Gold and other precious metals are not permitted in traditional IRA custodian accounts, so in order to invest in physical gold (coins or bullion), you will require a self-directed IRA that permits nontraditional investments.
Be mindful when selecting a provider in terms of management fees, storage rates and educational resources.
Self-Directed IRAs
The Taxpayer Relief Act of 1997 broadened IRAs to include gold investments. But to make use of this opportunity, you must use a self-directed IRA custodian and collaborate with an approved gold dealer who can store physical gold investments safely within an approved depository.
Your expenses for storage fees, insurance premiums and management charges will add up. Therefore, selecting a provider with transparent pricing structures, low ancillary fees and excellent customer service is crucial.
Another key consideration when investing in gold IRAs is liquidity. Unlike stocks, bonds, and mutual funds, precious metals such as gold cannot easily be liquidated during times of financial turmoil – therefore only invest after you’ve maximized other retirement accounts and paid off mortgage or debt obligations should a gold IRA be considered an appropriate choice.
Eligibility
An individual retirement account (IRA) that allows you to purchase and store physical gold, silver, platinum and palladium is called a precious metals IRA. Funding may come from either your current IRA account, or can be rolled over from another retirement plan such as your 401(k), 403(b), 457, pension plan or Thrift Savings Plan account.
Precious metals offer great resilience during times of financial uncertainty and can serve to diversify a retirement portfolio by having low correlations to stocks and bonds. But before investing in a precious metals IRA, be sure to assess both your time horizon and risk tolerance before proceeding with any investment decisions.
To set up a gold IRA, it is important to locate a custodian approved by the IRS to accept self-directed IRA accounts and accept coins and bullion that qualify as eligible investments in a depository account. They must also facilitate transfers from precious metal dealers as well as storage in depository accounts in accordance with all federal and state regulations; should you decide to purchase physical gold and silver bullion, your custodian may require that you sign an authorization document prior to making purchases.
Taxes
Gold investment within an IRA follows the same guidelines as any individual retirement account (IRA), meaning you may invest both traditional and Roth IRAs (with the exception of SEP IRAs which only permit up to 25% of self-employed income). All contributions made pretax; earnings or withdrawals will be taxed upon distribution.
Keep in mind that gold IRAs can be highly unpredictable and prices could rapidly decline over time, depending on how long your plan to hold before required minimum distributions (RMDs) apply. You could end up selling at a loss, so some financial advisors suggest only investing a portion of your portfolio into precious metals. Furthermore, some gold IRA companies charge fees for storage and security services which add up over time; to minimize fees it’s wiser to find one with transparent custodian options and provides information on reputable metal dealers when investing.
Storage
U.S. lawmakers do not condone individual’s acting as custodians for their retirement assets, which is why the IRS mandates that precious metals stored in an IRA account be stored securely – not at home!
Holding on to gold owned in an IRA at home violates IRS rules and could prove costly in the form of taxes due on its distribution value. Storing coins or bullion at home would constitute an act of distribution, so any gain would need to be reported and taxed accordingly.
As well, IRA-owned gold must be stored with a company that specializes in physical precious metals rather than broker-dealers or third-party administrators. Such storage companies typically charge fees such as setup charges, transaction and asset management costs, storage charges (which go to an approved depository) and insurance charges in addition to your actual investment costs – these costs can quickly add up and become significant over time.
