International Gold IRAs: What’s the Best Way to Structure Them?
Contents
- In a Nutshell…
- How Gold Must Be Held Inside an IRA
- Where Things Can Go Wrong: The Checkbook IRA
- The Swiss Account Problem
- So What’s the Best Solution?
- Keep It Simple
- Don’t mix passive and active IRA strategies
- Make sure your custodian understands your structure
- Make sure you understand how it all fits together, or you work with someone who does
- Rule #1: Keep It Boring
A client recently asked us to help them move their Gold IRA to Switzerland. Because of how many we’ve done, it’s become something of a specialty.
Indeed, given this experience, many of our industry colleagues (custodians, foreign banks and vaults, foreign asset managers, etc.) rely on us to do a lot of the legwork on their behalf. Because we’ve seen it all… or at least, I thought we had.
But in this particular case, the client had been sold an unneeded structure that didn’t fit their needs. And it almost messed up their Swiss account.
I explain how below. But first, we need to take a step back to understand what a Gold IRA is.
In a Nutshell…
Contrary to much of the promotional material out there, there is no legally defined “Gold IRA”. That’s a marketing term designed to attract people who want to hold gold or other precious metals in their IRAs.
Rather, it’s a run-of-the-mill retirement account that holds certain approved precious metals. Sometimes the account will also hold other investments, but a true “Gold IRA” will hold just precious metals.
Some Key Points
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A Gold IRA is always for the benefit of an individual, just like any IRA.
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It can be a Roth or a traditional IRA.
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The IRA must have a custodian or trustee. Most Gold IRA custodians require the IRA to be “self-directed”.
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The custodian holds legal title to the assets for the benefit of the IRA owner.
How Gold Must Be Held Inside an IRA
Gold IRAs are handled much more strictly than standard IRA accounts held with a broker, which is why relatively few IRA custodians offer them. Those that do follow a very specific process.
In a typical Gold IRA, the IRA custodian opens and maintains the precious metals account on behalf of the IRA. When gold or other approved metals are purchased, the custodian arranges for them to be stored with an approved precious metals depository. In practice, this is usually a bank or a private vault.
The metals are not held in the individual’s name, and the account holder never takes physical possession of them.
In most cases, you will not be allowed to store the metals yourself or access them directly. The custodian is legally responsible to manage the holdings for the benefit of the IRA owner, while the depository stores them under the custodian’s instructions.
These restrictions exist for one reason: to prevent prohibited transactions. If the IRS determines that an IRA owner has improperly accessed or benefited from IRA assets, the entire account can lose its tax-advantaged status, triggering a large and often unexpected tax bill.
Where Things Can Go Wrong: The Checkbook IRA
There’s a flavor of IRA called a Checkbook IRA. It’s another marketing term that has no legal definition but basically means:
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The client sets up an IRA with a custodian.
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The custodian creates an LLC (usually in the US).
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The custodian appoints the client as the manager of the LLC under their guidance.
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The client manages the investments of the LLC on a day-to-day basis.
In this scenario, the custodian does not (and is not allowed to) give up their custodial obligations.
But it offers certain benefits to the client, including:
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Faster execution: The LLC manager can place investments or move funds without waiting on custodian approval for each transaction.
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Broader investment access: Certain alternative investments are easier to execute when an LLC is the investing entity.
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Operational flexibility: Day-to-day decisions can be made directly by the manager, which can matter in certain time-sensitive strategies.
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Reduced per-transaction custodian involvement: Custodian interaction is typically limited to funding the LLC and annual reporting, rather than approving each investment. This often reduces yearly custodian fees.
For certain asset classes, it can make sense. For example:
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Foreign real estate
Especially directly-held properties where frequent expenses, repairs, taxes, and rent collection would be impractical to rely on a custodian to manage. -
Private lending / promissory notes
Issuing loans, receiving payments, and redeploying capital is generally easier when the IRA-owned LLC controls the bank account. -
Private equity and startup investments
Capital calls, follow-on investments, and irregular funding schedules are easier to manage through an LLC than having to keep going to the custodian.
But, generally speaking, a Checkbook IRA isn’t needed for a Gold IRA. And, unless you really know what you’re doing, it greatly increases the risk of a prohibited transaction and the expensive consequences that come along with it.
The Swiss Account Problem
This brings us back to the issue that almost derailed the Swiss Gold IRA.
For some reason, the client had mixed the two together. They effectively put their Gold IRA into the Checkbook IRA, creating an extra level of complexity that wasn’t needed. This setup made things more complicated, and more expensive for the client than needed. It caused confusion with the custodian (who wasn’t initially informed by the client that an LLC was involved) and with the Swiss banks and asset manager (who relied on the misinformed custodian).
We did eventually clear everything up, but not without a fair bit of back and forth.
So What’s the Best Solution?
Keep It Simple
The Gold IRA should generally own the metals directly through the custodian. Introducing an LLC without a clear need increases cost and complexity without adding value.
Don’t mix passive and active IRA strategies
Checkbook IRAs are designed for active investments. Gold is a passive, long-term holding. Combining the two creates confusion and raises unnecessary compliance questions.
Make sure your custodian understands your structure
In our client’s case, we were changing custodians in order to be able to move the assets overseas. They weren’t made aware of the LLC until after we had started going through the Swiss bank’s due diligence process.
Make sure you understand how it all fits together, or you work with someone who does
In our case, once the client informed us of the LLC, we were able to smooth things over with all parties involved.
That’s a role we often serve for clients — opening doors, handling paperwork, and coordinating all the various parties involved.
And, perhaps just as important, when there is a hiccup, to know the right way to fix it.
But if you don’t work with a third party who understands this business, just make sure that you understand it. It’s not an area where you want to make a mistake.
Rule #1: Keep It Boring
When working for foreign asset managers, and especially when it comes to US retirement accounts, boring really is better.
When it comes to American clients, the default answer to a foreign investment inquiry is “no”. The more complicated your structure, the stronger that no will likely be.
But that doesn’t mean it’s not worth doing. In fact, one could argue there’s a stronger case than ever.
This is an area we specialize in. And if you have questions or an interest in moving your Gold IRA offshore, feel free to get in touch to see how we might be of service.
About The Author
We have 40+ years experience helping Americans move, live and invest internationally…
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