A self-directed gold IRA account is a recommended method for those who wish to possess gold or invest in its future worth. By opting for these individual retirement accounts, individuals can expand their wealth and diversify their portfolio by investing in gold, precious metals, real estate, and other assets.
To begin investing in a retirement account, there are specific requirements that you must fulfill, just like any other retirement account.
Are there any limitations on how I can hold physical gold?
In order to invest in gold using an IRA, it is necessary to adhere to two guidelines outlined by the IRS. The first guideline states that it is only permissible to invest in gold that has been approved by the IRS. Although the list of approved options is subject to change, the IRS stipulates that the gold must be of “highly refined bullion” quality.
This is typically how it appears:
- 99.5% pure gold
- Must be produced by a company that’s nationally accredited
- Must be in complete, original packaging
- Must include the certificate of authenticity
- Coins must be uncirculated and damage-free
- Bars must be manufactured to the exact weight
Additionally, it should be noted that you are unable to physically possess the gold, despite being the rightful owner. Instead, the gold must be securely stored in an IRS-approved depository located outside of your premises. A recommended depository suitable for safeguarding your gold investments can be suggested by your gold IRA custodian.
When will the physical gold be in my possession?
In order to avoid any penalty, you must be at least 59.5 years old to make a withdrawal from a gold IRA. After reaching this age, you have the option to either physically possess your gold investments or convert them into cash by liquidating their value.
If you withdraw from your gold IRA prior to reaching the age of 59.5, you will incur a penalty of 10%.
What are the benefits of owning physical gold in an IRA?
Investing in gold can serve as a clever method of preserving and even potentially increasing your wealth.
These are only a few examples of the advantages that come with owning physical gold.
- Diversification: Putting all your investments in one basket can be risky. Investing some of your funds into gold is a nice way to diversify and reduce your portfolio’s overall risk.
- Protection from economic downturns: Having your funds in gold also helps reduce losses if the economy — and especially the stock market — takes a turn.
- A hedge against inflation: As the value of the dollar declines, so does your purchasing power. Gold can protect against this loss, as its value currently outpaces that of the U.S. dollar.
- Wealth growth: If you believe gold will grow in value, it could increase your long-term wealth. For reference, gold prices have climbed quite a bit over the past decade.
If you are uncertain about whether owning physical gold is the most optimal utilization of your funds, it is recommended to consult with your financial advisor or accountant. They can provide guidance based on your individual goals and financial situation.
How you can fund a gold IRA account to get started
In order to begin with a gold IRA account, it is necessary to select a custodian – firms responsible for overseeing and providing information on gold IRA accounts to the IRS.
After setting up your account, you have the option to fund it using any of these three methods.
- Cash: Invest cash into your IRA by sending a check or wire payment to your custodian.
- Rollover: Withdraw funds from an existing retirement account and deposit them into your new IRA. You must do this within 60 days of withdrawing the funds to avoid penalties. To learn how to do this, check out our guide to initiating a gold IRA rollover.
- Transfer: Have the administrator on your current retirement account transfer all or a portion of your funds to your new IRA custodian. To learn how to do this, check out our guide to initiating a gold IRA transfer.
Keep in mind that the maximum deposit allowed in a self-directed gold IRA is $6,000 per year (or $7,000 for individuals aged 50 or older).
The assets held in your IRA are valuable metals.
Investing in precious metals or coins made from precious metals is generally not allowed under IRAs. This is because such investments are considered collectible items, resulting in a taxable distribution from the IRA. Instead, the owner of the IRA would need to make a separate purchase of the metal or coin.
Nonetheless, there exists a crucial provision in the Tax Code: IRAs are permitted to invest in specific gold, silver, and platinum coins, as well as gold, silver, platinum, and palladium bullion that satisfies the necessary purity requirements. It is important to note, however, that the coins or bullion should be held by the IRA trustee or custodian instead of the IRA owner. These regulations apply uniformly to traditional IRAs, Roth IRAs, SEP accounts, and SIMPLE-IRAs.
Investments in precious metals in physical IRA form.
Certain precious metal coins and bullion, such as those specified, can be owned by IRAs under the statutory exception.
- American Gold Eagle coins,
Canadian Gold Maple Leaf coins,
American Silver Eagle coins,
American Platinum Eagle coins, and
- Gold, silver, platinum and palladium bars (bullion) that meet applicable purity standards.
In the case of gold bars, a purity level of 99.5% or higher is required, while for silver bars, a purity level of 99.9% or higher is necessary. The main issue lies in identifying an IRA trustee who is willing to establish a self-directed IRA and assist in the secure transfer and storage of precious metal assets. There are only a limited number of organizations that are open to serving as trustees for self-directed IRAs containing permissible precious metal coins or bullion.
An Internet search can help discover willing trustees who are able to arrange for the secure storage of precious metal assets owned by IRAs. Typically, a precious metals IRA trustee will impose a fee for this service.
- A one-time account set-up fee,
- An annual account administrative or maintenance fee for sending account statements, and
- An annual fee for storage and insurance.
There might be extra charges applied to transactions involving contributions, distributions, and commissions associated with the buying and selling of precious metals.
Investing in Precious Metal ETFs as a means of indirect IRA investments.
Investors who do not wish to handle the complexities tied to owning physical precious metal coins or bullion through IRAs can consider purchasing shares of an ETF that mirrors the value of precious metals. Previously, concerns were raised regarding whether the acquisition of such ETF shares by an IRA would be classified as obtaining a collectible, potentially leading to a taxable distribution from the IRA.
Fortunately, the IRS has recently stated that IRAs can now invest in grantor investment trusts categorized as precious metal ETFs without encountering any issues. The accompanying table provides an overview of the most recent Private Letter Rulings (PLRs) concerning IRA investments in precious metals.
According to the most recent PLR, the prohibition on direct IRA investments in gold is waived if an independent trustee holds the gold. The letter ruling specifically addresses a scenario where shares of a gold-holding trust (possibly an ETF) were publicly sold, including to IRAs, and traded on a stock exchange.
It is important to note that there is another straightforward method to invest in precious metals indirectly, which involves having your IRA purchase common stock shares of mining companies or mutual funds that include mining stocks.
Is it suitable for you?
There are various ways in which IRAs can invest in gold and other precious metals, each with its own benefits and drawbacks. It is essential to remember that investing in precious metals comes with numerous risks, including tax exposure. It is advisable to seek guidance from an investment expert prior to allocating a significant portion of your assets to precious metals. For further information about the tax implications of such investments, it is recommended to contact your tax advisor.