What is so important about becoming an investor in gold IRAs? The big benefits are numerous, and one is getting the chance to add physical gold and other precious metals to your nest egg, while transforming it in the process.
Many of us wonder if this is the right move to make. Is it really smart to begin monkeying around with retirement accounts? Is it really best to move some of your money into a gold IRA as opposed to keeping it in traditional stocks and bonds?
For starters, it is impossible to invest in physical precious metals in every type of retirement account. But throughout this informative piece, you will discover a plethora of tips to make it easier to understand what to look out for to help you determine if this type of investment is the best choice for your retirement goals.
Important Facts About Gold IRAS
- A gold IRA is also known as a self-directed IRA. It’s the type of account use to buy physical precious metals for retirement.
- Self-directed IRAs require higher fees than Roth or traditional IRA accounts.
- This account type is a solid hedge against inflation, yet it’s part of a single asset class.
The Shifting Price of the Precious Metal Called Gold
Way back in September 1999, gold was valued at $255 per ounce. Just over 20 years later, gold was worth $1973 per ounce in August 2020. At the current moment in April 2022, the spot price is valued at $1935. This is roughly where it was in August 2020 although slightly lower.
It’s plain to see that gold experienced massive growth for 20 years before flatlining recently.
Specifically, the individual retirement account known as a gold IRA provides investors with a chance to purchase precious metals in their physical form. This is a much different animal when compared to purchasing traditional bonds, stocks, or leaving cash in your account.
Congress gave the American people an opportunity to open a precious metals IRA in 1997. This wasn’t possible until this point. This big change gave investors a chance to diversify their portfolio even further while growing it toward retirement.
Precious Metals IRAs: A Growing Trend
investors recognize the appeal of precious metals IRAs because it lets them add more diversity to their retirement portfolio. The gold price shifts in the opposite direction when compared to paper assets. This means that when you have physical gold in your retirement portfolio, it will combat inflation and act as an insurance policy at the same time. This is a balanced and minimally risky way to add diversity and protect your portfolio like other intelligent investors.
For a really long time, investors weren’t all that interested in opening a gold IRA. The process was very complicated and there wasn’t too much help available in the form of gold companies working with individual investors.
One of the main components is finding a trustee or custodian for your precious metals IRA account. This is an absolute must because this person is required to manage the account, just like an official IRS depository is also needed. Precious approved precious metals must be purchased and stored in an official depository after they get transferred to this location by your custodian.
The financial crash and housing market crash in 2008 changed things. They led to the Great Recession. Investors fled the stock market in droves and began pumping their money into gold, silver, platinum, and palladium. And many of these investors were gobbling up precious metals for their gold IRA accounts. This is when everything began to change.
From this point forward, many of the top gold companies started helping customers find IRA custodians and trustworthy depositories. They began helping their customers fill out all of the necessary paperwork so they could easily open their account and fund it according to the rules and regulations set forth by the IRS.
The Rules for Precious Metals IRA Accounts
An interesting fact about gold IRAs is that the self-directed account can be opened as a traditional or Roth IRA. Whichever choice you make, you can start by funding this account and then use it to purchase precious metals like palladium, gold, platinum, and silver coins or bullion.
Comprehensive Advisor expert Brett Gottlieb says it’s important to decide whether or not owning physical precious metals for an IRA account is what you actually want. You may prefer to buy silver and gold ETFs, gold stocks, or mutual funds with precious metals exposure. You must know the differences between these investing strategies before getting started.
If you make the decision to open a gold IRA, you must follow the rules that the IRS has laid out. In particular, they have specific fineness criteria that you must follow. And after you purchase coins or bars via the correct fineness requirements, your trustee must take possession of these investments and then store them in an approved IRS accepted depository.
Looking at it from another way, investors cannot keep their physical precious metals at home, in a safety deposit box, or buried on a beach somewhere. They must remain stored in an official facility or you break the rules. This leads to penalties and early withdrawal taxes.
Most important of all, the normal IRA contribution and tax rules apply to gold IRA accounts too.
Picking the Ideal Broker or Custodian
To start purchasing physical precious metals, a gold IRA is necessary. This specific account gives investors the opportunity to buy alternative investments like real estate, cryptocurrencies, and precious metals.
Choosing the best broker is of the utmost importance during this beginning stage. Your broker will make it possible to get a good custodian to handle your administration needs. They’ll also connect you to IRA approved silver and gold products amongst others without breaking the rules. This is necessary because compliance is an absolute must and less you’re ready to face the music and pay additional early tax fees and even bigger penalties if you make this mistake.
An average in everyday custodian usually comes from savings and loan associations, banks, trust companies, credit unions, and brokerage firms. These professional individuals have been granted federal or state approval to help future retirement investors by providing asset custody services and acting in the capacity of a financial advisor to boot.
These people are going to help you find the right precious metals company to help you choose your investments. This isn’t part of their job, although it’s a good idea to find a trustworthy company nonetheless. You must take this responsibility on your shoulders or find recommended resources to help.
Although, plenty of excellent gold IRA custodians have phenomenal relationships with a wide array of precious metals dealers in the United States and other parts of the world. Even though it isn’t their job, they can still help you make a solid connection if you ask them for their assistance.
It can get complicated figuring out the best gold company because this field is a specialized area and many of these businesses are incapable of providing IRA services. There are only a few solid companies that help in this area, and you should use the following criteria to determine whether or not they will meet your needs. The criteria include:
- Transparency is the name of the game and they should share their fees with their customers without having hidden surprises.
