Sometimes Ignorance Is Not Bliss
It can be risky to invest retirement-plan funds in abstruse assets without proper advice. A husband and a wife in Rhode Island have learned that lesson the challenging way.
It’s an official law that owners of individual retirement accounts with assets invested in gold and silver coins can’t secure them in a safe at their home. A personal retirement account in the United States is a form of “individual retirement plan,” granted by many economic institutions that provide tax advantages for retirement savings.
Mr. McNulty and his wife Donna Dearly had put their money into individual retirement accounts. They had stored IRA gold inside their home. The Internal Revenue Service (IRS), an institution working under the United States federal government, is responsible for collecting taxes.
In its annual audit, the IRS caught out the couple. So the judge ordered in a recent Tax Court case that the verdict will cost taxes of nearly $270,000 on $730,000 of IRA assets, with the addition of penalties likely to exceed $50,000. The case was overheard in the Tax Court of Rhode Island.
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The ruling rejects a plan that was heavily encouraged several years ago. It proclaimed the advantages of using IRA assets to buy gold and silver coins and then retain them at home or in a safe-deposit box.
The McNulty case is a good story showing how dangerous it can be to invest retirement-plan funds in alternative assets without proper advice.
“Good tax advice may appear expensive, but it’s not as costly as blowing up your IRA,” says Warren Baker, an advocate with Fairview Law Group in Seattle. The IRS has some recommended approaches worthy of adoption in the classroom.
Gold or Silver IRA Ads
The truth about financial security in retirement, those ads trumpeting gold and silver IRAs on conservative-leaning TV channels and from news outlets can sound pretty convincing.
These ads and others like them regularly carry an appeal to put your retirement savings into expensive metals Individual Retirement Account (IRA) either to make your money secure or help it grow faster.
There’s mainly no minimum investment, and the advertiser shows you how to open the account and roll your current IRA or $401000 onto it. The company after which helps you convert that cash into expensive metals by selling you gold or silver coins or bullion bars. Subsisting IRA or $401000 into it.
IRAs With a Golden Shine?
While most IRAs invest in standard assets like stocks or mutual funds, the tax code also allows special “self-directed” or “alternative-asset” IRAs that can hold physical silver or gold. But not all expensive metals are allowed.
The law names particularly gold, silver, and platinum coins that certify like the American Gold Eagle and explains purity standards for gold, silver, platinum, or palladium bars in such accounts. Other coins and jewelry are prohibited.
“Gold does happen to hold its value in the long-term, but it is also volatile almost like stocks so it may take decades to hold up with the highs and lows ” as said by Campbell Harvey, who is the Duke University’s Fuqua School of Business’s Professor of Finance.
He further explained that gold should be the last investment option for people who are near their retirement ages or have already retired.