Understanding Precious Metals IRAs
Understanding Precious Metals IRAs
The precious metals IRA is a type of self-directed IRA account that helps you invest in gold, silver, or platinum, or palladium. This type of account has many benefits, including tax advantages and the ability to diversify your portfolio with an asset class not typically found in traditional IRAs. The article will cover everything from how a precious metals IRA works to some helpful tips for choosing which metal(s) an investor may want to invest.
What to consider before investing in precious metals?
You know you’ve been working hard for most of your adult life, but the time has come to retire. You have some big decisions ahead: are you financially ready?
The available amount in your retirement account can be startling. It’s important not to get too confident with how much money will last as you age, so try these 3 steps for planning out the future of your savings today:
1) – Know where all that cash is going and whether or not it fits into this new plan
2) – Pay off any high-interest debt before saving more aggressively
3)- Keep an eye on what significant changes are happening within your retirement plans because they may need to make adjustments now instead of later. For example, if a company decides their matching fund’s system isn’t sustainable anymore, employees should note when it happens and adjust accordingly.
The financial questions you should ask yourself about your retirement.
These are some of the questions that are important to ask yourself when planning out your retirement. Here are a couple of considerations:
Is it possible to retire and support a family?
I’m sure you’ve asked yourself this question before. I know that when we are working, our careers often seem all-consuming. It’s hard enough to maintain a happy marriage or healthy lifestyle with work as the focal point of your life, but what about if retirement is looming on the horizon? Starting early in saving money and investing wisely now so when the time comes, your nest egg will keep providing income without worry about running out?”
What will my lifestyle be like in retirement?
Knowing what your life will be like when you retire may be difficult for many to answer. The truth is that there are so many variables involved, you may not know what your specific situation will look like until it actually happens. If you’re asking this question now, the likely hood of your family living comfortably during retirement is greater. It’s never too early to prepare for retirement.
Should you claim Social Security early or later in life?
If you can, it’s best to work till you reach full retirement age. If you were born after 1960, you could receive full Social Security retirement benefits when you turn 66. You can obtain these benefits as early as age 62, but there will be a penalty of up to 30% reduction on your social security payments.
How many IRA accounts can you have?
Now that we’re getting into the nitty-gritty of IRAs, there are some things you should know. For example, according to the IRS, you can have as many IRA accounts as you want, but all accounts in aggregate will still be subject to your annual maximums. For example, suppose an investor opened 5 IRA accounts to invest a specific asset in each. In that case, the sum total invested in each account can not exceed the maximum amounts specified by the IRS. The Internal Revenue Service (IRS) defines in 2020 $6,000 ($7,000 for individuals over the age of 50) may be invested throughout the year.
Can you hold precious metals in an IRA?
Looking at your IRA account, you may be wondering if you can hold precious metals in an IRA for financial diversification.
Yes, the answer is that only certain types of IRAs allow precious metals purchases as part of the plan. The internal revenue service (IRS) specifies that a self-directed IRA account is needed. The IRS “qualifies” a precious metal as any bar or coin which contains gold, silver, platinum, or palladium meeting the minimum fineness standards. IRS IRC Section 408(m)(2) defines all other items such as artwork and stamps as collectibles and are subject to additional taxes. An investor can use a self-directed IRA to invest in alternative or more diverse investments like coins and bars approved by the IRS and U.S. Treasury.
There are a few different types of Individual Retirement Accounts (IRAs) available to individuals. The most common is the traditional IRA, which allows you to deduct your contributions from your taxable income and defer taxes until retirement age, when any gains made through investments will be taxed at the current rates. Another option is a self-directed IRA account which will provide the same protection but allow an appointed custodian to invest in more diverse assets like gold bullion coins.
Paper assets versus physical assets individual retirement account.
Gold is an investment vehicle used around the world for currency and jewelry since the dawn of civilization. There are several methods to invest in gold, but most people prefer bullion coins or bars because they can be held directly rather than through paper transactions on an exchange account like stocks, mutual funds, and bonds.
The price will generally stay similar across all outlets despite variations due to demand/supply cycles, country-to-country risk factors, the effects of trade wars. It will fluctuate based on the gold spot price and currency exchange rates.
In participant-directed IRAs, gold coins and gold bar physical investments are stored at your brokerage firm’s custodian, or you may elect to hold it with a third-party custodian such as GoldCo, Gold Alliance, or Birch Gold Group.
Many investors have gained exposure to precious metals by buying stocks of companies engaged in exploration and mining. Some major players in the gold industry trade on stock exchanges, like Barrick Gold Corporation (ABX), which trades at around $26 per share with a market capitalization above $46 billion, or Franco-Nevada Corp.(FNV), trading for just under $140 per share with a market cap over 25 billion dollars.
Value investing is employed by many who believe that it can be an effective way to make money. Investors pick up shares when prices are low relative to what their intrinsic value might reasonably be worth. Some metrics to obtain an intrinsic value are sales and earnings performance. Value investing requires a lot of research and in-depth knowledge or additional market factors.
How does a self-directed IRA work?
A self-directed IRA requires gold to have a minimum fineness of .999 to be legal. The minimum fineness puts a pretty high bar for the quality of gold available for use in an individually-directed IRA, also known as a self-directed individual retirement account. Depending on the types of investments you are planning for, it is best to open an individually-directed IRA with an institution specializing in the particular investment vehicle.
