Gold has long held its allure as an inflation hedge and portfolio diversifier, and physical gold investment offers similar potential benefits. But before jumping in head first, here are a few considerations when investing in physical gold:
Purchase precious metals directly from dealers or have your custodian do it; both methods come with fees that could reduce investment returns.
What is an IRA?
Individual Retirement Accounts, commonly referred to as IRAs, offer tax-deferred savings vehicles that allow individuals to put away funds for retirement tax-free. You can establish traditional pretax, Roth or SEP-IRAs that come with contributions limits, required minimum distributions and penalties if withdrawals take place before age 59 1/2.
Gold and other precious metals are eligible investments within an Individual Retirement Account (IRA), but physical ownership requires compliance with specific rules set by the Internal Revenue Service (IRS). For instance, an IRA cannot keep physical precious metals at home in its safe or personally own them; rather, you should work with a qualified precious metals dealer, custodian and depository that meets IRS storage requirements.
Physical gold coins and bullion require additional fees such as markup on sales costs, storage and insurance costs; therefore some experts advise investing in an exchange traded fund (ETF) that tracks a precious metals index instead. Vanguard Precious Metals and Mining Fund (VGPMX) offers an attractive low-cost option with potential for long-term appreciation potential.
How do I open an IRA?
To invest in physical precious metals via an IRA, it is imperative that you work with a self-directed IRA company that adheres to IRS rules. They will set up your account with custodian and depositories; assist in selecting precious metals; and store them safely within an IRS approved facility.
Storage is of critical importance since under IRS rules you’re not permitted to keep precious metals at home – doing so would count as withdrawing and incur taxes and penalties.
Keep in mind that precious metals in a self-directed IRA may not be as liquid as paper investments like stocks or bonds, which means selling can take more time compared to paper investments like stocks or bonds – this may reduce returns, while selling at the wrong time can mean missing out on price rebound opportunities or incurring loss of money. Also be wary of excessive fees from gold dealers; research their reputation, Better Business Bureau rating, membership status of Professional Numismatists Guild or Accredited Precious Metal Dealers before investing.
Can I invest in gold coins in my IRA?
Gold coins are an increasingly popular investment option within Individual Retirement Accounts (IRAs) due to the physical element they provide. However, the IRS only permits certain forms of gold bullion into an IRA – such as Maple Leaf and Australian Koala bullion coins as well as PAMP Suisse bars that meet certain purity specifications – which qualify for inclusion. Coins must also come encapsulated with mint packaging and include an authentication certificate.
To invest in a gold IRA, an investor must select an IRA custodian that accepts and stores physical precious metals; standard custodians like Fidelity, Schwab or TD Ameritrade do not handle physical assets.
There are numerous companies that specialize in setting up and administering gold IRAs for investors. These services will work closely with you to ensure that any products chosen meet all IRS standards for an IRA, while providing advice about where best to store your gold IRA in an approved depository facility.
Can I invest in gold bars in my IRA?
Although IRAs may invest in certain gold coins and bullion, IRS guidelines stipulate that this investment must be held by an IRA custodian. Physical precious metal investments offer diversification benefits while being potentially risky investments.
When buying physical bullion for your IRA, always work with a reliable dealer and consult your custodian to ensure all products meet all applicable specifications. In addition, look for dealers that are members of industry trade groups such as American Numismatic Association or Industry Council for Tangible Assets.
Not only are fees charged by your IRA custodian and gold dealers, but there may be additional expenses related to storing and transporting gold. Therefore, investing in an exchange-traded fund (ETF) that tracks gold’s price can often be more cost effective; one such ETF option is Vanguard Precious Metals and Mining Fund X (VGPMX).
