When there are projections of inflation or currency devaluation, some investors look for safe havens such as precious metals to store their wealth. Although silver and gold are volatile, they are great investment choices when held for a long time. You cannot hold physical gold or silver in an IRA (individual retirement account). There are special accounts designed for that purpose known as gold IRAs or precious metals IRAs.
What Are Precious Metals IRAs?
They are a type of self-directed IRA (SDIRA), an account that allows investors to hold a variety of assets such as art, real estate, and precious metals. A precious metals IRA is a means of owning approved precious metals such as palladium, platinum, gold, and silver. That said, it is not possible to invest in any type of precious metal because the IRS (Internal Revenue Service) has specific requirements which are:
- Palladium – 99.95 percent purity
- Platinum – 99.95 percent purity
- Silver 99.9 – percent purity
- Gold – 99.5 percent purity
The acceptable bullion that meets the criteria above includes Suisse bars, Maple Leaf, and Australian Koala. Although the American Eagle coin doesn’t meet the gold purity standard, the IRS permits it. Currently, you can’t hold collectible or rare coins in an SDIRA. You can check here to find out which precious metal to invest in.
The Special Risks Involved in Holding Gold
Every investment has rewards and risks and gold is not excluded. In several ways, a gold IRA has similar risks as any investment because gold prices may go down or up at any time. We cannot accurately predict the future of the commodity.
Regardless of the risk, there are good reasons to invest your retirement money in the yellow metal. Gold has stood as the oldest store of wealth or value in history. Stocks may go down to zero and cause havoc in many companies but gold will never lose value even if it plummets.
If gold prices dip, it is possible that the paper assets are faring well. So, if your portfolio has both paper-based and physical bullion investments, your paper-based assets will balance the portfolio if you lose on the side of the physical asset. These risks are also present in traditional IRAs and investors must find ways to protect their funds.
Some risks are specific to physical bullion investments. For instance, physical commodities are prone to theft. A gang can break into a depository where you store your precious metals. However, depositories should have insurance to protect investments provided the accounts do not exceed the broker’s stated value.
Furthermore, some custodians are not trustworthy and may try to steal from their client’s accounts. They may also sell your assets without your consent. To mitigate these risks, ensure you choose a reputable and insured custodian. You can click on https://smartasset.com/retirement/self-directed-ira-custodian to get tips for finding a custodian.
Steps to Opening a Gold IRA
The processes involved in opening a gold IRA are more complex than Roth or traditional IRAs. Here are the steps involved:
1. Find a Reliable SDIRA Custodian
The custodian could be a bank, trust company, or any entity that the IRS approves of. The custodian will help you to create the account and manage it appropriately.
2. Find a Bullion Dealer
Although the custodian manages the account, they cannot help you to find a bullion dealer. You need to look for someone who will sell the approved precious metals to you. The dealer should also belong to an industry trade group such as PNG (Professional Numismatists Guild), ICTA (Industry Council for Tangible Assets), or ANA (American Numismatic Association). When you find a dealer, the custodian will make payments on your behalf.
3. Choose Your Preferred Products
The dealer will guide you in selecting the products. However, you must ensure that they meet the specified purity standards. You may also consider buying in bars or coins depending on how long you intending holding them.
4. Find a Depository
A depository is a place where you will store your physical assets since you cannot keep them in a safe box at home. The depository must be approved by the IRS. Your custodian can give you a list of approved depositories to ease the process of finding one.
As soon as everything is in place – the custodian, bullion dealer, and depository – you can go ahead and purchase the products. As we mentioned earlier, the custodian will oversee the transactions using the funds in your IRA. Also, the bullion dealer will deliver the products to your chosen depository. You can go to Metal Resource to learn more about precious metals retirement investment.
How to Withdraw from a Gold IRA
There are two options for withdrawal:
- Depository Purchase: The depository will buy your assets and give you the cash equivalent of the investment.
- In-Kind Distribution: After distribution, the precious metals will be shipped to your preferred location.
Either way, you must contact the custodian before any transaction takes place. You should also note that the traditional IRA rules apply to a gold IRA. The value of your investment will keep appreciating without taxation provided it remains in your account. But as soon as you withdraw it, there will be taxes and fines, depending on your age and the account type.
Conclusion
If you are concerned about the volatile nature of the market, currency devaluation, and inflation, a precious metal IRA may be your best shot. However, they have special expenses and more risks than other IRAs. But if you want a diversified portfolio, you can invest a portion of your funds in physical silver, gold, palladium, or platinum.
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