Making Your IRA Good as Gold

03/30/2009 9:00 am EST

Focus: MARKETS

Terry Savage

Author, The Savage Truth on Money

How much of a bet are you willing to make on the future value of the US dollar? Are you willing to bet your entire retirement on it? Well, that's just what you're doing when you invest your IRA or 40l(k) only in dollar-denominated assets, such as stocks.

Don't get me wrong: Stocks have a long-run history of beating inflation. Only gold has a better track record. So don't you think it might be worth having some gold-either actual gold bullion or coins, or stocks that represent the precious metal-inside your IRA?

It's relatively easy to get some exposure to gold prices in your IRA. You can buy shares of gold mining companies, or mutual funds and exchange traded funds that specialize in shares of mining companies. There are even exchange traded funds that represent the price of gold (and silver). The best known are the SPDR ETFs-GLD and SLV. (Full disclosure: I have positions in all of these types of precious metal investments!)

What most people don't know, however, is that you can actually buy certain gold and silver bullion coins and bars in your IRA-if you follow certain rules. It's a development that occurred in the mid-1990s, when the precious metals had fallen out of investors' favor.

The types of bullion or coins allowed in IRAs are strictly defined. They include US coins such as gold and silver Eagles, and gold Buffalo coins, as well as bars and wafers of the precious metals. Some foreign coins, such as Australian Kangaroos and Canadian Maple Leafs, in various denominations, also meet fineness standards to qualify.  

(You're not allowed to buy collectibles, such as numismatic coins, for your IRA-even if they are gold. And those "commemorative" gold "coins" don't qualify, either. Similarly, you're not allowed to buy artwork, gems, stamps, antiques, and other collectibles inside an IRA.)  

The key to owning certain allowed gold (as well as silver) coins and bullion in your IRA is having a qualified custodian for those retirement plan assets. You can't just buy them in the name of your IRA and store them in your top drawer!  Several companies provide that service. Entrust (www.theentrustgroup.com) is one of them. The Blanchard Group-a coin dealer-has a similar program using their GoldStar Trust (www.blanchardgold.com). I prefer separating the coin dealer purchase from the IRA custodian, which is how Entrust works. 

You can buy the coins or bars with a check from your current IRA-or open a new account with the Trustee. The coins are sent to the trustee by certified mail, and placed in a vault at the bank of your choice. You can watch the transaction, but only the trustee has a key to the safe-deposit box! (Entrust even allows coins to be stored in bank vaults outside the country.)

One word of warning if you decide to buy gold coins either inside an IRA, or simply for your own investment purposes: Beware of costs. There's been such a demand for actual gold coins that they're now selling at a substantial premium to their bullion value. You could be asked to pay as much as $100 a coin over the bullion price-a premium of more than 10 percent. While it's historically expensive, that premium could expand if there's another gold rush!

If you do buy coins, outside your IRA, you'll have the cost of a safe deposit box, because you sure don't want to keep them around your house-or buried in your back yard! The IRA custodianship fee covers the cost of storage.

Do you have to be paranoid to buy gold or silver bullion coins in your IRA? Or do you simply have to be aware of what's going on with our dollars? Just asking!

What do you think? Should investors buy gold now? Please have your say and join the conversation.

Related Articles on MARKETS