Gold IRA Scam: Are You Being Scammed?

Gold IRA Scams are by no means new. People have been trying to scam one another for as long as we can remember, and that is no different now. The only thing that has changed is the mechanism of the scam. Since the early 2000's people have been worried about inflation. This, in combination with historic and recent market crashes, have led more and more people to look at investing in tangible assets such as real estate or precious metals.

This is not necessarily a bad thing. The further you are able to diversify your investment, the more security you should have in the event that one of those investments fails.

However, this change does mean that people who have tried to diversify into tangible assets without knowing too much about them can be taken advantage of. 

But before we can understand what to look out for when it comes to Gold IRA Scams, let's first make sure that we understand what an IRA is, and how a Gold IRA may differ.

IRA vs Gold IRA

An IRA is very similar to a 401k in that it is a type of account that attempts to encourage saving for retirement, and can also make use of employee contributions. It is popular because of the tax benefits that accompany it. 

You can read about the difference between Roth 401 vs 401k for high income earners here.

Although it is possible to get an employer involved, it is not necessary. Generally any growth is tax-free, or tax deferred. 

A Gold IRA is very similar to an IRA in terms of tax benefits, but instead of investing in intangible assets, it is a self-directed account that invests in precious metals.

As mentioned above, the appeal of this stems largely from the fact that the value of gold is not tied to the value of currency and may allow you to mitigate the effects of inflation as well as provide a buffer against crashes in other investible markets such as stocks or real estate. 

Common Types of Gold IRA Scams

Gold IRA Scams at Registered Companies

Although many may think that Gold IRA Scams only occur outside of registered financial institutions, this is not the case. In fact, some of the most costly Gold IRA Scams have occurred within financial institutions. 

Usually, this occurs through the use of pressure from a salesperson to convert a regular IRA into a Gold IRA, where they will sell you gold at an inflated price so they can make a larger profit.

Likewise, there have been instances where people have been talked into buying rare coins by a reputable company. In the case of a Gold IRA, only the value of precious metals should be considered, not the value that comes with rarity. The metals in your Gold IRA must also be of a certain standard, specified by the SEC, otherwise the IRS may disallow the inclusion of the coin into the Gold IRA entirely. FINRA, the Financial Agency Regulation Authority, have some good advice about buying precious metals in general here.

It is always important to research a company thoroughly before opening a Gold IRA account with them, and to make sure that you fully understand what it is that you are signing up for. 

Gold IRA Home Storage Scam

This is not as popular with registered firms, although it cannot be excluded from possibly occurring there. In cases like this, 'Home Storage,' is advertised. In other words, your precious metals will be delivered to your home where you can keep them until you wish to cash in on your investment. 

This is not allowed by the IRS at all. For any metals placed in a Gold IRA or any other retirement account, they may never be in your possession, not even for a moment. Instead, they have to be dealt with by a third party at all times. This page on the IRS website is a good starting point to questions about precious metals, and these key points are in the first link Section 408(m). 

Anyone who claims anything else is simply trying to pull you into a Gold IRA Home Storage Scam. You will likely not be able to sell the precious metals for the market value later on and there will be major tax implications.

Coin Related Gold IRA Scams

This can occur in two ways. As mentioned above, it could be when the salesperson at a reputable firm tries to convince you to buy coins with a higher value than that of the gold in them, or any coin other than the bullions which are accepted by the SEC.

But another common way in which this occurs is when the people relatively new to the hobby take up coin collecting. Someone will try to sell them a coin at a larger price than it is actually worth, or in some cases they may buy coins from you for less than they are worth. Due to being inexperienced, you may not be able to tell. 

Another common way in which coin scams occur is when the gold coins that are sold to you through your Gold IRA are shaved down. This is yet another reason why a reputable company and dealer should be considered before you open up your Gold IRA.

A reputable company will have measures in place to ensure that the coins are the required weight, a non-reputable company may even take part in the shaving.

Ponzi Schemes/ Non-deliverables

A lot of times, the purchase of precious metals takes place over the internet, or perhaps over a phone call. This makes the trading of precious metals especially susceptible to Ponzi Schemes.

Ponzi schemes were named after Charles Ponzi, and we talk a little bit about him in our post on why did so many people invest in the stock market in the 1920's.

In cases like this, the item that you have bought may never arrive, and if they do, then the money that the next person paid for their own investment might be what generated the revenue required to buy and send you your gold. 

Affiliate Gold IRA Scams

Often, this occurs when a Gold IRA scam is initiated by getting you hooked through a common interest or organization. People advertise as being part of a specific religious sect, or use mutual acquaintances to get you to believe that you can trust them, because they have the same values as you or because you would be able to keep them accountable. 

But generally people who invest in Gold IRAs do not intend on withdrawing immediately. They wait a great deal of time to do so, allowing the investment to grow, and when the time comes to withdraw, they find out that there was never any gold at all and that the person they trusted is long gone with their money. 

Another form of affiliate scam in relation to Gold IRAs is when multiple websites are created by the scam artist in an attempt to increase traffic to the website where they sell their non-existent goods.

This often occurs because they have already been flagged as suspicious in certain countries and can no longer be found through a simple search with ease.

Counterfeit Gold Scams

This is one of the biggest Gold IRA Scams and occurs when people try to buy their own precious metals, instead of through the company where their Gold IRA is held. In cases like this, where people are inexperienced, the sellers often get away with using metals that are much less expensive and plating them in a very small amount of the metal that you are trying to buy. 

This is one of the many reasons why it is not recommended that you buy your gold from a small retailer, or a company that you have not thoroughly researched.

Depending on the amount that you are attempting to buy, it may even be worthwhile to employ a middle man to ensure that all the gold you are looking at is real. 

Gold IRA Scam Warning Signs

Reporting Gold IRA Scams

It is fairly simple to report Gold IRA Scams. In any instance, even if you are not 100% sure, it is better to report than not to. The government organizations will conduct a thorough investigation before there are any legal ramifications to the company you are suspicious of. 

It seems as if the easiest way to report a possible Gold IRA Scam is through the FBI (Federal Bureau of Investigation). Their contact details are readily available and you are able to remain anonymous. If that does not seem sufficient, you can also report to the FTC (Federal Trade Commission).

Conclusion

Tangible assets are definitely a good way to minimize risk by diversifying your investments. But, there are many different ways that you can be taken advantage of.

Make sure that you always do your research and that you are aware of any risks before you buy anything.

If you fall prey to a Gold IRA Scam, you may forfeit any tax benefits, and depending on how much time it takes you to realize it may be very difficult to catch the perpetrator and return your money to you.

You might be also interested in The 5 Laws of Gold and Why Is Money Called Dough, Bucks, Quid, Bread, or Greenback?.