Gold and Silver IRA Guide

Investing in silver or gold Individual Retirement Accounts is a popular way to own gold. They are better known as precious metals IRAs.

We’re going to address how precious metal IRAs work. We'll also dispel some of the common myths behind gold and silver IRAs. These insights will help you decide if investing in one of these plans is right for you.

What Is a Precious Metals IRA?

A gold, silver, or other precious metals IRA is a type of self-directed IRA. The main difference is the account is funded with precious metals. The plan works much the same way as a traditional or Roth IRA built upon paper valuables, such as stocks, bonds, and mutual funds.

You can choose between either a Traditional IRA and a Roth IRA for your Precious Metal IRA.

gold coins bars

Stacks of gold coins and gold bars

Traditional IRAs are funded with before-tax funds and will be subject to taxation upon fund withdrawal.

Conversely Roth IRA's are funded with after-tax funds. Withdrawals are not taxed upon retirement. However, there are income restrictions to starting a Roth IRA.

Some investors choose to have both. Consult with a licensed financial planner or tax professional to make the best choice for you.

Should I Buy a Precious Metals IRA?

Researching the ins and outs of Gold IRAs is a great place to begin. Buying gold through an IRA makes sense if long-term accumulation of bullion is one of your investment goals. If you plan on selling your metals sooner, or you want to store them in several different locations, then an IRA may not best suit your investing goals.

More detail about how precious metals IRA plans work will be provided later in the article. Generally speaking, there are three steps:

  1. You’ll choose an accredited custodian (an objective financial third party) and a qualifying precious metals dealer.
  2. The custodian will purchase eligible precious metals products for your plan from the dealer, with the money you provide.
  3. These items will be sent directly to a depository of your choice. There they will be held in safekeeping until such time you decide to withdraw the bullion and then sell it.
empty vault

An empty vault (depository)

Here are a few more things to consider before deciding to open a precious metals IRA…

You could make lots of money—or lose it, too. Beware of hype that gold and silver is “headed to” any specific price. We’ve all heard these claims for years—decades. Nobody has a crystal ball. But what we do have is solid knowledge—knowledge that precious metals can be a fantastic hedge against inflation.

It’s wise to invest in precious metals, but it’s also smart to diversify. Prudent investors have a retirement plan that incorporates various assets, including precious metals. Most advisors recommend investing 5% to 10% of your assets in precious metals.

There’s a cost for storing bullion. Yes, you’ve got to park that IRA bullion in an approved depository. Two popular bullion storage options are Delaware Depository, and Brink's Global Services. Gainesville Coins also offers secure vault storage for your metals for IRA purposes.

We all know parking isn’t always free. That’s true when it comes to storing your physical gold, silver, and other precious metals in an approved bullion depository. A secure vault system, guards, and insurance coverage for all the gold in storage don't come cheap.

You will most likely be charged an annual fee to store and protect your assets. However, these storage fees are a small price to pay for the peace of mind in knowing your precious metals are safe and secure.

And remember, IRA fees like this aren’t unique to bullion storage. If you invest in a conventional IRA, you need to pay maintenance fees or other costs to nurture your account over many years or decades.

How a Gold-Backed IRA Works

Purchases for Gold IRAs are made through a custodian, an objective third party. The metals are stored in an approved vault until it's time for withdrawal.

Acquiring precious metals for your IRA is different than when you buy gold for yourself. Your contributions are in cash, and sent to your custodian (a third-party financial company) with a list of the precious metals you want to add to your IRA.

The custodian uses the money you sent to buy your precious metals from your choice of approved precious metals dealers. The precious metals travel from the dealer to the depository you have chosen. Gainesville Coins conveniently offers storage options for your IRA bullion in our comprehensively insured UL-rated vaulting facility.

When you are ready to withdraw the bullion, you will receive the same physical precious metal items that were deposited. At that time, you can sell them at the current market price, or accept delivery from the custodian. The withdrawals are not taxed if you have a Roth IRA.

For a traditional IRA, the money sent to the custodian is deducted from your taxable income that year. However, you will pay taxes on withdrawals at the prevailing rate.

Your gold IRA can be a new IRA account, or you can roll over an existing IRA (or even a 401(k) retirement plan under certain conditions). Consult your financial planner or tax expert for details on IRA rollovers.

gold bullion

Gold bullion coins and gold bars

Precious Metals IRA vs a Regular IRA

At their cores, both the conventional IRAs and physical precious metals IRA offer investors the same benefit: they provide a place to invest for the long term in a tax-advantaged plan.

When the investor reaches a certain age or experiences another qualifying event, these funds (or assets) can be withdrawn and used as they see fit.

There are penalties for early withdrawal. Other fees may also be imposed if the investor withdraws the bullion before a qualifying age or event—just like with conventional IRAs.

Traditional IRAs of any sort require that minimum distributions begin at age 72. Roth IRAs do not have required minimum distributions.

Ultimately, the primary difference between a precious metals IRA and a regular IRA is the type of assets used as the investment vehicle.

Traditional IRA: Paid with pre-tax income, taxed when withdrawn. Mandatory minimum distributions after age 72.

Roth IRA: Paid with after-tax income, not taxed when withdrawn. No mandatory distributions after age 72.

Wait… So, You Don’t Actually Get to Hold the Gold?

You can, and you do—but only after you withdraw the funds from your precious metals IRA, usually at age 59-1/2 or older. You always own the gold or silver you buy as part of these plans. All you’re doing is keeping it secure in an approved bullion depository until retirement. This protects your investments and their tax-advantaged status.

indian salesman holding gold reuters

Image: Reuters

Are There Workarounds for Home Storage Gold IRAs?