- A stellar track record is an absolute must on websites including the Better Business Bureau and Business Consumer Alliance sites.
- Flexibility is of the utmost importance to help investors achieve their goals. Every investor has different needs so flexibility is critical.
- Licensing, insurance, registrations, and bonds are necessary when choosing a good broker. This guarantees that your investments will remain protected.
The Typical Costs of a Gold IRA
The individuals opening a precious metals IRA account will absolutely pay extra expenses when compared to a normal traditional or Roth IRA. These additional expenses include:
- Markup from the seller – all sellers are going to markup the precious metals products by a specific percentage. They make their money this way and a markup is expected, so don’t freak out. More than likely, the average gold company – at least the best ones – only markup their products 5% over the spot price.
- Fee for account setup – the IRA gold company or custodian will charge a one-time setup fee when opening a gold IRA account on your behalf. In many instances, brokers typically waive the account setup fee if you reach a specific depository hold when opening the account.
- Custodian administration fees – IRA custodians charge an annual administration fee in many cases. But in some instances, they could potentially charge you on a per transaction basis, which I recommend staying away from a custodian that operates this way. When you consider their fees, make sure they are inexpensive and make sure you know the fees upfront and feel comfortable with them before making your decision.
- Gold storage fees – precious metals storage isn’t free, although you may have your first year’s fees waived if you reach a certain deposit threshold. Afterward, you likely pay between $100-$150 annually for this service.
- Cash out payments – in many cases, you’ll have to pay your gold broker to sell your precious metals when cashing out unless instructed otherwise. Some of the best precious metals dealers are willing to buy back your precious metals at the going rate without charging an additional fee. Keep this in mind because there will come a day when you need to begin taking distributions by liquidating your account.
Complications Related to Required Minimum Distributions
The required minimum distribution age for retirees is 72 years old. When a retiree reaches this threshold age limit, they are forced to start taking retirement account distributions. It doesn’t matter if you have a precious metals IRA, a Roth IRA, or a traditional IRA.
In some cases, it’s possible that you’ll have to start liquidating some of your precious metals assets to receive a distribution. A good way to overcome this product is to take distributions from one of your other IRA accounts without precious metals exposure. This obviously only works if you have multiple IRAs.
Checkbook IRA Accounts
Many investors would rather avoid the need for an IRA custodian and the costs that are involved when you hire them to do the work for you. It’s possible to open an account known as a checkbook IRA. This is a self-directed IRA account that doesn’t require custodian management.
Setting up this account is complicated to say the least. To make it work, a limited liability company is needed to set it up through. The company must have a checking account as well and meet other requirements.
Regardless, this is an interesting opportunity to say the least for those looking to buy physical precious metals and a retirement account. Right now, the only type of precious metal available for purchase is the American Eagle coin in platinum, silver, or gold form. This gives special tax codes exemptions, which means they do not require storage in an approved facility either. Learn more about a checkbook IRA account in Internal Revenue Code 408 (m).
Lastly, the IRS is scrutinizing this type of account, so it’s something to think about.
Precious Metals IRA Rollovers
Do you have a 401(k) or a different individual retirement account? If this is the case, you have the option to initiate a rollover to use the money in one of these accounts to fund your gold IRA. The rollover process works this way for other types of retirement accounts too. Just fill out an application and within 24-48 hours your account will be open. The IRA rollover process begins once this account is in effect.
After making a transfer request to the custodians of both accounts, they will communicate with each other and the funds transfer will be initiated into the new precious metals IRA accounts. After the funds are available, you’ll speak with an account rep and they’ll let you know that you can start purchasing gold and silver and other precious metals from here on out.
Precious Metal IRA Special Risks
There are risks to every type of investment. Without risks, will never receive any awards and gold investing is just like any other investment type.
This commodity along with other precious metals has 5000 years of incredible history. But in the last 50 years, the value of gold has increased dramatically. On average, its value increases every year by roughly 10%.
Does this happen every single year? Absolutely not. But when you average a large lump of years over the long term, it works out to be a 10% yearly gain.
If the price of gold or silver drops dramatically, this usually happens because paper assets are successful at the time. If your portfolio has balance, the losses that you briefly make in your gold investments are more than offset by the gains you’ll make in stocks, bonds, and other investments. These same risks happen with traditional IRA accounts as well, although their risks are a bit different than gold and precious metals.
Nonetheless, buying physical precious metals certainly has its risks. Theft is one potential area that is hard to control. Someone could technically steal from your gold depository and wipe you out. Is this likely to happen? Absolutely not! Precious metals depositories follow the strictest security measures possible. I wouldn’t worry about your investments not being protected at all times.
Unfortunately, certain IRA custodians are also very untrustworthy. These unscrupulous individuals are known for stealing from their clients. So, it’s something to be careful of because they could defraud you and potentially wipe you out if you aren’t careful.
The Last Word
Most people consider a gold IRA account and alternative investment, and they are correct to make this assumption. This investment isn’t traded on public exchanges including the stock market. Physical precious metals have big potential returns, but they can also lose value fast, and it definitely happens at certain times.
Are you considering opening a precious metals IRA account? Speak with your financial advisor to see if this is a good idea for your retirement goals. And remember, it’s never wise to keep all of your eggs in the same basket. Most advisers recommend investing 10%-15% of your total portfolio in physical precious metals to hedge your bets against inflation.
Follow this rule and you can’t go wrong.