Many investors turn to precious metals as an insurance against economic uncertainty, including holding gold in an IRA account, but must first understand all applicable rules and regulations as well as consult a financial adviser for best practice.
IRS rules allow Individual Retirement Accounts (IRAs) to own certain gold coins and bullion, provided it is stored in the physical possession of an approved nonbank trustee. Some companies offer options eligible for inclusion such as exchange-traded funds investing in gold futures and mining companies that meet this criterion.
Taxes
Investors putting gold into their IRAs should be mindful of any applicable taxes. Since tax laws surrounding IRAs can change frequently, taking time to understand them thoroughly will allow investors to make well-informed decisions.
Typically, the IRS prohibits investments in collectibles like gold coins and bullion; however, in 1986 an exception was created that allowed U.S. gold and silver coin investments. Later in 1998 this rule was expanded to cover bullion that met purity standards of 99.5% or greater and finally in 2007 it was determined that gold ETFs weren’t considered collectible investments for IRA purposes.
Investors seeking a precious metals IRA must work with a dealer and custodian with all the appropriate licenses, registrations, insurance coverage and bonds – as well as pay brokerage fees, account setup charges and storage costs which may differ by company.
Eligibility
Gold IRAs provide an effective means of diversifying your retirement portfolio while offering tax-deferred growth and, with proper product selection, can act as an inflation hedge.
The IRS stipulates that gold coins and bullion eligible for an IRA must meet minimum fineness standards to meet its specifications, guaranteeing you of high-grade metals produced at national government mints. You may also opt to buy it privately from private mints that conform with these specifications.
Precious metals eligible for storage within an Individual Retirement Account must also be stored at an IRS-approved depository, and some companies offer segregated storage while others use what’s known as commingled storage; with both options, your assets will be held together with those from multiple account holders.
Before reaching retirement age, liquidating precious metals before receiving an early withdrawal penalty of 10% from the government can be costly. To protect yourself against this fateful fate, investing in a genuine self-directed IRA offered by select custodians is crucial.
Investing
Gold can be an attractive investment choice within an IRA, and investors can buy coins, bullion or bars directly or invest in gold-related stocks or exchange-traded funds indirectly. However, investors should remember that unlike some assets which provide dividends or yields over time, gold doesn’t offer one of these features itself.
Prior to investing, it’s crucial that all fees associated with gold IRAs are carefully researched. While an initial setup fee may apply, annual costs often include administration, storage and insurance fees.
As with any investment, selling gold may cost when closing out an account. Third-party dealers tend to offer less than market prices for gold when you sell, potentially losing you part of your initial investment. Some companies have special arrangements with dealers that allow them to avoid this scenario; otherwise, physical gold requires finding an IRA custodian who specializes in self-directed IRAs as their custodian.
Distributions
Some investors desire physical gold or other precious metals in their retirement accounts. This can be accomplished either with a self-directed IRA that accepts these assets or by purchasing shares of an exchange-traded fund (ETF) that tracks a specific precious metal’s price.
ETFs typically have lower fees associated with them compared to physical gold ownership, coins or proofs. It is important to keep in mind that an IRA solely invested in precious metals will only experience growth when their prices increase.
One thing to keep in mind when purchasing precious metals with your IRA and then withdrawing them before age 59 1/2, income taxes on their value at withdrawal as well as an early withdrawal penalty of 10% will apply. However, you can avoid this by using rollover rules to transfer funds between retirement accounts.
