How To Invest in Gold and Silver IRAs

How To Invest In Gold and Silver IRAs

Published: April 04, 2022
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In a retirement investment vehicle, investors typically choose conventional assets like stocks, bonds, exchange-traded funds or mutual funds. But if you’re investing for retirement in a self-directed IRA account, you have the flexibility to invest in precious metals like gold and silver.

A precious metal IRA can help add to a diversified retirement portfolio. It can protect economic risks and inflationary pressures.

If you want to learn how to prepare a retirement portfolio that includes a gold and silver IRA, here’s what you need to know.

gold silver coins

Modern gold and silver bullion coins are eligible for IRA inclusion.

What Is a Gold and Silver IRA?

A gold individual retirement account is a self-directed retirement account. It allows individual investors to invest in physical gold and silver in their retirement. These accounts allow you to buy and hold physical bars of gold and silver but must meet the tax code standards.

Investing in physical gold is prohibited in a traditional IRA. This is why you have to open a self-directed IRA offered by an IRS-approved custodian.

Before opening a gold IRA, make sure to review the IRS requirements for buying and storing gold and other precious metals. Gold IRAs have similar features to traditional IRAs such as their allowable contributions, tax treatments, and distributions.

taxes

Your Gold IRA can have the same tax advantages as a Roth IRA or Traditional IRA.

How Gold and Silver IRAs Work

Here are some clear steps to follow to begin adding precious metals to your individual retirement account.

1. Roll Over or Open an Account

If you already have a 401(k), you must roll it over into a self-directed gold IRA because your 401(k) does not permit you to own physical precious metals. This is why you need to transfer or rollover your retirement savings into a gold IRA, an account that allows you to hold physical gold in your retirement investments. You don’t exclusively have to hold gold and precious metals in that account. Rather, you have your own mix of investments.

To qualify, you first need to open a gold IRA with an entity that is IRS approved such as a bank, retirement firm, or insurance company.

2. Choose Your Metals

The gold coins, bars, or rounds that are to be invested in your IRA must have a minimum fineness requirement of .995. In a similar light, silver coins, bars, and rounds must be produced by a government mint or an accredited manufacturer and meet a minimum fitness of .999 according to the U.S. Money Reserve.

3. Find a Precious Metals Dealer

Once you’ve opened a traditional gold IRA account, you have to choose a trusted precious metals gold dealer. This entity will make gold purchases on your behalf for your gold IRA. In some cases, a gold dealer who is familiar with investing in gold IRAs can help you open and buy gold for your account.

These precious metals dealers are sometimes called "gold IRA companies," but this phrase is confusing. The dealer can supply you with the metals and function as your approved depository for storage.

However, the gold dealer you work with is not the actual IRA custodian, the IRS-approved entity mentioned in Step 1. Keep this distinction in mind when searching for gold IRA companies.

4. Store Your Metals

The gold that is purchased must be stored according to IRS guidelines. Since you, the investor, cannot have possession of the physical precious metals, they need to be held by an approved third party.

This means your precious metals must be in possession of a bank or non-bank trustee. You will have to pay an annual storage fee and you won’t have physical possession of the precious metals until you sell them.

Some investors want to store their IRA metals at home. Normally, there is nothing wrong with home storage. But remember, you cannot store your precious metals in your home for IRA purposes. Gainesville Coins offers secure vault storage for our clients.

5. Fund Your Account

You're ready to get started! The annual contribution limit for IRAs in 2022 is $6,000 or if you’re 50 years of age or older it's $7,000. Gold coin contributions are made on a pre-tax basis.

gold and silver

Gold and silver coins are popular choices for inclusion in a retirement account.

3 Pros of Gold and Silver IRAs

Gold and Silver IRAs Provide Tax Benefits

Gold IRAs provide similar tax benefits to a traditional IRA. Contributions made to the gold and silver IRAs are tax-deductible and there is a tax deferral on earnings. Your earnings in this investment vehicle will be taxed as capital gains upon withdrawal.

Gold and Silver IRAs Allow You to Make Your Own Investment Decisions

By investing in a gold and silver IRA, you are taking control of your investments. The stock market can crash, inflation may increase, or other asset classes might not perform as you expected. With a gold IRA, you can feel a bit more at ease knowing that you own an asset that can help manage these risks.

As long as you stick to the IRS guidelines, you can invest in the amount of gold and silver that you want in the form of coins, bars, or rounds. You get the full benefits of investing in physical gold, silver and other precious metals.

Gold and Silver Are Great Portfolio Diversifiers

Gold and silver are a few names among many asset classes that have been around for a long time. To this day they continue to be a reliable asset class providing value to investors for many years. Holding physical gold and silver means you own a time-tested store of value asset that will protect the value of your money.

Also, in a market downturn where equity investments may decline, precious metal investments will serve as a portfolio stabilizer to help manage volatility risk in your portfolio.

