September 13, 2015

Home Storage Gold IRAs Are a Bad Idea

I just saw a google ad for a "home storage gold IRA".    It had a picture of a older dude grinning behind a pile of gold coins and a home safe.   My reaction was to roll my eyes and think : "oh geez".   Clearly this is a borderline scammy investment to exploit peoples fears that the world is going to crumble or corporate thieves / socialists are  going to make the stock market evaporate.   So the only solution is to have your money in good old fashioned gold.   And if that isn't crazy enough for you then why not put your IRA in your own safe too!

I really don't have to investigate this to conclude that the fees are going to be ridiculous.     Its a given.   Fees for self directed IRAs are steep and this is adding another layer of cost on top of that.   Not to mention the high costs of buying and trading in physical gold.

Worse the scheme may not even be legal as far as the government and IRS are concerned.
The Law360 article : Are 'Home Storage' Precious Metal IRAs Legit? discusses the topic and they seem to conclude that its probably not appropriate management of an IRA.    IRA funds are supposed to be managed by a trustee and putting the money in your own safe is not really going to fly.   I imagine that the self directed IRAs used for real estate investments are probably border line as far as the rules go and piles of gold in your house is not going to fly.

The way the companies pitching the deal structure it you generally have to set up an LLC to hold the investment.   Now thats not really legit if you setup the LLC then put the money in your own home.  Plus that system adds to the costs.

But thats not the only source speaking against these things.     An article from Globalnewsire :  Home Storage IRAs: Risky New Trend May Leave Retirees Liable  quotes Trevor Gerszt, investment specialist and CEO of Goldco Precious Metal saying : 
""I've cautioned people in the past about so-called 'home storage IRAs,'" he says. "Unscrupulous providers tell consumers the law allows them to store gold and silver held in their IRAs at home, when it's clear the IRS codes forbid that."   Now he may be biased since from what I gather Goldco Precious Metal helps people do self storage IRAs using a bank as the storage location which is competing with home storage.  But still.

I don't think I've hidden my opinion about gold as an investment.  Gold is not a good investment.  
But then hey, if you'd ignored me and bought gold when I called the peak in 2009 
you'd have seen your money double and then plummet and you'd still be up ~20%.

I talked about high premiums on gold coins and if you're not careful you can spend a lot more than what gold is worth.    You can do better if you shop around but even then generally you pay ~2-5% over spot prices.   Then you'd likely pay similar fee when you sell.   So between them you're looking at say 5-10% in transaction fees buying & selling.     You're better off just buying a gold ETF to avoid those steep transaction costs.Buying and selling physical gold generally has relatively high fees each way.

Theres a few good reasons to avoid home storage gold IRAs:

High transaction costs of buying/selling physical gold.

Self directed IRAs have hefty fees.

Using an LLC will generally add the cost of licensing for the LLC, and that can be several hundred dollars a year in some states.

Home storage of gold held by an IRA is probably not even legal under IRA rules.

Bottom Line:  Don't do it.  Its a bad idea and probably not even legal to boot.    If you really must insist on investing in gold then just buy an ETF.


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