Precious metals have long been seen as an appealing investment choice during times of economic instability, often serving as a store of value and protection against currency deflation and inflation.
When investing in precious metals through an IRA, the IRS requires your gold (and/or other precious metals) be stored with a custodian. There are only a handful of custodians offering true self-directed IRA accounts for this purpose.
Taxes
When investing in gold coins or bars, investors should keep in mind that the IRS considers these collectibles subject to special tax rules. As per Journal of Accountancy, such items are taxable at regular income tax rates once you take possession of them and transferring into an IRA will trigger an early withdrawal penalty of 10%.
If you invest in precious metals through an IRA, however, you’ll experience all of the tax advantages offered by other IRAs – this includes being able to defer payment of taxes until retirement age.
Though you could invest directly in gold and silver through an IRA, it would be prudent to opt instead for mutual or exchange-traded funds that track precious metal values instead. By doing this, you’ll minimize risk associated with engaging in prohibited transactions that incur unrelated business taxable income (UBTI), while simultaneously eliminating storage fees.
Storage
Precious metals, unlike stocks or bonds, are physical assets that need to be safely stored. Some scam artists may suggest an illegal method involving installing a safe in your home and creating an LLC as trustee, however this designation would jeopardize tax-deferred benefits and risk jeopardizing tax benefits.
Investors typically opt to store their IRA precious metals at a reputable depository storage facility like Delaware Depository or vault in New York or Los Angeles, such as Delaware Depository. Such facilities provide more secure methods of keeping gold and other precious metals secure because their custodians have proven their reliability over time.
Offshore storage provides geographic diversification and may provide tax advantages. Some IRA providers also offer co-mingled storage, where your precious metals are kept together with those from other clients in one shared vault – this option has lower fees and security concerns; however, you cannot be assured that your precious metals will stay separate.
Custodians
Gold, silver and platinum IRAs require custodians that specialize in precious metal assets to act on behalf of an IRA owner and purchase and store physical precious metals according to Internal Revenue Service (IRS) regulations, meeting purity requirements. Custodians may provide either combined or segregated storage.
Custodians that provide this type of service charge fees to setup, store and administer an IRA. In general, their charges increase with account value.
Investment in precious metals offers protection from inflation and diversifies retirement portfolios, but before making such a decision it’s essential to fully evaluate all risks. Be wary of early withdrawal penalties associated with precious metals IRAs as well as any applicable exemptions; for this reason it would be wise to consult an advisor regarding all available options as well as choosing an established custodian like Advantage Gold that doesn’t charge extraneous fees.
Investments
The IRS has set forth very clear rules regarding which investments can be held within an IRA account. Individual taxpayers have their choice between traditional, Roth, SEP, SIMPLE IRAs. SEP and SIMPLE accounts must only be opened at institutions approved by the IRS such as banks, brokerage companies or federally insured credit unions and cannot invest in foreign assets such as fund trusts or companies, derivative trading (such as ratio spreads ) is also not allowed.
Some IRAs provide access to an array of investments, from real estate and private equity funds to hard-to-value assets like real estate. But investors should avoid investments with hard valuation criteria as these may cause confusion, conflict and compliance failures that lead to penalties. The best IRAs provide clear investment guidelines which give account holders confidence; such accounts enable investors to maximize returns without jeopardizing retirement plans.