3 Cons of Gold and Silver IRAs

Gold Doesn’t Provide Earnings

Gold and silver investments are not like stocks. Stocks are liquid investments that provide dividends and can offer income. Physical gold and precious metals on the other hand are less liquid and are not income-generating assets.

Rather gold is a form of currency that serves as a hedge of protection against inflation which reduces the value of money over time. Gold and silver are stores of value that protect your money’s purchasing power over time.

Gold Has Storage Costs

Physical gold requires storage. This storage carries fees you have to pay. This is an added cost associated with investing in physical gold, which can eat at your investment returns.

IRA Gold Has to Be Stored in a Vault

Physical gold in a self-directed IRA must be held by a third party. This means, you, the gold investor are not allowed to have physical possession of the gold or silver even though you invest it in your gold IRA.

This is a guideline set by the IRS. You will need to find an approved depository who specializes in storing gold. Gainesville Coins conveniently offers storage options for your IRA bullion in our comprehensively insured UL-rated vaulting facility.

empty vault

Vault storage is required for any metals in your IRA.

Should You Invest in a Gold and Silver IRA?

Gold has proven to be one of the best performing assets historically. In the event of a stock market correction, your stock portfolio may experience volatility. Yet owning gold in this event can help balance out any losses and can help maintain your portfolio’s value over time.

Gold and silver provide investors with security and a way to store their wealth. Also, gold moves counter to the direction of stocks. Thus gold is an uncorrelated asset to traditional assets like stocks, making it an optimal portfolio diversifier.

Considering gold as a part of your retirement portfolio is a great option to secure your nest egg. Gold is a tangible asset and is not susceptible to changes associated with inflation, company earnings, and stock market volatility.

If you are a buy and hold investor who wants to diversify into precious metals, a gold and silver IRA could be an option for you. It’s important to keep in mind that physical gold is a long-term investment. To benefit from holding gold, you should prepare to own it for many years rather than have it as a short-term investment.

Find Out If a Gold IRA Is Right For You

If you are looking to mix up your investments, opening a self-directed gold IRA where you can also invest in other precious metals can come with many benefits as you seek to secure your financial future for retirement.

Of course, there are both pros and cons to any investment. Gold IRAs can help manage your portfolio’s volatility, protect against inflation and add to your tax benefits. Consider speaking to a financial advisor to determine if a precious metal IRA is right for you.

Frequently Asked Questions About Gold IRAs

Here are answers to some more of the most common FAQs about gold IRAs.

How much does it cost to start a gold IRA?

There is not necessarily a minimum amount of money required when you open a self-directed IRA. The only limitation is cost of the precious metal product you are including in your account.

Effectively the lowest cost to start funding your gold IRA would be about $30 for a 1 oz silver coin or about $50 for a 1 gram gold bar.

Is there a penalty if I transfer my 401(k) to a gold IRA?

No, there is no penalty if you do a direct transfer called a "trustee-to-trustee" transfer from your 401(k) to your IRA.

If you indirectly transfer the funds (i.e. you withdraw from your 401(k) and then separately fund your IRA), you will have to pay a 20% tax on the amount rolled over. This tax payment will be refunded to you when you file your taxes, fortunately.

How do I withdraw from a gold IRA?

The process is the same as withdrawing funds from any retirement account. The only difference with a gold IRA is you can choose between taking possession of the metals (thereby removing them from your IRA), or you can simply cash them out in exchange for dollars.

Can a Roth IRA hold gold?

Yes, a self-directed IRA that holds gold can also be a Roth IRA. In that case, you would have to pay the taxes on your account up front, but your assets can then be withdrawn or disbursed on a tax-free basis when the time comes for your retirement. By contrast, Traditional IRAs are tax-deferred vehicles.

How much gold should I have in my portfolio?

Many professional portfolio managers suggest a modest allocation of 5% to 10% of one's portfolio to gold. The ideal weighting of investments and assets will vary from one individual to another.

What is the average rate of return on precious metals?

Over the last 20 years, the gold price has returned roughly 20% on an annualized basis. The annualized return on investment for silver over that time span is about 15%. (This data was sourced from MacroTrends.net and has been adjusted for inflation.)

The "Nixon Shock" in 1971 took the United States off any kind of gold standard. Beginning in 1974, the price of gold was allowed to float freely. If we used 1974 as our starting point, the average annualized return for gold is 9.5%.

It's not quite as useful to measure the ROI prior to the 1970s due to the fact that gold and silver were literally used as money (hard currency) for the previous five millennia.

Written by Paulina Likos


Read more about investing in precious metals from the expert authors at Gainesville Coins:

What You Need to Know About Physical Gold Supply and Demand

Why Gold Coin Demand Doesn't Drive the Gold Price

Gold/Silver Ratio (GSR): Definition and Trading Strategies

How to Invest in Gold Stocks

How to Invest in Gold ETFs

Investing in Gold vs. Silver

Gold vs. Cash: Comparing the Pros and Cons

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