Silver Boullions in a 401(k) Plan?

[Guest notapensiongeek]

We have a 401(k) PSP where each participant has their own earmarked account. One of the participants, who happens to be a plan trustee, wants to invest about 5% of his existing account in silver boullions. Is this a prohibited transaction?

The asset will be purchased with cash from his existing plan account, and the asset will be registered correctly under the name of the trust. The asset will be appraised annually, and will be held in a safe deposit box.

Any input would be greatly appreciated! Thanks ;-)

[Guest mjb]

See IRC 408(m)(3).

[Guest notapensiongeek]

So, a silver bullion is an exception to "collectibles" so it IS permitted in an earmarked account in a 401(k) plan?

Thanks.

[Guest Pensions in Paradise]

Couple of things to remember:

1. The plan/trust document must allow for this type of investment. Most plans do provide for this, but make sure.

2. Since this is a participant-directed investment the cost of the annual appraisal should be paid by the participant or by the plan sponsor. It should not be charged to the plan as a whole.

3. If this is a small plan (less than 100 participants) and the non-qualifying assets (i.e., bullion) exceed 5% of plan assets, make sure the bond covers the non-qualifying assets. Otherwise the plan will be subject to the annual audit requirement.

[Guest Kevin1]

408(m)(3) requires the bullion be in the physcial possession of a trustee as described in subsection (a)....

Reading (a) a trustee is a bank or similar institution. 408(a) also deals with IRAs not qualified plans.

Also see Sal's ERISA outline book 7-282. THe cost of a collectible purchased in a self directed account is treated as a distribution. 72(t) applies.

Any IRA rollover monies in the account that could be treated as deemed IRA monies? You still would have the requirement of a specific trustee having possession.

[Guest mjb]

Kevin: why are you referring to IRAs when the original post asked a Q about investing in bullion in a 401k plan? What is the reason for the EOB cite?

[Guest notapensiongeek]

Thanks for the input. I told the client pretty much what Pensions in Paradise said.

[Guest Kevin1]

mjb:

You refered notapensiogeek to 408(m)(3).

If you read the last sentence of 408(m)(3) it references that the " ....bullion is in the physical posession of a trustee described under subsection (a) of this section".

Subsection(a) references IRA accounts and the trustee requirements for the exception.

If you read the EOB cite #8 and #9 on page 7.283, #8 specifies that the excepion applies to IRAs. It doesn't say defined contribution plans. #9 deals with deemed IRAs which I saw no basis for under the question posed.

The EOB cite on page 7.282, first sentence says that when a participant directed account in a defined contribution plan [401(k) plan] invests in collectibles you have a taxable distribution.

The exception applies to IRAs, and deemed IRAs, that meet certain requirements not participant directed defined contribution plans.