solo401k and Precious Metal Storage

[Bryan O.]

Hi all, I have been trying to find the requirements for the physical storage of gold and silver in a solo401k. Sense Financial says that the IRS requires precious metals owned by a solo 401k to be held by a financial institution or US Bank. Over at solo401k.com, they state that, "With the solo 401k, you are your own custodian and trustee. This means that you can buy and store the metals yourself... you can store the coins in your own home..." Of course, they end with a disclaimer that it is generally recommended to keep the at your bank. On broadfinancial.com, they say you may need a bank to hold it, then maybe a safety deposit box at a bank, but that maybe American Eagles can be personally held.

To try and get rid of false information, I go to the source: IRC408(m)(3)(B), which is what authorizes the acquisition of precious metals: "any gold, silver, platinum, or palladium bullion ... (as described in section 5 of the Commodity Exchange Act, 7 U.S.C. 7) requires for metals which may be delivered in satisfaction of a regulated futures contract, if such bullion is in the physical possession of a trustee described under subsection (a) of this section." (emphasis added)

This indicates you can buy proper metals if it is in physical possession of a trustee defined in (a) (the top of the document). (a)(2) defines the trustee as "The trustee is a bank (as defined in sub-section (n)) or such other person who demonstrates to the satisfaction of the Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of this section." (emphasis added)

This is where I lose the thread... in a physical world, the assets would be the gold and silver and "other property" could be personal property, but defining it that way makes the rest of the thought not work. After all, how can you commingle your gold with other property (like your personal house) except in a common trust fund of common investment fund? Since half the statement is the exception, and I cannot see any way to invoke the exception in a physical world representation, I do not think this definition works.

The other option is to read it as part of the paper-based investing world. This means the assets of the trust can be gold and silver, rental property, loan portfolio, stocks, etc. In this way, you could commingle because these can and are often bought with pooled assets (money).

With all that said, are there any actual cases where this has been tested or clarified by the IRS? I keep finding 408.06-00, but this seems to reinforce simply that the trustee or bank must be in physical possession, not that they cannot hold it. What do the ever-knowing BP 401k providers and experts say? Please back this with logic or evidence, not just "My company says x so I am telling you."

[Brian Eastman]

@Bryan O.

The definition of "Bank or Trustee" as outlined in 403 (m)(3) is not something you qualify for as the trustee of a self-administered 401(k) plan. I don't have a quick reference handy, but it takes the qualification required to operate as an IRA custodian - significant assets in reserves, fiduciary licensing, etc. that no individual is going to possess.

There is no bright line clarity from the IRS on this topic.

Many read the code and see it as follows:

Two classes of metals: bullion and coins

For purposes of this discussion foreign coins meeting purity requirements are classified as bullion.

The language about storage specifically refers to bullion, and not to coins.  As such, it is best to have such assets held by an actual bank trustee serving as custodian.

Coins as described equate to US Eagles in gold, silver, platinum & palladium

With the lack of storage specificity for coins, it has been open to interpretation, including the ability to store such coins personally.

Several years back, there was a boom in investors wanting to hold metals personally and many gold dealers hopped on the marketing bandwagon to offer plans to allow for personal storage. Marketing certainly trumped compliance, and a range of interpretations of section 408(m)(3) were put forth. With this expansion of interest, some of those in the compliance space - including state regulators that oversee custodians - took a closer look at the code and determined it was not precise. As such, there has been a bit of a recoil, including some custodians that used to allow for personal storage via an IRA LLC now asking for proof of 3rd party storage such as a bank deposit or personal vault account with someone like Brinks.

The best practice has always been to have documented storage such as a bank deposit box.  I like to describe it this way.... "If a fund/asset manager were to hold a physical asset, would they arrange for secure storage or send it home with the secretary?"

Bottom line... until the IRS goes after someone or we get an administrative ruling, there is no 100% clarity on this topic.  Thus, best practices of a more conservative nature are probably the best play.