Many investors looking to diversify their investment portfolio ask, 'is gold IRA legit?' The short answer is yes. Gold IRA is a specialized retirement account that provides financial security using gold as a nominated retirement investment. However, similar to most assets, it's not immune to entities and individuals who use the term to scam unsuspecting individuals using a variety of tactics.
Commodity Futures Trading Commission (CFTC) chairperson Heath P. Tarbert on a $185 Million precious metals IRA and bullion coin scheme targeting senior and other susceptible investors:
"This case highlights just how geographically broad commodities fraud can be in our rapidly evolving financial markets and how important it is for regulators at all levels of government to work together to pursue bad actors and protect market participants."
With all its risks, it's essential to be familiarized with the typical gold IRA scam by identifying schemes and potential red flags in your transaction.
The 5 Common Good IRA Scams
Special Offers
Precious metals such as gold have spot prices and are behaviorally straightforward. The cost of gold doesn't deviate from its spot price because of a sudden shift in dealer circumstances. When you receive 'special' offers that highlight lower prices than the current spot price, most likely, it's one of many IRA scams. Otherwise, the product might be counterfeit or sourced through illegal means.
The scam begins through storytelling. The dealer may present interesting stories about relatable opportunities. They may communicate that they have a surplus of reserves, or they're making huge institutional trades and that you can capitalize on this opportunity by getting gold at an exceptional price. If you receive offers involving huge gold price discounts, doubling your investment, or deals that sound too lucrative, take time to verify.
The first story highlights the story of Bill. Determined to diversify his portfolio, he listened to the sales pitch of a telemarketer who sold him several gold coins. Later, he discovered he was overcharged by as much as $10,000 for his gold investment.
The next story is about two individuals who sold gold bricks to an unsuspecting victim. The woman, 80, bought the story that the two swindlers were undocumented, so it was justifiable to buy the gold pieces at half the price. She later found out the gold bricks were fake.
'Home Storage' Setup
You aren't permitted to safe keep your precious metal IRA assets—even a piece of gold coin. Refrain from transacting with entities that try to encourage you to buy their product and promote a 'home storage IRA' setup.
The Internal Revenue Service (IRS) mandates that precious metals, such as platinum, palladium, silver, or gold, held within an IRA account must be stored in an approved depository.
Any investor who violates this mandate will face taxes, penalties, and fees on the investor's entire IRA. Any precious metal like gold found at home is considered as a distribution. This act means you'll incur a 10% early withdrawal penalty if you're under 59 ½ years old.
Non-Delivery / Ponzi Scheme
In simpler terms, a Ponzi scheme is non-delivery or under-delivering on what was agreed upon in a business transaction. Unaware investors fall unknowingly to its attractive offers, and even commodity assets aren't spared from this elaborate scheme.
Participants of gold IRA scams, or any other type of gold scam, would promise to deliver gold and other precious metals to their customers or their nominated depositories. Investors would soon realize that the scamming gold IRA company failed to uphold their end of the contract.
Here's an example of a Ponzi scheme promoting gold mine operations in Brazil and Africa. The perpetrators promised high-interest rates and principal guarantees backed by insurance.
Counterfeits
Another reason people ask, 'is gold IRA legit?' is because of the unending flow of fake or smuggled gold. Unsuspecting investors are enticed to precious metal counterfeits because of their heavily discounted prices. To the untrained eye, you'll merely notice its flaws and imperfections.
Counterfeiters sell these products online to avoid stringent quality verifications. Some even stamp their precious metals with logos of major refineries to mask their scam and increase their validity.
If you want to purchase your physical gold—gold bar, gold bullion coins, or collectible coins—online, buy from a reputable gold dealer with years of business experience.
Holding Unapproved Metals in Your IRA Account
Metal dealers and salespeople who want to earn their coveted commission will try to sell you different types of precious metal—coins, collectibles, and numismatics. However, only select investment assets are allowed as precious metals IRA deposits. Failing to adhere to these conditions may entitle you to substantial tax penalties.
