Gold IRA Accounts Revisited
Back in July of this year CoinLink ran a story about Gold IRA’s and the choices available to consumers/investors. Since we are coming up to the end of the year we thought it would be prudent to re-examine the topic, especially in light of the exceptional performance of Gold in the past 12 months, and the rather extraordinary events that have unfolded in 2009. But first a bit of background.
What is a “Gold IRA” ?
Traditional IRA investment accounts you open with a Bank or stock brokerage firm DO NOT allow you to purchase physical precious metals in the account. The closest you can come to this is to select one of the many ETF’s that have become available in recent years. Two of the most popular ETF’s are the GLD and SLV for Gold and Silver respectively. However what if you want to purchase the actual physical gold or silver itself? To do that, you need to set up a Self Directed IRA account.
Self Directed IRA’s require a bit more effort to set up initially, but they offer the investor the greatest level of flexibility possible by allowing you to place “non-traditional” assets into a tax deferred vehicle such as an IRA, in this case precious metals.
How do Self Directed Precious Metals IRA’s Work?
Essentialy Self directed IRAs are composed of three different elements; The Precious Metals Dealer, The Third Party Administrator and finally The Depository where your IRA assets are stored. Lets take a look at these components.
1) Your Precious Metals Dealer – where it all begins…..
For many investors this is where it all starts. Since most investors do not have existing relationships with the more esoteric components of the the Self Directed IRA , namely the third party administrator or the depository service, they often rely on the advise and hard work of their Bullion / Precious metals dealer to assist them is setting up and selecting the other two “legs of the stool”. But here is where you need to make sure that you, as the investor, are educated as to what your choices are, how they will effect your investment and to guarantee that you get the most bang for the buck.
First. make sure you select the “correct” coins for your Self Directed IRA. Only specific US gold, silver and platinum coins are allowed in your IRA such as US Gold and Silver Eagles, along with other bullion coins that meet specific fineness standards (.995 pure) such as the Canadian Maple Leaf.
DO NOT purchase Proof gold coins for your IRA. These carry a very high premium above the actual value of the gold itself. However this premium does not increase as the spot price of the underling metal increases, so in effect you are buying less gold “value” for every dollar. Virtually every reputable bullion dealers knows this, so if you are offered Proof Coins for your IRA, you might want to consider checking out some other dealers.
2) The Third Party Administrator and The Depository
Now. what does an Administrator do? Well for one, they handle all the money. Once you open your account and fund it either with a direct deposit or a rollover from another 401K or existing IRA, they will make the actual payments to the Bullion/Coin Dealer from whom you are buying your gold.
They don’t care what you buy so long as it qualifies under the IRS rules. They will also provide monthly account statements to you, handle the paperwork, etc. All the usual stuff you don’t want to be bothered with.
Now most investors don’t know any IRA Administrators, so many times the Bullion Dealer will recommend GoldStar, one of the first and largest administrators for precious metals IRA’s. But is this the best choice?
Bullion Dealers, like us all, are creatures of habit, and since their primary goal is to sell the precious metals, they tend to pass off the other aspects of the Self Directed IRA to a company they are familiar in dealing with, often to their own disadvantage. Let me explain.
GoldStar is a very good company, and as we said they were one of the first and largest administrators for precious metals IRA’s, however like many larger organizations, they tend to make policies and function in a manner that may be convenient for them but not necessarily in the most efficient or cost effective manner for the investor.
For Instance, Goldstar, based out of Texas used to use HSBC as its depository, but on July 3rd of this year, HSBC announced that they were no longer going to accept coins for storage, only bars and ingots. Basically they ran out of space.
As a result, Goldstar has signed an exclusive agreement with DDSC (Delaware Depository Service Center) as the sole depository for GoldStar customers. This is basically package deal, go with GoldStar and you have to use DDSC as the depository. The only problem is that it does not allow YOU to make any choices, and there are other excellent alternatives in the marketplace.
For instance, First State Depository is a major company that offers depository services for self directed IRA’s among other precious metals storage options. Like DDSC they are located in Delaware, have impeccable storage facilities, but First State offers the investor several advantages.
- First State Depository is Less Expensive, in some cases by a lot, so more of your investment dollar is working for you
- They insure all deposits to 100% of value where other depositories only insure to 80-90%
- They offer IRA holders Segregated Storage as a Standard feature, whereas you have to pay extra for this with DDSC
These are things that your Bullion Dealer recommending Goldstar most likely does not even know about.
Now lets look at another Third Party Administrator who handles Precious Metals IRA’s. One of the Best we have been able to find is Entrust. They have multiple office across the country [Main Entrust West Coast and East Coast Offices] , as opposed to Goldstar which has an office only in Texas, so you have an option of actually visiting an Entrust Office and speaking to a real, live person should you so desire.
Entrust is a trusted and respected name and can provide 100% of the administrative services necessary for compliance with all IRA guidelines and requirements for your Gold IRA.
Entrust DOES NOT have an exclusive arrangement with a single depository, so you are free to choose where your Gold/Silver is stored, you can shop around for the best prices and terms, the best insurance coverage and deal with a company that you feel most comfortable with. You are NOT locked in to a single option.
It is also interesting to note that most Bullion Dealers don’t even know that they would be better off dealing with a company such as Entrust as well.
Once you open your account and fund it either with a direct deposit or a rollover from another 401K or existing IRA, All payments to the Bullion/Coin Dealer from whom you are buying your gold are made by the Third Party Administrator. In many cases, the Dealer who is selling you the Bullion coins has to wait from 20-30 days to get paid from the administrator. On a sizable purchase that can be a long time to wait. If the Bullion Dealer was working with Entrust, they get paid within 48 hours.
That is a huge incentive for the dealer as it frees up critical cash flow, something that is especially tight in these times. And who knows, if you bring this to the attention of the Bullion Dealer, you might be able to even negotiate a better price on the bullion coins you are purchasing if the dealer knows he is going to get paid within 2 days and not have to wait up to a month.
Whatever your investment decisions are and whomever you deal with, just make sure that you know all of the facts, costs and options that are available to you, and make them work for you based upon your investment strategy and goals.
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