Image: Small Stack of gold ingots © Anthony Bradshaw, Photographer

Some owners of individual retirement accounts still have bad vibes about the stock market. However, the safest fixed-income investments are paying microscopic returns, and the risk of inflation remains worrisome. That's why investing some of your IRA money in gold or other precious metals might be appealing.

Here's what you can and can't do when it comes to your IRA and precious metals.

The Internal Revenue Code allows IRAs to own certain gold, silver and platinum coins, as well as gold, silver, platinum and palladium bullion that meet applicable fineness standards.

For example, an IRA can own American Gold Eagle coins, Canadian Gold Maple Leaf coins, American Silver Eagle coins, American Platinum Eagle coins and gold and silver bars (bullion) that are 99.9% pure or better.

Some well-known gold coins, including the South African Krugerrand, are off limits, as are bullion bars that are not sufficiently pure. The coins or bullion must be held by the IRA trustee rather than the IRA owner. In other words, you can't have your IRA buy coins or bullion and then stash them in your safe deposit box or bury them in your backyard.

These tax rules apply equally to traditional IRAs, Roth IRAs, simplified employee pension accounts and Savings Incentive Match Plan for Employees (Simple) IRAs. No problems so far.

The big issue with IRA ownership of precious metal assets is finding a trustee willing to set up a self-directed IRA, handle the transfer of funds to the precious metals dealer and facilitate the physical transfer and storage of the coins or bullion.

None of the major brokerage firms is willing to play, leaving only a handful of outfits in the game, including Sterling Trust, American Estate & Trust, GoldStar Trust and the Entrust Group. Most trustees will arrange for the physical storage of coins and bullion with the Delaware Depository Service in Wilmington, Del.

The trustee will typically charge a one-time IRA set-up fee ($25 to $50), an annual management fee for producing account statements and handling other paperwork ($75 to $250) and an annual fee for storing and insuring the coins or bullion ($125 to $250). Additional fees may be charged for various transactions, including account contributions and distributions and purchases and sales of coins or bullion.

IRA owners are usually on their own when it comes to finding a precious metals dealer to sell coins or bullion to the IRA or to buy coins or bullion from the account. Examples of such dealers include USAGOLD-Centennial Precious Metals and Goldline International.

The indirect path through ETFs and stocks

Physical ownership of precious metal assets by IRAs is not for everyone, although it has become more popular in recent years as the price of gold has surged. Still, only 2% to 5% of IRAs own precious metal coins or bullion, according to George Cooper with USAGOLD-Centennial Precious Metals.

An alternative to putting coins or bullion in your IRA is buying shares of an exchange-traded fund that tracks the value of particular precious metals.

A few years ago, tax advisers worried that having your IRA acquire such shares might be treated, for tax purposes, the same as buying collectibles (coins and metals are generally treated as collectibles under the tax law). Because IRAs are not allowed to own collectibles, that would have resulted in a deemed taxable distribution from the IRA with the investor then using the money to buy the prohibited ETF shares.

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Fortunately, the Internal Revenue Service ruled in 2007 that IRAs can buy shares in precious metal ETFs that are classified as grantor investment trusts without creating tax problems. Two of the most-popular precious metals ETFs are SPDR Gold Shares (GLD, news) and the iShares Silver Trust (SLV). Both ETFs have been approved by the IRS.

If you're unsure whether your IRA is allowed to own an ETF, read the tax section of the fund's prospectus, which should be available online. (There are still some people who incorrectly believe IRAs are not allowed to own precious metals ETFs. Ignore them.)

Another indirect way of investing in precious metals is to have your IRA buy stock in a mining company. For example, your IRA could buy shares in Barrick Gold (ABX, news), the world's largest pure gold mining company. There are no tax concerns with this option.

This article was reported by Bill Bischoff for SmartMoney.