The IRS clarified that not all precious metal is acceptable. Only specific types of gold and other precious metals that conform to the institution's strict quality standards are permissible in your IRA account. Here are some of the particular criteria that all precious metal holders and any precious metals dealer must follow:
Purity
Production
Coin Standards
Small bullion bars
List of some acceptable precious metals in the IRA
Gold
Silver
Platinum
Palladium
How To Keep Your Money Safe From Gold IRA Scams
Read Helpful Resources on Asset Investment and Consumer Protection
The Federal Trade Commission (FTC) has written an editorial that addresses common investment scams to protect consumers and investors. Among the topics they discussed in the article include:
Aside from the editorial resources in the Federal Trade Commission, you can also check out the advisories published by the Commodity Futures Trading Commission (CFTC). Some topics they've discussed are:
For more investment tips and to avoid scams, you can also visit the Securities and Exchange Commission (SEC)'s website for individual investors, investor.gov.
Work With a Reputable Gold IRA Company
Many dealers will entice you to buy their precious metal products for commission and profit. Avoid any gold IRA scam by working with a reputable and reliable company. Consider these factors when selecting your gold IRA firm:
As mentioned, only transact with legitimate companies offering gold IRA services and other physical gold transactions. Here's a list of some of them.
The best gold IRA company is the precious metal dealer that fully complies with government mandates and policies and has several years of good service track record. When they do, it shows through their customer feedback and online trust ratings. You can also visit the websites listed below:
These websites verify any business entity's authenticity and conduct, including your selected gold IRA company. BCA, for example, depicts a detailed company profile that includes the company rating, customer reviews, and contact information—information you need to create a sound judgment.
Information about companies practicing poor business behavior is also available.
How Do You Start a Gold IRA?
Setting up a gold IRA account involves many intricate processes compared with a traditional IRA account. You need to iron out important details with a custodian, a gold dealer, and a depository institution. Some individuals might take advantage of these intricacies and mislead you. Here's what you need to do to precious metal IRA and avoid a scam:
A custodian holds your gold IRA account and enables you to invest in assets such as precious metals and real estate. They can be banks, trust companies, and other entities accredited by the IRS.
The best way to prevent a gold IRA scam is by working with a gold IRA company with outstanding credibility. Review different precious metals companies thoroughly and select the best one that suits your preference and needs.
Your custodian will purchase the precious metals from your select gold IRA dealer.
Your dealer will have personalized recommendations based on your preference and needs. One of the popular selections is the American Eagle bullion gold coin. Do your research before agreeing to a specific product.
As mandated by the IRS, you cannot keep any form of physical gold or other precious metals intended for your IRA account in your private residence. Instead, these metals must be deposited in an accredited depository. This depository should meet the requirements under the Internal Revenue Code.
You're allowed to select your accredited depository. If you haven't chosen one, your nominated custodian will recommend one according to your preference.
You can complete your transaction once you've established your custodian, dealer, and depository. Your custodian will handle the purchase of your precious metals from your dealer. Once the payment is complete, the dealer will ship the purchased assets to your nominated depository facility. The entire transaction will take several days or weeks to complete.
Establish Your Expectations After Investing
Your IRA partners would have already explained everything you need to be familiar with setting up a precious metals IRA account. But it's also helpful to remember these things:
IRA and storage fees
Expect to pay a recurring annual IRA fee and storage fee.
Understand the value of your precious metals
Your IRA custodian will regularly show the valuation of your precious metals in your IRA statement at its estimated bid or spot price. These estimated valuations don't include seller mark-ups, discounts, and dealer commissions. Talk to your dealer if you're looking to sell your precious metals.
In-kind Distribution
As emphasized above, you're not allowed to possess the precious metals intended for your IRA. However, you may get an in-kind distribution of your metal assets from the IRA subject to distribution tax and withdrawal penalties.
Put Everything in Writing
Every form of documentation will help protect your investment rights. These documents will serve as legal evidence if future problems arise from your gold IRA investment.
Ask your custodian, dealer, and depository representative for copies of every investment transaction.
Report Investment Scams
Why Should You Invest in Gold IRA?
You might consider opening a gold IRA account if you're an investor looking to maximize your retirement portfolio. This specialized retirement account is an excellent opportunity to diversify your assets, especially during uncertain times.
Like all investment assets, gold has its risks. However, gold investment remained relatively competitive throughout different economic troubles, such as the 2008 financial crisis, whereas the price of other assets crashed. These properties make gold an excellent financial investment choice during market downturns.
However, because of its consistency in market demand and profitability, many individuals participate in gold and gold ira scams by using illegal schemes to scam others. Refrain from engaging with entities that promise a gold price lower than the asset's spot figures and only purchase products from a reputable source with years of good service track record.