With the likelihood of recession seemingly growing every day, more and more Americans are looking at ways to protect themselves against the possibility of losing money. The memories of 2008 are still fresh in many people’s minds, and the lessons learned from that financial crisis are informing the actions of many investors who don’t want to see a repeat of the losses they experienced back then.
One of the ways investors today are helping to protect themselves is by exploring alternative investment options. And one option that is becoming increasingly popular is a self-directed IRA.
Many investors in self-directed IRAs end up investing in precious metals, something that most conventional IRA accounts don’t offer as an investment option. But does it make sense to invest in precious metals with a self-directed IRA?
What Is a Self-Directed IRA
A self-directed IRA is a type of IRA account that allows investors to invest in alternative investments. Most Traditional IRA accounts offered by many IRA custodians are limited to conventional financial assets such as stocks, bonds, mutual funds, or other types of funds.
Self-directed IRA accounts offer an increased range of investment assets, allowing exposure to different classes of assets. They’re called self-directed because you as the investor are the fiduciary. As a result, a self-directed IRA offers you greater control over the types of assets you can invest in.
Self-Directed IRA Investments
There’s no real list of investments that a self-directed IRA can invest in. Like other IRA accounts, there are only assets that a self-directed IRA cannot invest in. But of the possible assets a self-directed IRA can invest in, there are a few that stick out.
Real estate is one popular investment option for self-directed IRAs. Investing in real estate can take many forms, from investing in real estate-oriented funds, real estate investment trusts (REITs), or even individual houses, buildings, or parcels of land.
It’s important to remember that there are specific IRS rules that apply to IRA transactions surrounding real estate, including prohibitions on self-dealing. So don’t think that you can buy a house with IRA assets and use it for personal use. A self-directed IRA that invests in real estate has to be for purposes of investment.
The regulations surrounding real estate investment through a self-directed IRA can be burdensome for the casual investor, but for someone with enough money, time, and experience, a self-directed IRA real estate investment can provide an alternative investment opportunity.
Private equity is another popular investment asset for self-directed IRAs. Traditionally investments in private equity were only open to accredited investors, those who satisfied certain income and asset requirements.
With a self-directed IRA, investors can gain access to various types of private equity, including private placements, private stock, and various other non-exchange traded private equity assets. Of course, there’s a reason these types of assets have traditionally been limited to accredited investors, because the lack of information surrounding them and the lack of liquid markets can restrict your ability to trade them.
Still, if you know what you’re doing and want to take a chance, a self-directed IRA can open up the ability to invest in private equity.
When many people think of self-directed IRAs, they naturally think of precious metals. Precious metals IRAs are one of the best known forms of self-directed IRAs, and thousands of Americans have taken advantage of them to invest in precious metals like gold and silver.
What Types of Precious Metals Are Self-Directed IRA Eligible?
Federal law specifies four types of precious metals that are eligible for investment through a precious metals IRA: gold, silver, platinum, and palladium.
When most people think of precious metals, they naturally think of gold. Gold served as a monetary metal for millennia, and it has become synonymous with wealth. But while gold may gain the most attention, there are other precious metals IRA investing options as well.
Silver often plays second fiddle to gold, but it’s no slouch. During precious metals bull markets silver can even outperform gold. Silver’s overall growth rate through the 1970s was slightly higher than gold’s, for instance, and its growth rate in the aftermath of the 2008 financial crisis was nearly double that of gold.
Platinum is probably best known for its use in automotive catalytic converters, but this precious metal is also eligible for investment through a precious metals IRA. Numerous mints and refineries around the world offer platinum coins and bars for investment through a precious metals IRA.
Palladium is the final precious metal eligible for investment through a precious metals IRA. Like platinum, it is most known for its use in automotive catalytic converters. While there are fewer palladium products available to investors, the US and Canadian mints produce palladium coins, and numerous refiners produce palladium bars.
Benefits of Investing in Precious Metals
Investing in precious metals through a self-directed IRA can have many benefits. Here are three of the most important ones.
One of the primary benefits of investing in precious metals is to diversify your portfolio. Investing solely in a mix of stocks and bonds, or solely in conventional financial assets that rely on the health and well-being of Wall Street for their performance won’t necessarily provide you with the diversification you need.
Precious metals, especially gold, can act as countercyclical assets, performing well when other assets aren’t. And investing in a mix of precious metals can provide even more diversification. Platinum and palladium, for instance, because of their industrial use and differing demand factors, can sometimes perform better than gold and silver, and vice versa.
