Counterparty Risk in Gold IRAs: Dealer, Custodian and Depository

Physical gold has no issuer promising to pay you. But a Gold IRA is more than metal. Behind the metal sit companies: a dealer that sold it, a custodian that holds the account and usually a depository that vaults it. If one of them fails, or does something wrong, you can be affected. That is counterparty risk. This page is part of our guide to Gold IRA risks. It is general education. It does not say any company is unsafe, and it is not legal advice.

What is counterparty risk in a Gold IRA?

A counterparty is the other side of a deal. In a Gold IRA there are usually three. For who does what, see custodian vs dealer vs depository.

The CFTC quote above comes from its 10 Things advisory. The custodian quote comes from the Investor.gov alert. Failure can mean different things: a closure, a bankruptcy, or dishonesty. Each affects you in different ways.

What happens if my Gold IRA company goes out of business or goes bankrupt?

We cannot give you a general answer, and we did not find a government source that gives one. Be wary of anyone who does.

What happens would depend on facts we cannot know here:

• Which company failed. A dealer that has already delivered the metal is in a different position from a dealer that holds your payment but has not delivered.
• Who holds title to the metal and how it is recorded. Your account agreement, the custodian's records and the depository's records matter.
• How the metal is stored. Depositories describe separate and pooled storage in different ways. See segregated vs commingled storage. We did not find a regulator source saying how either type fares in a bankruptcy.
• What kind of proceeding it is and which law applies.

Our interpretation, not a legal conclusion: because outcomes turn on documents and law, the best use of this page is to know what to ask and get in writing before you invest. If a company has already failed or you are worried about one, an attorney who handles bankruptcy or retirement-account matters can read your documents. Contact your state securities regulator too. The Investor.gov alert suggests consulting "a licensed, unbiased investment professional or an attorney before opening an account."

Is a Gold IRA protected by FDIC or SIPC?

Do not assume so. Check what each agency says about itself.

• The FDIC says its insurance "does not cover non-deposit investment products, even those offered by FDIC-insured banks." Its "Not Covered" list includes "Safe deposit boxes or their contents." The page does not mention precious metals (FDIC).
• SIPC says it "protects against the loss of cash and securities" at failed member brokerage firms. It also says "SIPC does not protect against the decline in value of your securities" and "SIPC does not protect commodity futures contracts (unless held in a special portfolio margining account)." The page does not mention precious metals (SIPC).

Because neither page mentions physical metal, we do not say metal is covered or not covered by either one. Ask your custodian and depository, in writing, what protection applies and who stands behind it. Our page on storage insurance covers private policies that depositories describe.

Does the custodian check that my metal exists?

Do not assume it does. The Investor.gov alert says self-directed IRA custodians "DO NOT evaluate the quality or legitimacy of any investment in the self-directed IRA or its promoters" and "DO NOT verify the accuracy of any financial information that is provided for an investment in the account." It says they "are only responsible for holding and administering the assets in the account" and warns that "Fraudsters may still attempt to sell you fraudulent investments through legitimate custodians."

The alert also says custodians "often list the value of the investment as the original purchase price," so a statement may not show current value. The CFTC says the custodian's statement shows the "melt" value of the metal, and that you should review it to confirm you received all the bullion you paid for (CFTC advisory). These two descriptions differ, so ask your custodian how it values metal on statements. See how to verify your metals.

Why do "who holds it" and title matter?

The IRS says the bullion exception to the collectibles rule applies to "Any gold, silver, platinum, or palladium bullion of a certain fineness" "if a bank or approved non-bank trustee keeps physical possession of it" (IRS). The CFTC says "Metals in a self-directed IRA must be held by the IRA trustee or custodian."

That is a tax rule about possession. It does not by itself tell you how title is recorded or how a court would treat the metal if a company failed. Our interpretation: those are separate questions, and your account agreement, custody records and storage terms are where to look. We did not find a regulator page that answers the bankruptcy question. Our guide to who owns the gold in a Gold IRA covers ownership in general.

What do enforcement cases show?

These cases show how things can go wrong. They are not predictions, and they do not say that any type of company is unsafe. The CFTC releases below describe allegations. Allegations are not findings. We report only what each release says. We did not look for later developments in either case, so check the CFTC site for updates. For more cases, see our page on documented enforcement cases.

We have no information on whether either side agrees with these allegations. Lessons we draw, as our own reading:

• In the first case, the release says invoices were sent to custodians. A custodian paying an invoice is not a check that metal was delivered.
• The CFTC's metals fraud page describes dealers that "Charged customers extra to store bullion in far-away vaults that didn't exist." Ask for proof of what is held and where.

How can you reduce counterparty risk?

None of these removes the risk. They help you understand it.

1. Know every company's legal name and role. Ask whether the custodian is a bank or an approved non-bank trustee, and ask a state regulator about the dealer. The CFTC suggests checking with your state attorney general or securities regulator to see "if the dealer has a history of complaints."
2. Get written answers. Who holds title, which depository, how the storage is described, what insurance applies, and how the statements value metal.
3. Verify independently. Investor.gov says to "independently verify information" such as prices and asset values given in account statements, if possible.
4. Do not put everything in one place. A bigger share in metal, or in one company, raises exposure. See allocation and concentration.
5. Plan for getting out. If a company is slow or closed, selling or moving metal can take longer. See Gold IRA liquidity risk.

What mistakes do people make?

• Assuming FDIC or SIPC covers the metal. Neither page we read says it does.
• Assuming a custodian vets the dealer or the product. The Investor.gov alert says it does not.
• Treating one statement as proof the metal exists, without confirming with the depository.
• Relying on a company's own claims of safety. Company statements are claims, not guarantees.

Related questions

What if the depository is the one that fails?

We found no regulator page on how that would work for IRA metal. Ask your custodian and the depository what policy and records apply. See Gold IRA storage insurance.

Where can I report a problem?

The CFTC says to submit a tip or complaint at "CFTC.gov/complaint," or contact FINRA or your state regulator. The Investor.gov alert says to report to the SEC at www.sec.gov/tcr and to contact your state securities regulator.

This page explains general information. Whether a particular company failure affects your IRA is a legal question for an attorney.