Precious metals have long been a favorite asset of self-directed investors. With its history as sound money, long-term asset value, and scarcity - gold & silver are a desirable investment, but can physical metals be held inside the Solo 401k?
It's helpful to think about the rules around retirement account investing like the 10 commandments...the IRS tells you what you can't do and what you can't invest in. They won't give specifics on what you can invest in.
How do I know what type of metals my retirement account can buy?
With respect to precious metals, one type is clearly considered prohibited, and that's collectible coins.
The IRS goes on to explain what a collectible coin is NOT in the following excerpt from Internal Revenue Code Section 408(m):
3) Exception for certain coins and bullion
For purposes of this subsection, the term “collectible” shall not include —
(A) any coin which is —
(i) a gold coin described in paragraph (7), (8), (9), or (10) of section 5112 (a) of title 31, United States Code,
(ii) a silver coin described in section 5112 (e) of title 31, United States Code,
(iii) a platinum coin described in section 5112 (k) of title 31, United States Code, or
(iv) a coin issued under the laws of any State, or
(B) any gold, silver, platinum, or palladium bullion of a fineness equal to or exceeding the minimum fineness that a contract market (as described in section 7 of the Commodity Exchange Act, 7 U.S.C. 7) requires for metals which may be delivered in satisfaction of a regulated futures contract if such bullion is in the physical possession of a trustee described under subsection (a) of this section.
So what does that mean in plain English?
Section A discusses bullion and Section B discusses specifically approved coins.
If you're purchasing bullion, it should be at a .995% level fineness. Typically, you can get this type of bullion from a refiner listed on COMEX/NYMEX (these are the commodities exchanges that deal with precious metals).
If you're purchasing specifically approved coins, most government minted are generally acceptable.
But where do I have to physically keep the coins?
For bullion, the IRS is clear that the metals need to be held in custody by a "trustee", and no - they don't mean you as the trustee of your Solo 401k trust!
Here, the IRS defines a "Trustee" as "“bank or such other person who demonstrates to the satisfaction of the U.S. Treasury Secretary that the manner in which such other person will administer the [IRA] will be consistent with the requirements of this section" (SOURCE).
For bullion, it is generally recommended the metals are stored in approved custody of precious metals depository or company that falls under the requirements set by the IRS when defining a "bank". Bullion should not be held in your personal possession.
With respect to government-minted coins like the American Eagle, the rules of possession are less clear.
Some attorneys feel a safe deposit box in an approved bank is generally OK. The safe deposit box should be titled in the name of the retirement account. If the safe deposit box is titled in the name of the trustee, it would be considered personal storage and the metals contained therein could be considered taxably distributed.
The American Eagle is one such coin considered a specifically approved coin that could possibly be held in possession of a bank safe deposit box, with the box titled in the name of the retirement account.
As this area of the Internal Revenue Code is unclear, before purchasing and taking possession of coins owned by your retirement account, consult your legal counsel.