Home storage gold IRAs (a.k.a. checkbook IRAs or self-directed IRAs) have been legal for more than 18 years, as validated by a series of important U.S. Tax Court decisions.
What Exactly Is a Home Storage Gold IRA?
A home storage gold IRA is a self-directed IRA (Individual Retirement Account) in which your IRA owns a single business entity – usually a limited liability company (LLC) – that you, the sole manager, use to personally make investments from the business entity’s checking account. These investments can include precious metals, real estate and a host of other non-traditional investments, as well as traditional stocks, bonds and mutual funds. (See Internal Revenue Code Section 408 for allowed investments, particularly 408(m), which deals with precious metals.)
Legal History of Home Storage Gold IRAs
1974 – ERISA (Employee Retirement Income Security Act) Enacted. ERISA established minimum standards for private-business pension plans and employee benefits. It also created the first IRAs.
Early 1990s – First Self-Directed IRAs Created. Satisfying a demand by consumers for more control over their IRAs, some trust companies created IRAs that allowed consumers to self-direct their investments.
1996 – Swanson vs. Commissioner (106 TC 76). James Swanson had created a special-purpose business entity owned by his IRA, which he in turn owned personally, rather than being owned by a custodian company. He made himself the non-compensated manager of this business entity, allowing himself full investment control. In other words, he created the first checkbook IRA. The IRS challenged Swanson, claiming that using a special-purpose entity to manage his own IRA was a prohibited transaction. The judge found for Swanson (see 106 TC 76 for details). Checkbook IRAs have been legal ever since.
1996-2001 – Limited Liability Companies (LLCs) Used for Checkbook IRAs. Attorneys started using the newly legal LLC entity as “passthrough entity” for checkbook IRAs. As a passthrough entity, the owner of an LLC pays taxes, rather than the IRA itself. However, because the IRA is the sole owner of the LLC, and IRAs are tax-exempt (Internal Revenue Code Section 408), IRA LLCs don’t have to pay taxes. As with other IRAs, the owner-investor doesn’t pay taxes or penalties until he or she takes a distribution. The IRA-LLC combo became a popular choice for self-directed IRAs.
2001 – IRS Issues Field Service Advice (FSA) Memorandum 200128011. The IRS formalized its acceptance of checkbook IRAs with FSA 200128011, which educated its agents about what is and is not allowed in checkbook IRA law, including home storage of precious metals for home storage gold IRAs, as well as how to treat with them during the course of IRS business.
2013 – TC Memo 2013-245. After retirement, Terry Ellis rolled over $300,000 from his 401(k) into a checkbook IRA. He then established an LLC, “CST LLC,” and transferred the $300,000 from the IRA to purchase CST LLC. He used the CST entity as the legal owner of a used car business. The IRS argued that this violated Section 4975 of the tax code, which prohibits self-dealing. Citing Swanson vs. Commissioner, the Tax Court found against the IRS. The court’s decision in TC Memo 2013-245 confirmed that a checkbook IRA can fund a newly established LLC to buy and sell assets. The IRS informed its agents of this fact in a Field Service Advice (FSA) memorandum shortly after. Home storage gold IRAs are, therefore, recognized by the Tax Court and the IRS as completely legal.