What do you expect when you invest gold in a retirement account? Literally, you are converting a portion of the eggs in your retirement nest into gold. But do you think it’s a good move to put precious metals in your IRA? Some retirement accounts do not permit such investments. However, this post will guide you in finding an IRA that allows such investments.
What is a Gold IRA?
It is a special type of IRA (individual retirement account) that permits investors to own gold and other precious metals like silver, platinum, and palladium. Investors can own stocks related to these precious metals or their physical forms such as coins or bullion. You can visit Metal Resource to know which metals are acceptable by the IRS.
You cannot hold gold in a traditional IRA, though the distribution rules and contribution limits are the same for both types of accounts. You need to find a custodian or broker before you can open a precious metals IRA. The custodian will assist in managing the account as well as oversee the purchase and storage of your physical assets. You can buy physical assets with pretax or post-tax funds.
Gold IRA holders are faced with the problem of storage because they cannot store the assets in their homes. If they do, it will count as withdrawals and will require payment of taxes. As a result, they must store their physical assets in approved depositories.
In traditional IRAs, investors can only hold traditional investments such as mutual funds and stocks. But the IRS allows SDIRA (self-directed individual retirement account) holders to purchase bullion and invest in paper investments that are related to precious metals. These investments include the following:
- Commodity futures
- Gold mutual funds
- Stocks of gold mining firms
- ETF (exchange-traded fund)
The Upward Trend of Gold IRAs
Generally, a gold IRA is appealing to an investor who seeks to diversify a retirement portfolio. When the value of paper assets decreases, the price of gold increases. Therefore, holding gold in your portfolio serves as insurance against inflation. In the long run, it reduces an investor’s risk, making it a smart move for IRAs.
Previously, very few people demanded precious metals IRA because the transaction process was complicated. Hence, only the dogged investors were willing to go through the process of finding a custodian or trustee as well as approved depositories. However, since the Great Recession which followed the 2008 financial crisis (click here to read more), precious metals retirement accounts have become more popular.
More companies have emerged and are helping to simplify and even handle the process for investors. Also, the interest in precious metal IRAs is becoming stronger due to the increase in political risks and potential inflation caused by the pandemic.
How to Find a Custodian or Broker
Before you can invest, you must open an SDIRA, then use the funds to purchase bullion. An SDIRA allows you to directly manage the account and own a wide variety of investments. But for a precious metals IRA, you must find a custodian, who will create and manage the account, and a broker to purchase the precious metal.
Usually, custodians are trust companies, banks, credit unions, loan and savings associations, or brokerage firms that are approved to provide custody services for assets. They cannot select a bullion dealer for an IRA client. It is the responsibility of an investor to find a dealer. However, custodians who have been in business for a longer period have an existing relationship with several dealers and can share their list if you ask.
Choosing a custodian is quite complicated but the following criteria can help you make your selection:
- Qualification: Ensure the company has the required registrations, licenses, bonds, and insurance to protect investments. You should be able to see proof of the licenses.
- Traction: The company must have recorded successes with previous clients thereby creating a reputation for themselves in the industry. You can check their rating on the BBB website and read customer reviews on authentic third-party sites. Look out for complaints from previous clients and observe how the company attended to them.
- Flexibility: the goals and needs of investors differ. Therefore, the company you choose should cater to your specific needs. It should not be a one-size-fits-all company.
- Transparency: There should be no hidden fees. The company should inform you about all the costs involved to avoid nasty surprises.
Final Thoughts
A precious metals IRA is referred to as an alternative investment because it isn’t traded on any public exchange. It also requires special skills to manage. Although gold has the potentials for high returns, the glitters should not blind you. The prices of gold can plummet when you don’t expect it (visit https://africa.businessinsider.com/ to read more).
When the prices are rising, you should decide whether you want to buy or close at the top market price if you decide to invest immediately. But waiting may be a more sensible thing to do. If you are considering a precious metals IRA, seek advice from a professional to find out how the investment fits your portfolio’s overall goals.
Generally, it is not wise to put all your funds in one investment basket. Hence, if gold appeals to you, do not invest above a third of your IRA funds in a precious metals IRA.