7688. Can a taxpayer hold precious metals within a qualified pension plan?Nuco Employeercline212015-08-03T14:28:00Z2015-08-03T14:28:00Z25743273Summit Business Media277384014Site Map/Investments/Precious Metals and Collectibles/Precious MetalsTaxFactsDefaultArticle122121182-00-tf2.xml1182.00;#1923;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 2How may an individual invest in precious metals?50900.0000000000TaxFactsDefaultArticle2010-01-14T23:08:44ZSBMEDIA\moss-admin7688. Can a taxpayer hold precious metals within a qualified pension plan?The law currently allows a defined contribution 401(k) (and profit-sharing) qualified plan, and even a defined benefit plan, to invest in precious metals to the same extent permitted (and prohibited) under IRC Section 408(m) (see Q 7687). However, advisors must also consider the prohibited transaction rules contained in IRC Section 4975 and ERISA Section 406, and the regulations under ERISA Sections 404(c) and 404(b) when investing in precious metals through a defined contribution qualified plan, including an IRA..See www.irs.gov/Retirement-Plans/Retirement-Plan-Investments-FAQs. (Last reviewed or updated by the IRS on Jan. 29, 2015. As noted, qualified defined benefit pension plans are also legally permitted to invest in precious metals as plan assets subject to the same Section 408(m) requirements imposed on permissible investments, but such investment generally makes little sense when there are plan benefit maximums allowed. Actually, as the IRS notes, “Although there is no list of approved investments for retirement plans, there are special rules contained in the Employee Retirement Income Security Act of 1974 (ERISA) that apply to retirement plan investments.” In general, a plan sponsor or plan administrator of a qualified plan who acts in a fiduciary capacity is required, in investing plan assets, to exercise the judgment that a prudent investor would use in investing for his or her own retirement. ERISA Section 404. In addition, certain rules apply to specific plan types. For example, there are different limits on the amount of employer stock and employer real property that a qualified plan can hold, depending on whether the plan is a defined benefit plan, a 401(k) plan, or another kind of qualified plan (ERISA Section 407). Certain plans, such as 401(k) plans, that permit participant-directed investment can avoid some fiduciary responsibilities if participants are offered at least three diversified options for investment, each with different risk/return factors..Labor Reg. Sec. 2550.404c-1. See also www.irs.gov/Retirement-Plans/Retirement-Plan-Investments-FAQs.s (Last reviewed or updated by the IRS on Jan. 29, 2015..Under the Code both participant-directed accounts and IRAs cannot invest in collectibles, such as art, antiques, gems, coins, or alcoholic beverages, and they can invest in certain precious metals only if the metals (coins or bullion) meet specific requirements..IRC Sec. 408(m).Planning Point: As a practical matter, a large corporate plan with many participants is unlikely to offer precious metals permitted under IRC Section 408(m)(3) as an investment in its “participant-directed” 401(k) plan because of the complications for the trustee, except perhaps in the stock or precious metals ETF form. However, for small business owners and professionals that can meet the qualifications to implement and use a so-called self-directed “solo 401K” (a one-person plan, or a precious metals IRA, and perhaps even a small solo defined benefit pension plan) precious metals might be purchased as a plan asset (and find administrators/packagers of plans that even offer storage) . However, even though some of these qualified plan vehicles may allow a pre-tax purchase of the investment, the vehicle itself generally requires compliance with substantial rules, especially prohibited transaction rules, and reporting requirements, plus with distribution treatment (Q 7687) of the investment from the plan that may make acquisition of the precious metal through one of these retirement plan vehicles less attractive than by individual purchase. Finally, all the costs and risks of both obtaining and maintaining the plan and the metal need to be considered before proceeding.No qualified plan approach to acquisition of plan-permissible precious metals should ever be attempted by an investor without professional legal and tax guidance, and a plan administrator experienced with the special issues surrounding physical precious metals (other than precious metals stock interest and the like) as plan assets.