* This article is created for informational purposes only and does not constitute financial advice. Consult a professional financial advisor for expert guidance on this topic.
With inflation on the rise and uncertainty in the global economy, an increasing number of Americans are looking to safeguard their financial stability by moving their retirement funds to precious metals IRAs and buying physical gold and silver.
People are exploring various strategies to keep their savings secure and ensure their hard-earned money doesn’t lose its worth in these unpredictable times. Investing in precious metals has long been considered a relatively safe way to safeguard and diversify investment portfolios, especially during times of economic uncertainty.
If you’re interested in opening a precious metals IRA, you candownload a FREE gold IRA guide to get answers to all of your investment questions.
This guide provides comprehensive information about precious metals IRAs, outlines IRS requirements for this type of retirement plan, benefits and risks of investing in gold and silver, and more.
What Is a Precious Metal IRA?
A precious metals individual retirement account (IRA) is a type of self-directed individual retirement account (often abbreviated as SDIRA) that allows investors to hold precious metals like gold, silver, platinum and palladium as part of their retirement savings.
Unlike conventional IRAs, a self-directed IRA allows you to invest in a broad selection of alternative assets, including precious metals, private placement securities, real estate, and cryptocurrency. So essentially, a precious metals IRA is a self-directed IRA investment that holds precious metals.
A precious metal IRA is also often called a gold IRA, because gold is the most popular and commonly chosen metal for these types of investments. People choose to invest in precious metals IRAs to protect their wealth from inflation and market fluctuations, as a way to diversify their retirement portfolios, and enjoy potential tax-efficient growth.
How Do Precious Metals IRAs Work?
To open a precious metals IRA, fund it, and actually purchase precious metals, you’ll have to partner with both a gold IRA company and a self-directed IRA custodian. The custodian’s job is to purchase and securely store the actual precious metals, as per federal guidelines you can’t store these metals at home if they’re part of an IRA.
After choosing your gold IRA company and custodian and putting money into your account, you get to select the kind of precious metals you want to invest in. Your gold IRA account manager is usually a great resource for advice and guidance to align your choices with your investment goals.
The custodian is in charge of buying the precious metals for you and keeping them safe in a secure, IRS-approved depository. Your investment is usually stored separately from others, in what’s known as a segregated account. However, the option to store your precious metals in a non-segregated storage is also available.
Keep in mind that the IRS (Internal Revenue Service) has specific rules for precious metal IRAs. These rules cover what kinds of metals you can include and how they must be stored. That’s why it’s crucial to work with a trustworthy gold IRA company that can help navigate these regulations and make sure your IRA complies with IRS standards.
How to Open a Precious Metal IRA to Invest in Gold and Silver
1. Select a Gold IRA Company
To begin, choose a gold IRA company that will lead you in the process and help in every step of the way. The company of your choice will ensure full compliance with IRS rules, help you set up your account with a self-directed IRA custodian, choose precious metals, and ensure safe storage in an IRS-approved facility.
Some of the most popular gold IRA companies include Augusta Precious Metals and Goldco. These companies have thousands of 5-star reviews and a long-standing reputation as reputable providers in the industry, offering a range of services such as facilitating gold IRA rollovers, opening precious metals IRAs, and selling highest-quality gold and silver products.
2. Open a Precious Metals IRA With a Self-Directed IRA Custodian
The gold IRA company will help you open a precious metals individual retirement account with one of the reputable self-directed IRA custodians, such as the Equity Trust Company. You’ll have to sign the custodial agreement and complete the account application by providing some personal information.
3. Move Funds From Your Current IRA, 401(k), 401(b) or SEP.
Transfer funds from your current retirement account to your newly created self-directed IRA to purchase gold or other precious metals. You’ll need to complete a transfer or rollover form to initiate the process of funding your precious metals IRA. The gold IRA company will guide you through the transfer process to ensure IRS-compliance and make it as easy and as seamless as possible.
4. Decide What Precious Metals to Buy
Choose precious metals that you want to buy based on your investment goals. You can buy physical gold products (bullion, gold coins), and silver (coins and bullion), as well as platinum and palladium.
Most people buy physical gold coins and bullion, as this precious metal is admired for its long-standing value and is often seen as a hedge against inflation. Silver is another popular metal that people include in their precious metals IRAs. It’s more affordable than gold, which allows for buying it in larger quantities.
Platinum and palladium are less common choices, mainly because there’s less historical data to analyze their performance over long periods.
5. Choose an IRS-Approved Depository
Reputable gold IRA companies usually work with secure depositories, such as Delaware Depository, that are approved by the IRS and qualified to store precious metals for financial institutions, refiners, and investors. Your dedicated gold IRA account representative will introduce you to their depositories of choice and tell you all about the security standards of the facility offered.
