutions such as banks.
Gold is another option.
While removing funds from your bank account and simply keeping the cash at home may not offer much opportunity for appreciation, if in 2000, you’d taken $263.80 — the price per ounce of gold at the time — out of your checking or savings account and used the money to buy gold, that purchase would have grown by 665% as of Friday, Jan. 26, when prices for the metal were about $2,018.57.
When you are ready to retire and take distributions, precious metals-backed IRAs offer the convenience of being able to either assume physical possession of your assets or choose to liquidate them for cash.
