Gold IRA Scams: What Are They & How to Stay Safe

Gold IRA scams are a type of Rollover scam, where the fraudsters try to lure retirement investors with promises of higher returns and safe investments by utilizing a supposedly genuine business. 

Before we get into what a gold IRA scam is, we will discuss the basics such as what an IRA is and how they are becoming so vulnerable these days.

The 411 on IRA

Individual Retirement Account (IRA) is an account that individuals can use to save and invest for retirement and in the process, get some form of tax advantage under their belt. The retirement funds in the IRAs can be invested in a range of financial instruments like stocks, bonds, ETFs (exchange-traded funds), and mutual funds. 

There are 4 types of IRAs:

  • Traditional IRAs
  • Roth IRAs
  • SEP IRAs
  • SIMPLE IRAs

An average individual taxpayer can only invest in traditional IRAs and Roth IRAs, while small business owners and self-employed individuals can invest in both SEP and SIMPLE IRAs. 

A Self-Directed IRA (SDIRA) can be both traditional and Roth wherein the investor has the liberty to decide the particular financial instrument one wants to invest in. This also gives the investor a wide selection of alternate-asset investments including real estate and commodities. 

In the 1997 Taxpayer Relief Act, the IRS modified the tax code to allow investment in precious metals in a designated IRA with certain specific conditions to get tax advantages. 

Is Gold IRA A Scam?

When planned and executed properly, investment in a precious metal IRA can offset or stabilize losses in an otherwise economic downturn. With gold being the most sought-after precious metal, people prefer to invest in Gold. 

During an economic slowdown when every individual investor tries to invest in safe accounts, some Gold IRA sellers and brokers with questionable reputations take this opportunity to dupe the vulnerable people who lack the required know-how to escape the clutches of such fraudsters.

These tricksters employ deceptive tactics to depreciate the value of your retirement portfolio to make a nice commission for themselves. In extreme scenarios, the investor is robbed of his entire fund.

The Primary Targets of Gold IRA Scams

One of the most basic things to know about IRAs is that if you withdraw the fund before you are 59 ½ years of age, you must pay a 10% penalty. So, the people who are opting for SDIRAs are generally over 60 years of age. The Gold IRA sellers or brokers typically target older people because they can be vulnerable and easier to dupe.

How Gold IRA Scams Work

Gold IRAs are self-directed, which means that there is no custodian to evaluate and mitigate the risks of your investment. You are responsible for your actions, and it is easier to double-cross you. 

The salespeople will call you with unbelievably lucrative offers, and if you agree, they will invest your IRA in gold, reserving at least 33% for handling transactions and ultimately depreciating your portfolio by a huge margin.

Gold IRA Scam Tactics

Ways To Avoid Gold IRA Scams

  • Aggressive Sales
  • Check The Credential of The Gold IRA seller
  • Fake IRAs
  • Avoid Sales Calls That Are Too Adamant
  • Numismatic Coins
  • Read The Contract Carefully
  • Shaved Coins
  • Consult Your Attorney
  • Deceptive Contracts
  • Hedge Your Investment Risks

Scammers employ the following tactics to dupe people:

Aggressive Sales

The fraudsters will call and aggressively persuade you to invest your money in a Gold IRA. The salesperson guarantees that the price of gold will only go upwards and will tell you that if you don’t opt for it then and there, you’ll miss a once-in-a-lifetime opportunity. 

They will not take NO for an answer! It’s important to remember that the ultimate power lies with you, and you can walk out any time.

Fake IRAs

There are some fake IRA sellers, who will likely ask you to deposit money into their account. As soon as you deposit money, it’s gone for good as there’s no actual gold and you will later find out all the names and credentials they mentioned are fake

By the time you realize that you’ve been cheated out of your money, they likely already moved on to the next victims of their gold IRA scam and you’ll likely never be able to get hold of them. 

Numismatic Coins

Gold is a financial instrument for investors and an exclusive bullion bar with 99.5% purity. Any jewelry or used gold cannot be invested in IRAs, irrespective of their purity. These bullion coins and bars derive their value from the underlying precious metal content, even if melted. There are some collectible coins that derive their value from their rarity called Numismatic coins. 

Some semi-rare golds derive their value from both the underlying precious metal as well as the rarity. These are called semi-numismatic coins. Both numismatic and semi-numismatic coins are not appropriate for investment because they usually have a perceived value and may not fetch that value in the actual market. 

The salesperson will tell you that these rare coins have more value than normal bullion and will be a better investment because it usually appreciates more than bullion. Often, Numismatic Coins are priced lower in a live market.

The salespersons will coerce you into buying these numismatic coins and keep a very high margin for themselves. By the time you get your contract documents in hand, your investment is depleted. 

Shaved Coins

Some Gold IRA sellers secretly shave the bullion coins to keep some grains for themselves. These grains quickly add up and the sellers obtain a nice little profit. They essentially try to build their wealth at the expense of your investment. Only at the end of the IRA term when you get physical possession, will you find out that your total investment has gone down a lot. 

