Retire on Silver: Putting Bullion in IRAs

Individual Retirement Accounts (IRAs) were established by the Employee Retirement Security Act (ERISA) of 1974. IRAs allow most Americans, subject to income limitations, to invest up to a maximum of $4,000 per year ($5,000 if you’re age 50 or older) in a tax-sheltered account. Typically, investors buy stocks, bonds, and mutual funds with their IRA money, but can precious metals also be held in an IRA? Yes.

The Basics of IRAs
There are two major types of IRAs: Traditional IRAs, which came into being via ERISA in 1974; and Roth IRAs, which was established by a 1988 tax law chiefly sponsored by Senator William Roth of Delaware.

Traditional IRAs allow individuals to invest up to $4,000 of pre-tax money into their accounts each year. This means that for every $1 contributed to your IRA, you receive a $1 tax deduction. The money in your IRA is allowed to compound tax free, but then when you begin withdrawing it upon retirement, your withdrawals are taxed as regular income.

Roth IRAs, on the other hand, use after-tax money. This means you do not get a tax deduction for your contributions. However, the good news about Roths is they also compound tax free, but when you begin making withdrawals the withdrawals are 100% tax free as well. Since you didn’t get a tax deduction when you contributed, you already paid taxes on the money — luckily, the government has decided to “generously” not tax you a second time.

Precious Metals in Your IRA?

Because IRAs were written into law by government, the government unfortunately has a say about what you can put into your IRA. Stocks, bonds, mutual funds, cash, and even real estate (with some exceptions) are all fair game — subject to the rules imposed by your IRA custodian (i.e. Ameritrade or Edward Jones, etc.) But what about gold and silver?

For the first twenty-three years following ERISA, Gold Eagles and Silver Eagles were the only eligible gold and silver investments you could put into an IRA. This was especially negative for fans of silver, since Silver Eagles typically carry an $1.80 per-ounce premium over the price of silver bullion! But fortunately, in 1997, Congress passed a law expanding the eligible precious-metal assets investors could put into their IRAs.

Chief among these newly allowed assets was bullion. Since the premium on Eagle coins was so much greater for silver than for gold, this allowance has been a real boon for silver investors. Coins other than Eagles were also admitted into IRAs in 1997, but they must be at least 99.5% pure and serve as legal tender in order to qualify as IRA investments. While this greatly expanded the number of gold-coin offerings (Gold Maple Leafs, Kangaroo Nuggets, Philharmonikers, and the Perth Mint’s Lunar Series all make the grade), it kept the eligible silver coins limited to Silver Eagles and Silver Maple Leafs — both of which sell at high premiums to the commodity price of silver.

Some coins that are not eligible for IRAs include Kurgerrands (only 91.67% pure) and old U.S. gold coins (90%), as well as pre-1965 junk silver coins (also 90% pure). Coins come with their own speculative value, and since silver coins are currently trading at a substantial premium to silver bars, most investment analysts advise clients to buy bullion if they want to hold silver in their IRAs.

Finding an IRA Custodian

Most investment brokers, including virtually all of the online discount brokers, will serve as your IRA custodian, and they will usually do so at no added expense. However, most of these mainstream investment houses will not allow you to have bullion in your account. American Church Trust ( is one custodian that will allow you to invest in precious metals.

It’s important to note here that you can have more than one IRA custodian. If you so desired, you could have one IRA through Ameritrade or in which you invested in stocks, another with T-Rowe Price in which you purchased mutual funds, and a third with American Church (or some other precious-metal-allowing custodian) in which you bought bars of silver. The only rule is you may not contribute more than $4,000 in a single year to all of your combined accounts, and this limit is the sum of both your Traditional IRA and Roth IRA, if you choose to use both.

It’s also important to note that you cannot store your IRA bullion yourself — it must be stored by an IRS-approved depository. In fact, even American Church does not hold its clients’ gold or silver; HSBC does it for them.

Finally, it’s important that gold and silver investors know that they cannot put bullion they already own into their IRAs. Blame the IRS for this seemingly arbitrary rule!

Other Plays on Gold and Silver in Your IRA

Alternatively, you could simply invest in gold- or silver-mining stocks. This, of course, is far from a perfect corollary to the price of bullion, and carries with it its own unique advantages and disadvantages. However, if your primary concern is to have a hedge against inflation and/or economic calamity, bullion is a much better option.

A more effective way of owning precious metals in your IRA without going to the trouble of purchasing the actual bullion is to buy gold and silver exchange-traded funds. Street TRACKS Gold Shares (ticker:GLD) and iShares Silver Trust (ticker:SLV) mimic the price of their underlying metals by buying and selling bullion in the open market. GLD, for example, is roughly equivalent to 1/10 of an ounce of gold, while SLV approximates ten ounces of silver.

But there’s always the potential for disconnect between the ETFs and the assets with which they’re backed. The truest and most reliable hedge, no matter how sophisticated new financial instruments become, has always been and likely always will be real precious metals. Gold investors have been able to benefit from putting Gold Eagles into their IRAs for the past thirty-three years, and for the past decade, silverbugs have been able to join them.

A recent study by Ibbotson Associates demonstrated the benefits of putting a portion of your assets into precious metals, so investors would certainly be wise to set aside a slice of their IRAs for gold and silver. If history is a reliable guide, doing so will increase your returns while minimizing your risk.