A Couple Stored IRA Gold at Home. They Owe the IRS More Than $300,000

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It’s official: Owners of individual retirement accounts with assets invested in gold and silver coins can’t store them in a safe at their home.
So ruled the judge in a recent Tax Court case, Andrew McNulty et al. v. Commissioner. The decision will cost Mr. McNulty and his wife Donna dearly—taxes of nearly $270,000 on about $730,000 of IRA assets, plus penalties likely to exceed $50,000.
The ruling disallows a scheme that was heavily promoted several years ago, when radio and internet ads touted the benefits of using IRA assets to buy gold and silver coins and then store them at home or in a safe-deposit box. Promoters based pitches on a perceived ambiguity in the law, despite warnings from the Internal Revenue Service and legal specialists.


These pitches are less common now, but they’re still around. Savers who have bought into them or are considering such a move should reconsider right away.
The McNulty case has a broader lesson as well: It’s a cautionary tale showing how dangerous it can be to invest retirement-plan funds in alternative assets without proper guidance.
“Good tax advice may appear expensive, but it’s not as costly as blowing up your IRA,” says Warren Baker, an attorney with Fairview Law Group in Seattle who specializes in alternative-asset IRAs.
Here’s what happened in the McNulty case, starting with some background.


Savers who have tax-favored retirement plans such as traditional IRAs, Roth IRAs, and Solo 401(k)s usually invest the assets in securities like stocks, mutual funds and exchange-traded funds.
But they don’t have to. The law gives retirement-plan owners broad latitude in how they invest funds, as long as it’s not in collectibles like artwork, jewelry, antique furniture, cars, wine and such.

Savers investing in alternative assets must follow strict rules against self-dealing. Otherwise, they risk disaster. For example, an IRA owner can use account funds to invest in a rental property like a beach house. But if she uses it herself for a week of vacation, that’s a “prohibited transaction” that dissolves the IRA, triggering taxes and perhaps penalties.
The McNultys ran afoul of such rules. Their attorney, Thomas Quinn of McLaughlinQuinn in Providence, R.I., said they declined to comment on the case and are considering an appeal.
According to the decision, the couple in 2015 began moving nearly $750,000 of existing retirement-plan funds, including from a MetLife annuity and 401(k), into self-directed IRAs. Then they had the IRAs purchase shares in limited-liability companies that in turn invested about $730,000 in a condominium plus gold and silver American Eagle coins.


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