Inflation and financial markets’ current state are making investors wonder whether buying physical precious metals is a good idea.
Opening a precious metal IRA is the only way you can move your tax-exempt and tax-deferred retirement savings into the safety of owning physical precious metals.
Should you consider that option to protect your retirement investment? Could a precious metal IRA be the convenient alternative you need to have peace of mind? Find the answers here!
Self-directed, gold IRAs are a type of investment account that allows you to buy and hold physical gold and other precious metals.
Gold IRAs were first available in 1974 when Congress passed the ERISA (Employee Retirement Income Security Act). After this tax legislation, people could open a regular or a self-directed IRA. For a full overview, check out the Gold IRA Guide.
At the time, the type of assets that people could hold was not clear. The IRS only specified that collectible items and insurance contracts were not allowed.
In 1997, the Taxpayer Reduction Act resolved this conflict point, as it stated that people were able to hold gold and silver in a self-directed IRA.
However, you can only hold specific types of physical gold and other precious metals in a gold IRA. Moreover, the government has to approve them.
Therefore, you should purchase them from approved third-party refiners and mints rather than any precious metals dealer.
The precious metals you hold in a gold IRA have to at least be 99.35% pure. However, the American Gold Eagle Coins are an exception to this rule since they are only 91.67% pure.
Platinum, palladium, gold, and silver are the only metals you can hold in a self-directed gold IRA. Also, you can purchase bullion bars or coins depending on the metal you’re buying.
Most investors buy gold or silver coins, although many of them are also interested in bullion bars for their gold IRA. Frequently, they’ll purchase one-ounce coins or small weight bars since they’re easier to buy and sell.
You can also buy bars of gold, silver, and other approved precious metals. Nonetheless, the demand for these products is much lower.
Moreover, the IRS requires that people handle their retirement accounts through a specialized and qualified dealer or broker.
Gold IRA vs Getting Physical Gold
The difference between a gold IRA and physical gold is just the type of money you use to buy metal.
When it comes to gold IRAs, you use tax-deferred or tax-exempt money. In the other case, you don’t use tax-advantaged assets. However, both options get you the same results: owning physical gold or other metals.
Opening a gold IRA means you have to store the metal in an approved depository. In other words, you can’t have it at home.
If you purchase gold, buy precious metals, or get any tangible assets with money that’s not tax-advantaged, you can store it anywhere you want to.
Gold individual retirement accounts also allow you to transfer your existing assets and get tangible metals. Therefore, you can diversify your portfolio without having to add any new money.
Should You Get a Precious Metals IRA or Invest in Mutual Funds, Stocks, Bonds, and Other Paper Assets?
As an investor, you get many options. You can hold precious metals, buy gold coins only, get a traditional or Roth IRA, or invest in cryptocurrencies, stocks, bonds, and even real estate.
Each person has their own needs and financial goals. Investing in your retirement savings is something that will take years, so there are many options to consider.
Overall, the best idea is not simply opening an individual retirement account. Instead, what most experts recommend is to diversify your portfolio.
Diverse retirement investments can keep your future safe for many reasons. Suppose that you only have stocks, mutual funds, and bonds. If the market crashes, then you may lose part of your money. Unfortunately, this is likely to happen at some point because it’s very volatile.
However, its volatility is part of its attractiveness. Sometimes, it can suddenly improve, and you’ll earn a lot of money. You can’t predict it, though, and that’s the primary problem with owning these types of assets.
When it comes to a traditional IRA or other gold IRAs, things are different. Physical metals can act as a hedge against inflation and market volatility because their prices don’t change as much.
If you lose money due to a sudden change in the stock market, for example, you may still be safe if you own gold. Thus, the best option is to make your portfolio as diverse as possible.
What Is a Gold IRA Rollover?
A rollover means you’re moving funds from your existing retirement account into your self-directed gold IRA. It’s a generic term to describe both transfers and rollovers.
With a gold IRA rollover, you must request a distribution from your existing account to move your funds to a self-directed gold IRA.
After that, your funds are directly wired from your custodian to your gold IRA. Since you never touch the funds, you’re not at risk of penalties or taxes.
You can also transfer the money. If you choose this option, you’ll have to request a distribution and receive the funds. Once you have them, you can send all or some to your gold IRA custodian.
Transferring funds means you have a 60-day window to finish the process. After this period, the IRS will assess taxes, and you’ll have to pay a 10% early withdrawal fee for any funds that are not in an IRS-approved gold IRA by that moment.
The quickest way to move your funds to a gold IRA is to get a rollover. Moreover, you don’t risk taxes or penalties. However, some people choose to transfer when they want to take some cash out of their savings for other purposes.
Benefits of Getting a Gold IRA
Now that you know the basics about Gold IRAs, it’s time to learn more about their benefits.