At Gold Hill Retreat, we focus on precious metals investment companies. The list below are the top companies for reputation, customer service, pricing, and fees:
In a self-directed IRA account, you must have a custodian. The custodian certifies the metals finesse before moving it to storage. Each of the companies listed above can assist an investor with this process. Many people like to open self-directed IRAs because it allows for greater flexibility in choosing investments. Still, there are purchasing limitations qualified items with an account like this.
Knowing the limitations to a participant-directed (self-directed) individual retirement investment account is essential. If found in violation, the IRS can fine and even prevent you from making additional contributions. To learn more about IRA prohibited transactions, visit the IRS website. “In general, there is a 15% tax on the amount of the prohibited transaction and a 100% additional tax if the transaction isn’t corrected.”
Self-directed IRAs may purchase collectibles like artworks, rugs, antiques, gems, stamps, coins, alcoholic beverages, and specific other tangible properties. This list falls under the definition of “Collectibles” and possibly subject to an additional 10% tax. Thankfully there is a provision for the approved physical precious metals in the participant-directed individual retirement accounts.
These are the approved precious metals for a self-directed IRA account.
Precious metals IRA have traditionally been gold and silver. Self-directed types of IRA have expanded the metal investments to platinum and palladium. Each metal has a required minimum fineness to qualify for purchase in individually-directed IRAs. Below is a list of the requirements
Gold must be 995 or 99.5% pure gold.
Platinum and palladium, the required minimum fineness is 9995 or 99.95% pure platinum or palladium.
Silver must have a required minimum fineness of .999 or 99.9% pure silver.
Fineness is measured in thousandths; thus, the percentage is often found stamped as a whole number on bars. A Gold Bar with 99.5% purity will have a stamp of 999.5. The finest gold to ever refined was by the Perth Mint in 1957, with a fineness stamp of 999.999, which’s 99.9999% pure gold.
Unfortunately, there is always some form of contamination in the metal, usually copper, preventing gold from reaching true 100% purity.
A gold IRA is a commonly used term for self-directed IRA exclusively used to purchase and store gold through a custodian. These are common types of investments here are gold bullion bars and bullion coins. Silver coins are usually part of the asset mix found with bullion bars in gold IRA accounts.
However, there is no IRS official terminology specifically for a gold IRA. Please don’t get confused when gold IRA or precious metal IRA used in place of the term self-directed IRA. It’s sure to come up now and again during your research on diversifying your IRA portfolio investments best.
How is gold taxed in an IRA?
Selling off investment profits is taxed according to the type of retirement account. Individual retirement accounts (IRAs) are no different.
Since a gold IRA is a self-directed IRA that primarily holds gold but can also invest in other precious metals like silver, palladium, or platinum, the IRA will be taxed accordingly. Many investors elect to invest with post-tax dollars, also known as Roth investment accounts.
A Roth IRA is funded with post-tax dollars, creating a unique tax haven for growth. Any gains in Roth IRAs will not be taxed as long as the investment and maturity requirements have been met.
Non-Roth type of IRAs are funded with pre-tax dollars, which means that you will be taxed when the investment is sold or liquidated. An investor selling their gold bars or gold coins will need to pay taxes on any capital gains plus a penalty tax if you are under 59.
Don’t want to invest in gold try one of the other approved metals.
As mentioned above, there are only 4 approved precious metals approved for participant-directed IRAs. Some investors choose to diversify their portfolios by investing in silver bars or coins, platinum, or palladium, along with gold coins. Diversifying the IRA account reduces the reliance on any single precious metal to influence a portfolio.
Not knowing the future holds any of these metals could become extremely valuable due to breakthroughs in technology. An example is gold. Gold’s use in semiconductors and wiring has been highly beneficial for shrinking chips and increasing processing speed. With most metals, heat becomes an issue making these advances impossible. Gold has specific properties where heat is more efficiently dissipated, allowing for increased power.
If similar discoveries use other metals like platinum, prices could skyrocket. This train of thought starts going down the speculative investing route. It would be wise to invest in these metals less for future-based speculative purposes and more for the historical performance of these metals.
How do I add precious metals to my IRA?
Once your self-directed individual retirement account is set up, a custodian has been selected. An IRS-approved storage vault has been selected adding gold bars is relatively straightforward. A common option is to set up a regular investment plan where periodically your custodian will make a purchase on your behalf per a pre-agreed time period and amount.
Other options include making purchases ala-cart or off the schedule investment period. The possibilities for ala-cart investment options are different per investment company. If you are interested in making ala-cart investments, make sure to look into your specific plan’s policies.
Investing in gold without a gold IRA.
If you are looking to invest in gold on our side of your retirement plan, this can still be done and is most often accomplished through companies that have a heavy reliance or interest in gold. As mentioned above, mining companies are among the most popular stocks to invest in when looking for this type of investment. There are still opportunities to invest in gold and silver bars and coins outside of IRAs.
Evaluating your options
If your retirement is dependent on a 401k or IRA, you may want to consider investing in precious metals. Precious metal IRAs are not only an excellent way to diversify investments but also offer some tax advantages as well. Before starting this process, you must do your research and know what type of gold company will be best for your needs. You want one with the highest rating possible so that they can provide the most accurate information about their products from start to finish! Have you considered adding precious metals into your self-directed IRA? Let us help by providing quality advice and guidance throughout every step of the process. We have helped countless numbers of people make educated decisions when choosing which types of assets should go into