Deceptive Contracts

Most of us don’t read the entire terms and conditions before we sign up for an account or anything. It’s imperative that you read all the documents carefully before you sign any investment papers. 

You may believe that signing the paperwork is just a formality, but you’ll find out soon enough that the contract puts your money at risk, so it’s crucial to read the terms and conditions in its entirety! 

The fraudsters use complex, legal language to dupe you, which is why you should consult with your attorney before investing your precious savings in these shady Gold IRAs.

Cold Calls

If you want to invest in genuine gold IRA schemes, you should find out the best and trusted sellers of gold IRA first and then go through all their reviews and past track records to find out more about them. If everything seems legitimate and there are no red flags, you can go ahead and invest a sizable portion of your portfolio into Gold IRAs. 

Fake and fraudulent gold IRAs usually call you themselves and sell aggressively to convince you to invest your money. If you are the recipient of such calls from these shady Gold IRA sellers who really push the sale by throwing words such as the IRS, be cautious and avoid their offerings. 

They will try to lure you with so-called “once in a lifetime” deals, saying you can benefit from investment only during the call and never again. Having discussed all the red flags of a suspected Gold IRA scam, you’re now in a better position to steer clear of these deceptive sellers and safeguard your money.

How To Avoid Gold IRA Scams

While Gold IRA scams made a victim out of many pensioners and older adults, you can avoid being the next victim. The key is being inquisitive and knowing your rights and their offerings thoroughly. If you see a red flag (even a tiny one), don’t ignore it. Try to get to the bottom of it or better yet, avoid the scheme or company altogether.

There are several tactical ways to avoid these schemes, which you can find below:

Check The Credential of The Gold IRA seller

The first thing about any fake or malicious IRA seller is that they are not genuine companies, doing a little due diligence can save you a great deal of grief later.

Research the seller, the number of years they’ve been in business, and any customer reviews. Try to find someone who’s interacted or worked with that brand before. It’s better to walk out of the deal at the first sign of trouble. Lucrative offers are not worth being scammed at all!

Avoid Sales Calls That Are Too Adamant

The genuine Gold IRA sellers don’t call you themselves. If you are interested, you can search for them and contact them. Authentic sellers are not too pushy on the call, and if you feel like you’re being pressured into buying, there are high chances that it’s a scammer on the other end of the receiver.

Read The Contract Carefully

A gold IRA contract can be confusing and amidst all the complex legal jargon, there could be clauses that can make your investment less secure. That’s why it’s crucial you read the contract carefully and go through every detail. Whenever you find a red flag, ask the seller for clarity, and do not proceed until you receive it. Genuine sellers will be obliged to help you understand the specifics of the deal.

Check what the fees are. In most cases, these charges are mentioned vaguely and not in absolute percentages. Clarify what their total commission would be and how much money will exactly be invested. Fraudsters try to get as much as 33% commission on your investment, which devalues it completely.

Consult Your Attorney

Having read the contract, if there’s still a bone you cannot swallow, you can always call your attorney. Your attorney is better suited to handle these kinds of contracts and deals. If it’s a scam, your attorney will protect you against it and can take the matter to court. They can carefully pick out veiled clauses and unwelcome conditions as well as warn you against them. Whenever you are unsure of something, seek your attorney’s advice. 

Hedge Your Investment Risks

If you put too many eggs in a single basket, the chances of failure increase multifold. Whenever you are investing in a particular asset class, make sure you’re properly hedging the risk. If you are investing in something that is particularly risky, offset that risk by investing in something which has a negative correlation with the first asset class. If you manage your portfolio well and distribute your investment over different classes of assets, you can lessen a lot of risks. 

Remember You Are in Control

No matter what, remember that you are in control. You can walk out of the deal at any point before you transfer the money. Whenever you feel that the salesperson is overly persuasive or you don’t particularly want to invest in the gold IRA at that point, it’s better to end the conversation then and there. 

Conclusion

You can choose to invest in gold bars, gold bullion, and gold coins for several valid reasons. The gold prices don’t change massively and hence investment in physical gold will always be a wise decision in most cases. Such a stable investment looks even more attractive to retirement investors who’re particularly skeptical of the stock market or other traditional investments. 

With so many rollovers and coin scams, you need to be more careful as the self-directed IRA is not managed by a safe custodian. You should opt for this only when you have sufficient knowledge of personal finance and information on how to avoid scams. 

Your retirement savings need to be protected, and you can do that with a certified financial advisor and an attorney by your side. Another reasonable approach to avoid all the scams is to avoid the whole Gold IRA altogether. 

But why punish the whole industry for the offense of some? We are here to facilitate you in taking a more informed decision rather than closing the whole option altogether. Invest with fully informed choices, and you’ll never be scammed!