The precious metal IRA (Individual Retirement Account), also known as a gold IRA, was a great leap forward for U.S. retirement savers. Since its inception in 1998, the precious metal IRA has allowed U.S. citizens to invest funds either tax free (Roth IRA accounts) or tax deferred (traditional IRA accounts) in gold, silver, platinum and palladium bullion. This has been a boon for U.S. investors interested in tangible assets but, unfortunately, it did come with one big drawback.
The U.S. government currently prohibits the purchase of art or antiques in IRA accounts – basically any asset that can be considered “collectible”. This depressingly complete ban includes, but is not limited to, artwork, rugs, antiques, gemstones, stamps, coins and alcoholic beverages (like fine wines). This is a pity, as this misguided policy bars U.S. retirement savers from an entire investment asset class that is tremendously undervalued right now.
However, there is one small exception to this ironclad no art, antiques or collectibles policy. And it is found exclusively in the small print of the precious metal IRA. It is a loophole so small that I’m certain the faceless IRS bureaucrats and uncaring D.C. politicians never though anybody could squeeze through it. They were wrong.
First we need to have a primer about the complex rules surrounding a precious metal IRA. An account may only purchase certain gold, silver, platinum and palladium coins and bars. These coins and bars must all have a minimum fineness of at least 99.5% or 995 fine. In addition, the prohibition on “collectibles” disqualifies any proof coins, which are specially struck under ideal conditions to appeal specifically to coin collectors.
As a logical extension of this rule, any coin that has been third party certified or slabbed, even a bullion issue that meets all the other qualifications, is not allowed. This is because third-party grading indicates a coin is meant for the collector community and is thus a “collectible”. Although it isn’t specifically written into the tax code, it is also a fair bet that any coin issued with a predetermined mintage limit would also be forbidden, as this would imply the coin was intended for collectors.
The clear intention of all these rules is to strictly limit your precious metal IRA to bullion coins and bars only. The minimum fineness requirement alone automatically disqualifies all old gold or silver coins. All older precious metal coins were originally intended for general circulation. Because of this they had to be alloyed to increase their hardness and wear resistance.
For example, old, pre-1933 U.S. gold coinage is only 90% fine. British sovereigns, which have been struck continuously from the early 19th century right up until the present day are 91.67% gold. Most other old gold coins from the early 20th century or earlier are 90% fine. Because of the precious metal IRA fineness requirement, all of these gold coins are disallowed.
That removes most gold coins – especially any antique coins with collector’s value – from contention for your precious metal IRA funds. Effectively, only modern, 24 karat, pure gold bullion coins (and bars) are allowable. There is, however, one small exception to this rule: American gold eagle bullion coins, with a fineness of 91.67% or 22 karat gold, are exempted.
Interestingly, American gold eagle coins (along with their American silver eagle brethren) possess another important exemption as well. Proof specimens of these coins are allowable in precious metal IRA accounts. This is important because these are the only proof coins of any type that can legally be owned in a precious metal IRA. Apparently, congress carved out a legal niche for these proof coins in a bid to increase the popularity of the U.S. mint’s gold and silver eagle program. It worked, as these two coins dominate the global gold and silver bullion coin market.
So with all this information about precious metal IRA requirements we can build a list of permissible gold and silver coins:
Precious Metal IRA Approved Gold Coins:
- American Gold Eagles (uncirculated and proof)
- American Gold Buffaloes
- Australian Gold Kangaroos
- British Gold Britannias (2013 to present only)
- Canadian Gold Maple Leafs
- Austrian Gold Philharmonics
- Mexican Gold Libertads (1991 to present only)
- Chinese Gold Pandas
Precious Metal IRA Approved Silver Coins:
- American Silver Eagles (uncirculated and proof)
- America the Beautiful Silver Coins
- Australian Silver Kookaburras
- Australian Silver Koalas
- British Silver Britannias (2013 to present only)
- Canadian Silver Maple Leafs
- Austrian Silver Philharmonics
- Mexican Silver Libertads
- Chinese Silver Pandas
Now, this list of gold and silver coins that are allowable in a precious metal IRA might be academically interesting, but I promised you a loophole. Well, here it is. When the U.S. Congress created the precious metal IRA, they intended to completely exclude art, antiques and anything that could remotely be considered a “collectible”. But some of the gold and silver bullion coins listed above are actually stealth collector pieces that have strong numismatic potential!
