The Ins and Outs of the Precious Metals IRA
By: Rich Checkan
An Interview with John K. Johnson, President of GoldStar Trust Company
John K. Johnson is a true expert in custodial services for self-directed IRAs. That's why I called on him to give you the facts on owning precious metals in your qualified plan.
Since 2004 John has been the President of GoldStar Trust Company, which acts as custodian for over 37,000 self-directed accounts with total assets of $1.6 billion.
We first met John in 2007 when American Church Trust, which many of our clients used as their custodian, was acquired by GoldStar Trust Company and we immediately formed an alliance based on mutual respect. Previously GoldStar had acquired Colonial Trust Company, a publicly held company located in Phoenix, Arizona, for which John served as President.
I know you will find John's answers to my questions clear, simple, yet illuminating in preparing you to open or enhance your precious metals IRA.
Q. What advantage does an IRA offer versus saving and investing on your own?
A. Earnings in IRAs grow tax-deferred or tax-free. Traditional IRA contributions may be tax-deductible and have tax-deferred growth, while withdrawals will be taxed at ordinary income tax rates. Roth IRA contributions are not tax-deductible, but earnings and withdrawals are generally tax-free.
Q. Are there any unique aspects about owning precious metals in an IRA as compared to other assets?
A. By and large, all the usual rules apply under the Internal Revenue Code. One unique feature is: when you withdraw your physical metal, you need not liquidate. You can take a distribution of the metals in kind. You simply give us the directive as your custodian, and we will ship the metal to the location of your choice. It is merely a paper transaction. We send you the required tax form.
Q. Is there a particular time of year when people should consider IRA maintenance or management?
A. Many IRA holders wait until tax time to think about and contribute to their account for the prior year. To maximize the compounding effect of annual contributions, the best time to contribute is every January or as early in the year as the IRA holder can make the contribution.
Of course, compounding does not relate to precious metals. For those, ideally, you can make frequent purchases throughout the year on dips. You can dollar cost average with precious metals. It's really easy. Just determine the amount of contribution you would like to make, and we will accept the cash for your account. Whenever you choose, you can work with a dealer like ASI and select the metal of your choice. You then instruct us to make the purchase for you in your IRA. That's all there is to it.
Q. What if a contribution does not equal the cost of a precise number of ounces of precious metal?
A. We hold your cash in an FDIC insured account. These days, it doesn't make much interest; but it does make some. If you make a contribution and wait for a price dip on metals, your cash will also be held in an FDIC insured interest-bearing account.
Q. What investments are available in an IRA?
A. Just about anything an investor chooses to invest in can be held in an IRA, if the IRA custodian will allow it. GoldStar limits allowable assets to precious metals, Perth Mint Certificates, Swiss annuities, non-U.S. bank accounts, Real Estate Investment Trusts, hedge funds, public and private stocks, bonds (church, municipal, corporate or government), mutual funds, certificates of deposit and secondary market annuities.
Q. What advantage does an IRA offer as compared to a qualified or corporate sponsored retirement plan?
A. Most corporate sponsored retirement plans have restricted investment options. With a self-directed IRA, as mentioned earlier, the investment options are nearly limitless.
Occasionally, a smaller employer wants to include precious metals in a company plan. They might consult with an advisor and open a Simplified Employee Pension (SEP) or Savings Incentive Match Plan for Employees (SIMPLE) which can hold precious metals. This gives them and their employees a unique choice.
Q. What triggers allow you to roll a qualified plan over into an IRA?
A. Funds from a qualified plan (i.e. 401(k), 403(b) or 457(b) plans) are generally eligible to be rolled into an IRA once one of the following occurs:
• Reaching retirement age, as defined by the plan
• Separation of service (no longer working for that employer)
• Termination of the plan
• Disability of the participant
• Death of the participant, at which time the beneficiary could roll the funds into an inherited IRA
It is best to contact the administrator of your qualified plan if you have any questions as to whether your funds are eligible to be rolled into an IRA.
Q. What are the contribution limits for the various IRA options?
A. The easiest way for me to explain is with the following charts:
You can contribute to a Roth IRA if your income falls below the Roth limits. You are allowed a prorated contribution if your income falls within the "phase-out" range. If your income exceeds the income range, you do not qualify for a Roth IRA contribution.
The maximum amount that can be contributed to a Simplified Employee Pension (SEP) plan is 25% of an employee's total compensation or 20% of adjusted income, which is capped at a maximum, per above.
Q. What is the difference between a third party administrator (TPA) and a custodian?
A. Generally speaking, TPAs are not regulated by government agencies (at least not as stringently as regulated custodians) and, as a result, are not required to have the same net capital requirements as regulated custodians. Anyone looking for an IRA custodian should always do their due diligence including checking the financial condition of the company, internet posted complaints and the Better Business Bureau rating.
Q. You certainly are one of the leading experts in self-directed IRAs and precious metals. And, ASI has worked closely with you. Can you tell our readers a bit about our relationship through the years?
A. Absolutely. Frankly, prior to 2007, I was unaware one could own precious metals in an IRA. But, when we acquired American Church Trust, my consciousness was raised. ASI, and especially Michael Checkan, have been most helpful in reinforcing and extending my knowledge of the opportunities in alternative investments.
Through Michael, we discovered other options for our clients - not only in precious metals but in offshore bank accounts, Swiss annuities and of course the Perth Mint Certificates as well.
That was useful knowledge because we recently filed to become an eligible custodian for Perth Mint Certificates. Today, many ASI clients hold certificates in self-directed IRAs for which we are custodians.
Q. Last but not least, where are precious metals stored when they are under your custody?
A. We work with three depositories, IDS in Delaware, DDSC, also in Delaware, and Brinks which is national. But, we work with Brinks largely in Los Angeles. Of course, all of these are state-of-the-art storage facilities. They are fully insured, and metals are allocated to the individual's specific IRA account.
Word from Rich
For those of you who would like to know more about the ins and outs of the self-directed precious metals IRA, please send an email or call our Preferred Client Relations representatives at 877-340-0790. We work with the finest custodians, depositories, and advisors... folks like John who are dedicated to helping you Keep What's Yours.