You probably mean to ask something like, “Can I open a Limited Liability Corporation (LLC) that buys gold and silver on my behalf and chooses my home as the designated depository?” Nice try, but not so fast. The Internal Revenue Service (IRS) is on to folks who attempt these schemes to keep the bullion they invest in an IRA in their own home or a safety deposit box.

Custodians of precious metals held in IRAs must be objective third parties. They are usually accredited trust companies. This is to guarantee that IRS directives are followed. You, your uncle, or your brother-in-law are probably not accredited by the IRS to manage gold IRA accounts.

The risks of being caught for conducting prohibited transactions are too high. The fines and penalties you will incur are substantial, and the legal fallout too perilous. This is just one of many reasons that we advise those wanting to open a precious metals IRA to play by the rules.

Keep your precious metals IRA plans on the up and up. You’ll have the best chance of making the most profit—and you’ll still get your gold or silver at the end of the day, too.

gold silver bars

Gold and silver bars

What Bullion Items Qualify for IRAs?

Not all gold, silver, platinum, or palladium products can be included in a precious metals IRA. While the list of items approved by the IRS can change, the items presently allowed in a precious metals IRA include the following:

  • American Gold Eagle 1 oz, 1/2 oz, 1/4 oz, 1/10 oz
  • Proof American Gold Eagles 1 oz, 1/2 oz, 1/4 oz, 1/10 oz
  • American Gold Buffalo 1 oz.
  • Australian Gold Kangaroo 1 oz.
  • Austrian Gold Philharmonic 1 oz.
  • Canadian Gold Maple Leaf 1 oz.
  • American Silver Eagle 1 oz.
  • Proof American Silver Eagles 1 oz
  • Mexican Silver Libertad 1 oz.
  • Canadian Silver Maple Leaf 1 oz.
  • Australian Silver Kookaburra 1 oz.
  • Austrian Silver Philharmonic 1 oz.
  • Australian Platinum Koala 1 oz.
  • American Platinum Eagle 1 oz.
  • Canadian Platinum Maple Leaf 1 oz.
  • Canadian Palladium Maple Leaf 1 oz.

Precious metals bullion bars must be from an accredited refiner and meet the following purity standards:

  • Gold: .995 pure or better
  • Silver: .999 pure or better
  • Platinum: .9995 pure or better
  • Palladium: .9995 pure or better

These select precious metals are the only ones that qualify for inclusion in a self-directed IRA. You will notice that South African Krugerrands are not allowed in a precious metals IRA. Neither are vintage bullion coins like the British Sovereign or French gold Napoleon. This is because their purity is less than .995 fine.

The only gold coins allowed with a purity less than .995 are gold American Eagle coins. As the official legal tender gold coin of the United States, they are specifically allowed for inclusion in your self-directed IRA.

A lot of folks wonder why collectible coins and other numismatic items can’t be included in IRAs. From the creation of IRAs in 1974 until 1981, these special tax-sheltered retirement plans did permit the inclusion of collectibles of many types. But abuses of this allowance led to significant restrictions on which items could and couldn’t qualify.

Silver or gold American Eagle proof coins are the exception. These numismatic coins are allowed in your precious metals IRA as long as they are in their original government packaging. Proof Gold American Eagle coins are also the only coins in fractional sizes that are allowed.

Aside from these particular coins, only precious metal bullion coins are allowed in your precious metals IRA.

gold silver coins

American Silver Eagles are IRA-eligible

Advice for Selling Your Precious Metals

You'll eventually want to sell that precious metal if you want the cash. This is where a lot of folks end up losing out on potential profits. Once you decide to sell your gold or other precious metals, make sure you get the best price for them.

What a shame if you spent many years building your golden nest egg, only to get less than full price at the end when you convert that treasure into cash. Stay on top of the current bullion spot prices, and only sell to a trusted precious metals dealer who will pay you fair market value for your items. Do this, and you’ll be sure to maximize your profits.

There is something else to keep in mind when investing in a traditional precious metals IRA. The required minimum withdrawals after age 72 cannot be smaller than your least expensive piece.

This can lead to required distributions being much larger than the minimum value needed. For example, say your required minimum distribution equals the value of a half-ounce of gold, but you only have one ounce coins left in your IRA. This means you must take a distribution of one ounce. This can have tax implications during your retirement.

Gold and Silver Eagle Comparison

Silver and Gold Eagle coins are eligible for IRA inclusion

Open a Gold IRA

Precious metals individual retirement accounts are smart buys for investors who do it right. It’s safe to say that everybody who decides to open a precious metals IRA does so with the intent of making profits—and hopefully huge ones at that. But when it comes to any area of investing, those who educate themselves are the ones who stand a better chance of winning when all is said and done.

You’ve already managed a bit of your due diligence by reading this article. Now, ask some more questions. Contact a reputable precious metals dealer about gold and silver IRAs.

Choose a dealer that has been in business for a long time and has proven experience in working with precious metals IRA custodians. Go with a firm offering a wide selection of qualifying precious metals products, with top ratings at the Better Business Bureau (BBB). Affiliations with organizations such as the Industry Council for Tangible Assets and National Inflation Association are a plus.

Reputable dealers usually hire qualified professionals who can help you get started in opening a precious metals IRA of your own.

In the end, a self-directed precious metals IRA account gives you control over the long term investments you make for your retirement. That control means that it is up to you to decide what and when to buy to achieve your financial goals. Good luck!

Joshua McMorrow-Hernandez is a journalist, editor, and blogger who has won multiple awards from the Numismatic Literary Guild. He has also authored numerous books, including works profiling the history of the United States Mint and United States coinage.

More precious metals buying guides from Gainesville Coins:

Investing In Gold: What You Need to Know

Investing In Silver: Guide for 2021

How to Buy Gold Coins: Buyer's Guide

The Best Types of Gold to Buy

Best Silver Coins to Buy: Top 10 List

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