The implications of this revelation are staggering. It means that you can legally purchase and own some numismatically-oriented, collector’s coins in your precious metal IRA. Suddenly, the full promise of tangibles investing in a precious metal IRA is within your grasp.
Now, if you’re the canny type, you might well ask how modern bullion coins can be desirable to coin collectors. They are supposed to be lumps of gold or silver with their weight and fineness guaranteed by a government. They are supposed to trade as nothing more than bullion. But reality has a funny way of interfering with the best laid plans of national governments.
In short, some modern bullion coin issues are far rarer and more desirable than you might think at first. In addition, coins, like any art form, heavily rely on aesthetics to appeal to potential collectors. And modern bullion coins, which often adapt renowned historical designs, are undoubtedly the most beautiful coins of the current age.
I won’t go into all the details surrounding why some modern bullion issues have great numismatic potential here. Instead, I’ll encourage you to read another article I wrote titled: Chasing Perfection – Collecting Gold Bullion Coins. But this premise isn’t just my opinion; there are a significant number of modern bullion coins that already trade for hefty premiums over spot prices on the open market.
Maybe the best examples are proof and burnished (a special type of uncirculated strike) American silver eagles. Even common date issues for these one troy ounce silver coins currently sell for well over double their bullion value. That is a far cry from the average silver bullion coin, bar or round which might sport a modest premium of only 5% to 20% over spot.
However, I believe the best appreciation potential resides in gold bullion coins, which generally have much smaller mintages than their silver counterparts. The stunningly beautiful Mexican Gold Libertad series, for example, has never had an annual mintage that exceeded 15,000 over the last 20 years. They are ridiculously rare and undervalued, yet you can still add one ounce “bullion” Libertads to your precious metal IRA for 15% to 20% over spot!
The only better buys are proof Mexican Gold Libertad coins, which often have mintages in the hundreds. Their mintages are insanely low, especially considering that many circulating issues of coins are struck by the millions or even billions these days. Unfortunately, the proof Mexican Gold Libertad is considered a “collectible” coin and is not eligible for inclusion in precious metal IRAs. Only the uncirculated version can be safely purchased in a precious metal IRA.
If Mexican Gold Libertads don’t excite you, there are many other modern gold bullion coins with excellent return potential for your precious metal IRA. American Gold Buffaloes, Australian Gold Nuggets/Kangaroos and Chinese Gold Pandas all have that winning combination of great design and relatively low mintage. And their prices are often only modestly above their bullion melt values.
But a special mention should be made for American Gold Eagle coins. While I don’t believe the normal American Gold Eagle bullion issues have much numismatic potential due to their excessively high mintages, the special uncirculated “burnished” strike and proof examples offer tremendous value. Proof American Gold Eagle mintages are usually fewer than 50,000 specimens per annum, sometimes dramatically so. But, in spite of their rarity, premiums are normally quite reasonable at only 15% to 30% over spot, provided you aren’t chasing rare dates.
There is, however, one important detail to note if you decide to add numismatically-oriented gold bullion coins to your precious metal IRA. It is critical that you choose a custodian that offers segregated storage. Segregated storage, also known as allocated storage, means your gold is physically separated from the holdings of other precious metal IRA customers kept in the same vault. This means that if you deposit a certain type and date of gold bullion coin into your IRA, you can pull the exact same coin out at a later date.
In comparison, the more common method of gold storage is referred to as commingled or unallocated storage. This means the custodian dumps all its customers’ precious metal holdings into a single pile. If you request to withdraw or sell a coin, they will reach into the pile and randomly pull out whatever date of that type of coin they find. Commingled, or unallocated, storage is cheaper than segregated storage, but it invalidates any attempts to buy numismatically-oriented coins and must, therefore, be avoided.
Although I haven’t had the chance to use their services yet, Noble Gold is a precious metal IRA trustee that emphasizes their high-security, segregated storage facilities.
In spite of its strict requirements, a precious metal IRA is one of the few ways to invest in tangible assets (other than real estate) in a U.S. retirement account. And while your local congressman has done his best to shut you out of the lucrative art and antiques market in these accounts, he and his political friends overlooked one small detail. Take advantage of this little-known opportunity to invest in numismatically-oriented bullion coins in your precious metal IRA while you can.
