7702 / How may an individual invest in precious metals?

Depending on the metal, investments may be made in two or three ways. In the case of gold or silver, an investor may purchase gold or silver bullion-type coins (e.g., the Canadian Maple Leaf), bars, or certificates that certify that a specific amount of the metal is housed in a specific warehouse for the investor. In the case of other metals, such as platinum or palladium, investments are made by the purchase of bars or certificates.

Each method of investing in precious metals has its advantages and disadvantages.

If an investor acquires bullion-type coins in a taxable transaction (such as in an exchange (noting that, post 2017 tax-reform, the IRC Section 1031 like-kind exchange rules apply only to exchanges of real property) or as payment of a stock dividend or for services rendered), the coins will be valued at fair market value, not face value, for purposes of that transaction (see Q 7717).

For the important distinction between bullion-type coins and other valuable coins, see Q 7713.

An investor might also consider a defined contribution qualified plan, including an IRA, and perhaps even a defined benefit qualified plan as a way to acquire certain precious metals investments. However, there are special limits on the types of investments, including in precious metals, that are permissible in retirement plans, and there are significant limitations (“prohibited transactions”) on moving assets in and out of a qualified plan trust that may make them an unsatisfactory vehicle to acquire precious metals (see Q 7703 and Q 7704).

In summary, each combination of metal and investment option carries certain advantages and disadvantages. Some precious metals may have more established markets. Other precious metals may have industrial purposes that can both hurt or help the value of the investment at any given moment, whether an investor is buying or selling in the market. Use of a qualified retirement plan vehicle for acquisition may or may not be appropriate and carries its own separate set of considerations and limitations. All these factors must be considered when making precious metals investments.

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Planning Point: In the case of an IRA (or individual retirement account), an important consideration is the IRS’ revised position¹ regarding the limitation of one rollover a year. Before January 1, 2015, the IRS’ position in both the proposed regulations and its Publication 590 was that there was no limit on the number of IRA rollovers that a taxpayer could make, assuming the taxpayer owned multiple IRAs. However, per the Announcement, beginning January 1, 2015, a taxpayer will be allowed only one rollover per year regardless of how many IRAs the taxpayer funds.

This limitation on rollovers places some limitations on a taxpayer’s ability to move investments around between different IRA-held investments.² However, this limitation should not capture the following transfers: trustee-to-trustee direct IRA rollovers; qualified plan-to-IRA direct rollovers; IRA-to-qualified plan direct rollovers; certain Roth IRA conversations, whether direct or indirect (401(k)-to-401(k) transfers done as trustee-to-trustee transfers); and solo 401(k) in-plan Roth conversions, so options often will remain open that avoid taxation if carefully
planned.

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It should be noted that the DOL’s “fiduciary” regulations became final in April 2017, and were partially implemented on June 9, 2017 would have made an advisor who sells or recommends products, as well as provides advice on investments (including precious metals) to the owner of an IRA, an investment advisor fiduciary under ERISA subject to greatly expanded liabilities. This application of the ERISA fiduciary rules to IRAs was new. The exemptions to this proposed ERISA fiduciary rule imposed significant preconditions on both the advisor and any provider financial institution, and contained the potential for changing the available forms of advisor
compensation.

The 2016 DOL fiduciary rule has been vacated and replaced by a new standard.  As of the date of this publication, the U.S. District Courts for the Eastern District of Texas and the Northern District of Texas have granted separate stays to block the DOL from enforcing its new investment advice fiduciary standard.³ The DOL has filed an appeal of the Fifth Circuit's decision to reverse the Texas court's decision to prevent the new rule from becoming effective as scheduled. The 1975 test for determining fiduciary status (the “five part test” continues to apply until the case is resolved). See Q for details.