Self-directed IRAs – individual retirement accounts allow investments in physical assets such as precious metals, including gold. These are often referred to as gold IRAs; however, investors have other options like silver, palladium, and platinum.
Among the top advantages of investing in physical assets known for holding value is that they serve to hedge against inflation. Because inflation detracts from the value of currency, it takes more cash than before to make purchases.
By choosing precious metal IRAs, those planning for retirement hope to preserve the value of their accumulated wealth. Visit https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/CustomerAdvisory_COVID19PreciousMetals.htm to learn about precious metal IRA scams meant to drain retirement wealth.
Precious Metal IRA Types and Their Criteria
Precious metal or gold IRAs are a favored alternative investment for individuals strategizing for a stable retirement portfolio. Investors aim to accumulate wealth that will hold its value into the future despite the risk of inflation.
Gold, in particular, boasts a hedge against inflation and is capable of retaining its value regardless of the economic landscape. Investors have the option of two types of precious metal IRAs, each offering tax incentives but with subtle differences.
Traditional
Contributions under the traditional IRA grow tax-deferred; however, retirement withdrawals are taxed as standard income. As a rule, withdrawals taken before retirement age, 59.5+ years old, are subject to standard income taxes but could also have a 10 percent penalty attached.
Beginning at age 73, RMDs – required minimum distributions or mandatory withdraws must be made to avoid the possibility of a 25 percent tax penalty. In 2024, contribution limits for ages up to 50 are $7000, and from 50+ are $8000.
Roth
Roth IRAs are funded with after-tax contributions, but the funds grow and can be withdrawn tax-free after retirement. Because funds are already taxed, withdrawals can be made anytime without tax penalties.
While RMDs aren’t applicable with a Roth account, withdrawal of gains before age 59.5 could be taxed as standard income and involve a 10 percent tax penalty. The criteria for Roth IRAs include meeting specific income guidelines. The same contribution limits apply for both Roth and traditional accounts.
The Fundamentals of Precious Metal IRAs
The IRS – Internal Revenue Service has stringent regulations for gold IRAs. The accounts are limited to specific coins as well as rounds and bars that meet these standards.
- Gold coins you can include with a precious metal IRA include the American Eagle, Australian Kangaroo, and Canadian Maple Leaf, with 99.5 percent purity.
- Silver coins also include the American Eagle as well as the Chinese Panda and Australian Kookaburra with 99.9 percent purity.
- Palladium coins with 99.95 percent purity can be held in a precious metal account. The Canadian Maple leaf is an example to include in your account.
- Platinum coins must have 99.95 percent purity and include the Isle of Man Noble and Australian Koala, besides the American Eagle.
Rare or collectible coins and a few popular currencies are not permitted for inclusion in a self-directed IRA. Some that don’t qualify are the Mexican 50 Pes and the French 20 Franc. Here are a few other government stipulations to be aware of.
- Precious metals that you already own cannot be deposited into your account. You must contribute to the IRA and use those funds to purchase gold.
- An IRS-approved custodial service oversees all self-directed retirement accounts, including those holding precious metals.
- Precious metals must be held in an IRS-approved storage depository, not in a safe deposit box or in your home.
Opening A Gold IRA
Opening a self-directed IRA to hold gold and other metals is more involved compared to a conventional account. Traditional investment firms are typically ill-equipped to manage these IRAs. A custodial service specializing in self-directed accounts holding precious metals oversees the activities.
For instance, you can readily open a gold IRA with Goldco, a leader in managing self-directed accounts for gold and other metals. Here are the steps to follow for account setup.
Self-directed IRA setup
Only specialized custodians manage self-directed IRAs holding precious metals. Some gold firms have approved custodial services in-house; if not, they can help you find one to suit your needs and purposes.
Contributions
Some custodians have a mandatory minimum balance when setting up an IRA. You can fund the account using cash following IRS restrictions or rollover funds from an existing IRA.
Gold dealers
Physical metals must be purchased from a reputable, qualified gold dealer; the custodial service will work with the dealer to complete the transaction. Once final, the bullion will be sent to an IRS-approved depository.
The custodian can offer options, but ultimately, the storage decision will be up to you to ensure adequate accessibility.
Selecting bullion
You can buy bars or rounds and choose among select coins that meet the IRS criteria; these are imprinted with varied countries’ distinct designs. Some dealers designate IRS-eligible products to make the process straightforward and simple.
US government regulations restricting the amount of physical metals a private citizen could own were lifted in the early 1970s. You can now freely buy/sell and hold any quantity of whichever type appeals most to you, such as bullion.
Becoming familiar with gold IRA investing, including the IRS regulations and the setup process, is critical. The owner of a self-directed retirement account is ultimately responsible for any decisions made with the IRA, regardless of whether the investor leaves these to the custodial service.
In order to make an informed decision between a conventional IRA and a self-directed retirement account to hold gold, you must know how these are distinct.
- Market volatility can impact the value of precious metals.
- The self-directed IRA is subject to higher fees compared to conventional accounts.
- Other investments offer greater liquidity compared to physical metals.
- IRA-held metals must be insured and stored in an approved depository; they cannot be kept in your home. The costs associated with storage and custodial services can be substantial. Go here to become familiar with how gold IRAs work.
Final Thought
While self-directed individual retirement accounts that hold gold and other metals involve a substantial upfront investment and ongoing maintenance costs, owners have direct control over the assets.
The recommendation is to strike a balance in your portfolio between alternative investments like gold and more conventional choices. You want to refrain from having too much of any one asset; diversity is key to a solid retirement strategy.