First, like a traditional IRA, a Gold IRA allows you to diversify your investment portfolio while maintaining tax advantages. Actually, this is the only alternative available if you want to move your tax-deferred or tax-exempt savings to another account to buy precious metals.
In addition, there are benefits linked to the properties and intrinsic value of gold. Throughout history, the market has shown that this precious metal moves in the opposite direction to stocks or bonds.
Therefore, in times of political uncertainty, bear market conditions, or inflation, investing in gold can help protect your hard-earned money and give you the peace of mind you need as you approach retirement.
Also, both gold and other precious metals act as havens. According to investment experts, when you add gold to your portfolio of stocks and bonds, performance improves considerably and helps you avoid losses during periods of uncertainty.
If you open a gold IRA and purchase precious metals to save for your retirement, you are also investing in a tangible asset with intrinsic value that has no counterparty risk.
Stocks and bonds, for example, can be affected by a company’s performance. If the firm goes bankrupt or defaults, the price of these assets may plummet. However, it doesn’t happen with physical gold.
When you purchase precious metals, you are investing in assets that have value regardless of what happens in the stock or bond markets or with companies.
Also, in periods of stagflation (when the economy is stagnant and hit by high inflation) gold and silver can protect your investment from market fluctuations and high prices.
Actually, history has shown that precious metals’ price has increased more than 24 times in the last 50 years. During that period, gold rose from $35 to $850 an ounce, while silver rose from less than $2 to almost $50 an ounce. Do you now see why putting your money into precious metals can be beneficial in turbulent economic environments?
Pros and Cons of a Gold IRA
Although opening a Gold IRA and buying precious metals is positive in many ways, all investment alternatives have risks, pros, and cons. Check the ones related to this option here:
Gold IRA Pros
A Gold IRA can protect your retirement savings with IRA-tax benefits and the advantages linked to physical metals.
You can diversify your investment portfolio by investing in a precious metal IRA account. ETFs or REITs are similar to the stocks, mutual funds, and bonds you can buy with a Roth IRA or a traditional one. Therefore, they are not good options during periods of inflation or economic uncertainty.
By buying actual gold, you are investing in an asset with zero counterparty risk.
Gold bullion can protect your portfolio against inflation.
Gold IRA Cons
You must comply with multiple IRS rules, including the requirement to store precious metals in approved warehouses. Therefore, you cannot keep your assets at home.
You cannot transfer assets you already own in your gold IRA to another account. All precious metals must be purchased from an IRS-approved stockbroker.
A Gold IRA contains valuable assets. Therefore, you must pay storage and insurance fees that you usually don’t have to cover when you invest in stocks or bonds.
Which Is the Best Precious Metal?
If you plan to invest in gold IRAs, another question you may have is: which metal is better?
Demand for gold comes from central banks and investors, but other metals are also highly sought after. One of them is silver, which is widely used in technology and for other industrial purposes, including solar power generation.
Current governments and large corporations push for clean energy nowadays. Consequently, the demand for silver has increased considerably in recent years.
Also, there’s platinum and palladium. Both are widely used in the automotive industry, specifically to create catalytic converters.
Many believe silver may overtake gold in the coming years due to the widespread demand for this metal. Therefore, while gold has long-term value and is considerably more popular, silver can give you both store of value and capital growth to improve your investments’ performance.
How to Open a Precious Metal IRA
Do you think opening a Gold IRA is the best option to protect your investment funds? These are the steps you must follow:
Pick a reliable Gold IRA company and start the application process to open an account
Roll over funds or transfer distributions from your existing individual retirement account (you can also make check deposits, but it’s limited to the $6,000 maximum contribution limit under the IRS rules or $7,000 if you’re over 50)
Once your account is funded, you can choose the bars and coins you want to buy!
Best Precious Metals IRA Companies
As mentioned, one of the first steps in opening an individual retirement account and buying gold or silver is picking the right gold IRA company. To determine if the dealer you found is reliable, you should consider these aspects:
Rate with the BBB (Better Business Bureau): If it has an A+, you can be sure it’s a good choice.
Experience: Has the company been in business for 10 years or more? If so, it’s trustworthy!
Storage options: Does it offer segregated storage for metals? You can be sure that your assets will always be protected!
Experience from other clients: If the gold IRA company has received positive reviews on sites like BB, Trustpilot, TrustLink, and Business Consumer Alliance, it’s a great alternative!
However, considering those factors, the best gold IRA company you can find is Goldco. This dealer has shown for years that it’s committed to customer satisfaction! Also, it offers quality products, excellent storage options, and educational material for those who want to learn more about this world!
Gold IRAs can be very beneficial in protecting your retirement funds, especially if you choose a reliable financial institution to open your account and start investing in the precious metal of your choice.
Also, remember that when investing in gold or silver, you can open self-directed IRAs, which bring all the benefits of a traditional or Roth IRA with the advantages of precious metal alternatives!