Gold and other precious metals can act as both an inflation hedge and store of value, however there are restrictions placed upon how IRAs can purchase and store physical metals.
Investors must choose an approved custodian when purchasing gold for their IRAs, otherwise the IRS could consider this purchase a distribution and apply penalties accordingly.
Self-Directed IRAs
Self-directed IRAs allow investors to invest in alternative assets like gold and real estate without being subject to custodian oversight, says Chase Insogna of NerdWallet. You are ultimately responsible for researching them thoroughly; NerdWallet recommends conducting careful due diligence as there may be certain rules set by the IRS such as prohibited transactions that you should consider before making your purchases with your IRA.
An IRA cannot buy and sell real estate, even if held within its self-directed account, but you may invest in other assets, including precious metals (gold, silver and palladium that meet purity standards), startup equity on crowdfunding platforms such as Crowdcube or tax liens, mortgage notes or deeds on foreclosed property. Most purchases through exchanges work with self-directed IRA custodians that charge setup and transaction fees that add up over time.
Traditional IRAs
Traditional IRAs are an excellent option for anyone with access to workplace retirement plans. Contribute pretax dollars into an IRA account which grows tax deferred, and pay tax when withdrawing at retirement time.
Individuals with high incomes can deduct contributions made towards saving for retirement in environments with higher tax rates, thus potentially moving them into lower tax brackets in the current year. This is an especially significant benefit when saving in an environment with higher rates.
Self-employed individuals can open SEP or SIMPLE IRAs, while employees at small businesses can enrol in Traditional or Roth 401(k). Brokerages and robo-advisors make opening an IRA easy – you just need your legal name, Social Security number, employer details and some additional details – to start investing right away. Some providers even provide automatic bank deposits directly into your IRA!
Roth IRAs
Roth accounts provide you with the flexibility of growing your savings without incurring taxes, taking full advantage of the compounding effect, where investment earnings generate additional earnings that can be reinvested over and over again.
Your eligibility to contribute to a Roth depends on your modified adjusted gross income (MAGI). This figure encompasses your taxable compensation such as salaries, wages, tips and bonuses but excludes investment income such as Social Security benefits, unemployment compensation or alimony payments.
Your Roth investments can be managed either through a financial institution or self-directed IRAs, with the latter offering greater investment options including digital assets.
No matter which strategy you employ, setting retirement savings goals is key. Tools such as Empower Personal DashboardTM may help track progress and anticipate savings in the future. Working with a financial professional could also prove valuable.
Fees
If you are considering investing in precious metals or alternative investments through your Self-Directed IRA, it is crucial that you are aware of any fees that could accrue. Custodian, precious metals dealer and depository accounts often incur fees which vary based on asset size/value; others might apply depending on transaction history.
Physical gold investments involve paying premiums to purchase bullion, shipping costs and monthly custodian storage fees. Furthermore, precious metals must meet IRS purity rules, so an additional charge may apply – as will certification services to meet them.
Some custodians charge additional fees for investment research, review, and valuation services – fees that can add up quickly and reduce returns. To avoid such fees, choose an open and honest custodian with regards to its fee schedule.
