When you open up a self-directed or precious metals individual retirement account, the Internal Revenue Service won't let you hold your own gold. The instance you touch your gold, it's considered a distribution, which is taxable. As such, the gold you buy will be shipped directly from your dealer to a third-party depository that is approved by your IRA custodian.
A depository is a business that stores your precious metal for you. What Fort Knox does for the U.S. Government and the New York Federal Reserve Bank does for governments around the world, a depository does for you. Depositories are physically secure buildings that also have on-site protective personnel. Many are also generously insured. The whole idea is that once your gold goes into the depository, it doesn't come out until you want it to.
Types of Storage
Depositories frequently offer a few different types of storage. The most secure way to have your metals stored is in a segregated account. In a segregated account, your gold is stored separately so that when you make a withdrawal, you will get the exact bars or coins back that you deposited. With unallocated or unsegregated storage, the depository holds bars or coins of the same age and type together. If you put in a 2008 one ounce American Gold Eagle, for instance, you'll get a 2008 American Gold Eagle back, but it won't necessarily be the exact one that you put in. Segregated storage is usually more expensive.
Insurance and Legal Separation
Physical security and separation isn't the only important part of choosing a depository. Their ability to protect your assets from financial risk is also important. Most depositories are insured, but some carry $1 billion in insurance. In addition, the legal structure of the way that the depository holds your assets is important. When a depository doesn't take ownership of them legally, they're protected from any claims that could be levied against them by someone that launches a legal action against the depository.
You will usually pay an annual storage fee that is tied to the value or quantity of gold that you store. In addition, you can expect to pay more at many depositories for segregated storage or for other services. Remember that you may also need to pay to have your gold shipped to and from the depository by mail, overnight carrier or armored vehicle.
When Choices are Limited
Sometimes, you can't choose any depository that you wish. Some self-directed IRA custodians will require you to use a certain depository. While this can make record-keeping easier for the custodian, it's not a legal requirement. If using a particular depository is important to you, you can roll your funds over to a different IRA custodian that allows you to use a depository of your choice.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.