An Individual Retirement Account, or IRA, provides tax-advantaged retirement savings opportunities. However, many investors wonder whether or not an allocation of precious metals can be added to their accounts.
Yes, but there are certain considerations. When investing in physical gold using an IRA account, investors will require finding a custodian who specializes in such investments.
Taxes
Gold and precious metals are considered collectibles by the IRS, meaning that they are taxed differently than other investments. Their maximum tax rate of 28% exceeds even that of long-term capital gains rates – offering investors an effective hedge against inflation while simultaneously protecting wealth for future generations. Investing in such assets may serve as an invaluable asset protection mechanism.
An IRA gold account allows you to invest in precious metals while deferring taxes until it comes time to withdraw them, which may prove especially advantageous if your retirement tax bracket will be lower than anticipated.
To qualify as an IRA gold investment, you must purchase precious metals from a reputable dealer authorized by the IRS to sell them. Such dealers can assist in precisely filling out paperwork, meeting deadlines and staying abreast of changing IRS regulations as well as helping avoid costly errors that could incur penalties and compliance concerns.
Withdrawals
As with traditional IRAs, Roth accounts have withdrawal rules as well. You may need to begin taking minimum withdrawals each year once you reach age 70 1/2.
Withdrawals from Roth IRAs may be tax-free provided you meet both the five-year contribution rule and age requirement of 59 1/2, or have met an exception such as home purchase or disability. Converted principal withdrawals, however, will incur taxes and an additional 10% penalty tax.
Diversifying your retirement savings is one way to protect against unpredictable tax law changes, according to Slott. Withdrawals from traditional IRAs and 401(k)s are taxed as short-term ordinary income, which could leave you exposed if Congress alters any tax breaks you rely on in the future, according to him.
When withdrawing money, inquire at your institution on how they process requests. While some institutions offer quick-access methods like same-day wire transfers, others may take a bit longer. Some institutions also provide in-person locations if that would be preferable for you.
Fees
Gold IRAs provide investors with a means of diversifying their investment portfolio with physical precious metals (coins, bars and bullion), while providing tax-free withdrawals during retirement. Unfortunately, however, their high fees can eat into returns over time.
One major cost relates to the markup charged by precious metal dealers for coins and bars compared to their spot price of gold underlying them, while custodian fees must also be covered to store and protect gold investments.
Gold and other precious metal IRAs must abide by specific rules, such as transactions that are prohibited and penalties that apply if not followed correctly, so it’s crucial that they understand these restrictions.
Custodians
IRS rules regarding gold and precious metals IRAs can be complex and misstepping may result in expensive penalties for investors. Investors should familiarize themselves with these regulations to prevent costly missteps.
Physical gold IRAs can be set up either as Traditional IRAs funded with pretax dollars, or Roth IRAs funded with post-tax dollars. Either type requires using an approved custodian who will purchase and store precious metal assets.
Gold IRAs provide your portfolio with tangible assets that can protect you during times of economic instability. Furthermore, they act as an inflation hedge and present income growth opportunities. Since gold IRAs aren’t liquid investments like other IRAs do however, investors should expect their investment to last several decades before withdrawals take effect; also note that due to IRS restrictions regarding collectible investments a 10% penalty applies for withdrawals from such accounts.
