IRA Investors Increasingly Turning To Precious Metals

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Trey Hightower, trust officer who oversees precious-metals IRAs with the retirement-services company GoldStar Trust, said the firm's precious-metals transactions climbed 523% during the last eight months, and there are 6,500 to 7,000 current precious-metals accounts. The value of metal in retirement accounts through GoldStar as of Dec. 31 was $312 million, out of total retirement accounts of $770 million.

Demand for precious metals in self-directed U.S. Individual Retirement Accounts is growing for many of the reasons other investors have been drawn to the metal - a hedge against inflation, dollar weakness and credit-market worries. Purchases of gold and other metals for IRAs make up a minute portion of overall investment demand, and observers said many investors don't realize they can use gold for IRAs. Nevertheless, observers have noticed a significant pick-up in gold IRAs over the last half year.

"Even though it was available, it was not very well promoted by anyone," said David Morgan, an independent precious-metals analyst with Silver-Investor.com who will be speaking about metals IRAs at the Money Show in Las Vegas next month. "It's rather cumbersome for bullion dealers to set it up."

But with the credit crisis, investors are looking for ways to buy gold, and retirement accounts make it possible to do so with funds they already have, he continued.

George Cooper, senior account executive with Centennial Precious Metals, has been handling gold IRAs for 17 years. Back in the mid-1990s, he said he might get one such call every month or two. Interest in IRAs using precious metals began picking up around 2000, as the ratio of the Dow Jones Industrial Average versus gold hit an all-time high, Cooper said. Interest further picked up after the Sept. 11 terrorist attacks in the U.S.

The combination of gold hitting $1,000 an ounce, the Bear Stearns bailout and the arrival of the April 15 income tax filing deadline spurred further investment. Cooper said suddenly he was getting up to 50 inquires daily and was working 12-hour days to keep up with the demand.

Trey Hightower, trust officer who oversees precious-metals IRAs with the retirement-services company GoldStar Trust, said the firm's precious-metals transactions climbed 523% during the last eight months, and there are 6,500 to 7,000 current precious-metals accounts. The value of metal in retirement accounts through GoldStar as of Dec. 31 was $312 million, out of total retirement accounts of $770 million.

Many of the rules governing these accounts came about through the Taxpayer Relief Act of 1997, he said.

The Entrust Group, another company specializing in self-directed retirement plans, just recently began offering metals IRAs to clients, among other investment options.

Hugh Bromma, CEO of Entrust, said investment in metals IRAs is "small but growing." His firm handles roughly 50,000 total retirement accounts, and only about 1% include metals. However, he said, metals inquires are now five to 10 times greater than a year ago.

All of the precious metals - gold, silver, platinum and palladium - can be purchased for IRAs. However, Bromma said, probably 90% of the interest is in gold.

Gold IRA Money Tends To Be Rollovers, Transfers Observers say the bulk of the money going into precious-metals IRAs comes from transfers or rollovers from already-existing retirement accounts, rather than new IRAs. For one thing, the annual limit for new IRA contributions for people age 49 and below is $5,000, which doesn't allow for much gold at $900 an ounce.

IRA metals demand tends to come from more sophisticated investors looking to put a percentage of their retirement savings into gold. Most advisors typically recommend only a small portion of a portfolio should be in precious metals, as they offer a hedge against inflation and disruptions such as the recent credit-market crisis. Thus, a couple of account executives reported having handled gold IRAs of anywhere from $500,000 to $800,000.

Centennial doesn't do such IRAs for less than $12,000 because they are both capital and labor intensive, Cooper said. It can take 10 days to two weeks to set up a gold IRA, starting with the paperwork to transfer money from an investors' current IRA trustee. Gold must be insured and physically shipped, before going into storage.

"There are real costs associated with this," Cooper said. Still, Hightower described the process as "easy" for investors themselves. There is a form to open a new account, a transfer request if the money is coming from another IRA or a direct-rollover election form if the funds are coming from an employer plan, and finally a metals-direction form telling the firm which bullion dealer an investor wants to use. Analysts and account executives said tax treatment of gold IRAs is the same as other retirement accounts. The government, however, has strict rules governing them, including the quality of coins or bullion.

American Gold Eagle gold coins are allowed for IRAs, Morgan said. Other gold coins must be "at least .995 fine," or 99.5% pure. This means Canadian Gold Maple Leafs, Australian Kangaroo Nuggets, Austrian Philharmonics and the Perth Mint's Lunar Series are also on the list, Morgan he said. Additionally, .995 fine gold bars are approved, fabricated by refiners approved by Comex.

Metal must be physically stored through an approved depository, meaning investors cannot keep coins in a closet.

Account executives and analysts said IRA metals investors have the option of taking their distributions in either cash or by delivery of the metal itself.

IRA investors tend to hold precious metals for the long haul, just as they do in stocks, Morgan said. He suspects there would be substantially more precious-metals IRAs if all first-time IRA holders realized they could include precious metals. "But since almost everyone opens up an IRA at a bank and brokerage house, they don't tell them anything about owning gold," Morgan said. It's conceivable that this demand some day could be significant enough to impact metals prices, even if only 10% of all IRA holders put only 10% of their investment in precious metals, Morgan suggested.

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