Conventional IRAs typically only offer paper investments like stocks and bonds. With self-directed precious metals IRAs, however, you have access to physical bullion that retains its value; many Americans may not even realize they have this option available to them.
To buy gold and other precious metals in a self-directed IRA, it’s necessary to work with both a precious metals IRA company and custodian. The former can help select specific metals while the latter will purchase and store them.
How to invest in gold
Gold is an attractive asset for investors as its price tends to move in the opposite direction of stocks and bonds, providing an effective hedge against inflation and economic uncertainty, especially during recessions. But before adding it to your portfolio, it’s essential that you understand its inner workings first.
One way to invest in gold is through physical bullion purchases such as bars or coins from dealers, banks or brokerage firms. Investors should note that dealers usually charge a markup above spot price; be sure to shop around before making your decision!
Another way to invest in gold is through purchasing shares of companies that mine and refine it, similar to any other stock on an exchange, although typically with higher minimum investment requirements than individual gold-related assets. Finally, gold mutual funds or ETFs offer access to this commodity without needing to find dealers individually.
Taxes
As IRAs are tax-deferred accounts, you won’t owe taxes until making a withdrawal – when that time comes you’ll owe taxes based on the dollar value of your gold investments. Physical gold investments are considered collectibles and treated similarly to short-term capital gains; their maximum collectibles tax rate stands at 28% which is significantly higher than most assets’ 15% long-term capital gains rates.
One way to overcome this difficulty is by setting up a self-directed IRA for investment in precious metals. With this type of account, funds from an existing retirement plan are used to purchase bullion and coins from reputable dealers who will store your investment safely in third-party vaults. Unfortunately, however, due to IRS regulations this approach can be both expensive and difficult. Many self-directed IRA companies provide services designed to simplify and ensure compliance with IRS rules while making sure your custodian has experience holding alternative assets like precious metals or coins safely in an IRA custodian has all requirements before investing in precious metals.
Fees
Physical gold does not produce income through dividends, interest or rental returns – making it more risky than other investments and creating additional sources of risk that investors should keep in mind when making their decision to invest. When considering gold as part of an IRA investment portfolio investment decisions should take this factor into consideration.
As well, precious metals IRAs may be more costly than traditional IRAs due to set-up fees, transaction costs and custodial fees, investors should carefully consider all applicable charges when selecting an agency to assist them with opening and managing a gold IRA.
People looking to avoid these fees should investigate IRA-approved dealers like Money Metals Exchange that offer direct bullion purchases with safe storage in a professional third party depository. But before entering into any agreement with any dealer, customers must thoroughly research them to check for complaints, lawsuits or connections to fraudulent precious metals dealers as well as compliance with IRA distribution rules.
Storage
When investing in precious metals through an SDIRA, you must select a company with secure and insured storage services. The IRS does not permit precious metals to be kept at home – placing them in your safe or under the bed could constitute distributions that result in an IRS penalty of 10% for anyone under 59 and half.
IRA-approved metals dealers typically provide secure storage options, though these facilities may charge fees for storage and insurance services. As these costs can add up quickly, buyers who wish to acquire physical gold should be prepared to cover these services before purchasing physical precious metals.
Some companies promote what’s known as an LLC IRA, in which investors set up a limited liability company and take possession of metals directly rather than through a custodian. Unfortunately, this structure violates IRS regulations and could result in penalties; furthermore, these arrangements do not provide enough liquidity or flexibility for many investors’ retirement accounts.