6. Complete the Transaction
When your SDIRA is funded, you can purchase precious metals of your choice from a precious metals dealer. Decide on the gold or silver coins and bars that you want to invest in. Your gold IRA custodian will make the purchases and then send your precious metals investments to a depository for safekeeping.
To gain comprehensive knowledge about gold IRAs, considerdownloading a FREE gold IRA guide.
This guide is packed with essential information about precious metal IRAs, including tax advantages, potential gold and silver investment pitfalls, information about rollovers, and much more.
What Precious Metals Can You Invest in for Retirement?
As per IRS rules, it is allowed to invest in four kinds of precious metals as a part of your gold IRA: gold, silver, platinum, and palladium. These metals must meet certain purity standards, so you cannot invest in any precious metals of your choice. Gold must be 99.5% pure, silver must be 99.9% pure, and platinum and palladium must be 99.95% pure. This rule is about ensuring quality and maintaining the value of your investment.
Products that meet these purity standards include:
- Gold bullion or proof coins (American Buffalo, American Eagle coins, British Britannia, Canadian Maple Leaf, Austrian Philharmonic, Australian Kangaroo, and more).
- Silver bullion and silver coins (American Eagle, Australian Kookaburra, Austrian Philharmonic, among others).
- Platinum bullion and certain platinum coins (American Eagle, Australian Koala, Canadian Maple Leaf, and more).
- Palladium bars and coins like Canadian Maple Leaf.
How Does a Precious Metals IRA Rollover Work?
A precious metals IRA rollover involves moving funds from your current retirement plan through a direct transfer or cash deposit.
- In a direct rollover, the funds are moved from your current eligible account (IRA, 401(k), 401(b), TSP, SEP, or similar) to your self-directed gold IRA.
- In an indirect rollover, you cash out funds from your current account and reinvest these funds into your self-directed IRA within a 60-day timeframe.
Failure to meet the 60-day indirect rollover rule may result in a taxable distribution. For this reason, it is generally recommended to opt for a direct trustee-to-trustee transfer instead of an indirect rollover, as in case of a direct rollover you’re avoiding possible taxes and penalties.
Direct rollovers are not subject to tax withholding because the money is not considered distributed to you.
On a side note, keep in mind that if you are under 59 ½, your retirement savings will be subject to a 10% early withdrawal penalty.
What Are the Fees Associated With Precious Metals IRAs?
There are both one-time and yearly fees associated with precious metals IRAs that you should consider before opening an account. A one-time fee to open a self-directed gold IRA generally varies from $50 to $150.
Additionally, a precious metals IRA custodian charges an annual recurring fee ranging from $50 to $150 for the maintenance and administration of your account.
Furthermore, a depository charges an annual storage fee for keeping your precious metals safe and secure. This fee ranges from $50 to $300. It’s important to note that the actual fees may vary depending on the specific precious metals IRA custodian you choose.
Should You Open a Precious Metal IRA?
A precious metals IRA might be a good idea if you’re looking to diversify your retirement portfolio and protect your wealth from inflation and market downturns. However, it might not be the best option if you’re looking to earn substantial profit from your investment, especially in the short run.
Although the price of gold might fluctuate, gold is a tangible asset and its value might appreciate over time, opening a potential for long-term growth. However, as with any investment, there is no guarantee that the price of gold will go up and bring you passive income. Other than that, gold IRAs don’t pay dividends, so you’re relying solely on the appreciation in the price of gold to make a profit.
It’s always wise to consult with a financial advisor to understand how gold fits into your overall investment plan and to consider other assets that might offer different kinds of returns or risk profiles.
How Much of Your IRA Should Include Physical Precious Metals?
Financial advisors and experts generally suggest investing no more than 10% of your portfolio in precious metals, but the exact percentage varies based on individual risk tolerance and investment strategy.
One of the most common uses of a Gold IRA is for portfolio diversification, so allocating a large portion of your savings to gold and other precious metals might not be advisable.
Over the last few decades, gold has proven to be a relatively stable and safe investment asset. However, whether it is the right decision to put all your eggs into one basket, and convert all your retirement savings into gold bars and coins, is ultimately your choice.
How Do You Make a Withdrawal from a Precious Metal IRA?
Withdrawals from a precious metals IRA are similar to those from a traditional IRA. Upon reaching retirement age, you can sell a portion or all of your precious metals and make a withdrawal in U.S. dollars. You can also take physical possession of your precious metals.
Keep in mind that you cannot make any withdrawals from your precious metals IRA before the age of 59 ½, as this will result in a 10% early withdrawal penalty. Common exceptions to this rule include the passing or disability of the IRA owner, withdrawals to cover medical expenses, and first-time home purchases, among others.
This article is for informational purposes only. Please invest at your own risk.