Precious metals have often been seen as a safe haven asset to protect wealth during times of adversity and turmoil. Gold and silver, in particular, have acted as safe havens throughout history, drawing on their history as monetary metals.
When markets start to turn south and investors begin to get nervous, gold and silver are often some of the first safe havens investors turn to. We saw this in 2008 and then again in 2020, as gold and silver prices rose due to increased demand from investors. And now that recession appears to be looming once again, more and more investors are turning again to gold and silver.
Precious metals can also provide asset growth as well as wealth protection. While gold and silver are perhaps best known for their price growth during periods of economic uncertainty, such as during the 1970s stagflation, or during the aftermath of the 2008 financial crisis, their long-term track record is strong as well.
Since 2001, for instance, gold has grown at a 9% annualized rate, and silver has grown at a 7.5% annualized rate.
Benefits of a Self-Directed IRA
A self-directed IRA puts you in the driver’s seat and allows you full control over the assets your IRA invests in. All IRA assets must be administered by an IRA custodian, whether you’re investing through a brokerage or through a self-directed IRA. But many custodians intentionally limit the types of assets you’re able to purchase through your IRA.
Self-directed IRA custodians sometimes limit the types of assets you can invest in, but many custodians specialize in certain alternative assets such as precious metals, real estate, or private equity. These are assets that most brokerage IRA custodians won’t touch.
So in order to invest in these types of assets through a self-directed IRA you’ll need to find a custodian willing to manage these alternative assets. Thankfully there are numerous self-directed IRA custodians who offer access to precious metals, and Goldco partners with some of them.
Self-Directed IRA Rules and Regulations
Self-directed IRA accounts still have to adhere to all IRS rules and regulations. Here are some of the most important ones you’ll need to pay attention to.
All IRAs are forbidden from purchasing collectibles. If you attempt to use IRA assets to purchase collectibles that would be considered a distribution of IRA assets and would incur potential taxes and penalties.
Collectibles include coins and metals, with some prominent exceptions. Specifically exempt from the definition of collectibles are certain gold and silver coins minted by the US Mint, as well as any coins or bullion produced from gold, silver, platinum, or palladium that meet certain minimum fineness requirements.
What this means is that if you want to buy 19th century gold double eagles, Morgan silver dollars, or junk silver, you won’t be able to use IRA assets to purchase them. But any gold coin or bar that is at least .995 fineness (99.5% gold), any silver coin or bar that is at least .999 fine (99.9% silver), or any platinum or palladium coin or bar that is at least .9995 fineness (99.95% platinum or palladium) is eligible for investment through a precious metals IRA.
Goldco works with mints around the world to ensure that the coins and bars we offer you are IRA-eligible, so that you don’t inadvertently expose yourself to taxes and penalties by buying the wrong kinds of coins. And because we deal directly with mints, we cut out the middlemen and shorten the process of getting your coins to you.
No Self-Dealing and No Home Storage
A self-directed IRA is also, like other IRAs, prohibited from self-dealing. This means that if you already have an existing collection of coins, you can’t transfer ownership to your IRA. Or if your self-directed IRA owns real estate, you can’t live in or use any of the property you own, nor can you maintain those properties yourself. Knowing the self-dealing rules can be important when investing through a self-directed IRA, and you may want to consult with a tax advisor to make sure that you don’t make any mistakes.
Similarly, you may also hear about something called a “home storage IRA.” This is an arrangement that purports to allow you to hold your precious metals IRA coins or bars at home. Like many things that sound too good to be true, this one is.
While it’s theoretically possible to fulfill the IRS requirements for storing your precious metals IRA assets yourself, the bar is set so high that no one has ever done it. And anyone who tries to do it without fully understanding what they’re doing risks taxes and penalties as a consequence.
All IRA Rules Apply
A self-directed IRA is subject to all the same rules and regulations as any other IRA. That means that you won’t be able to distribute assets until you’re 59½, and you have to start taking required minimum distributions (RMDs) at age 72.
Maximum annual contributions to a self-directed IRA are $6,000 for 2022 and $6,500 for 2023, or $7,000 and $7,5000 for those over age 50. These limits don’t apply to rollover contributions to a self-directed IRA, which are a popular way of funding a self-directed IRA.
By rolling over or transferring funds from an existing 401(k), 403(b), TSP, IRA, or similar retirement account into a self-directed IRA, you can protect your existing retirement savings, including with physical gold and silver coins or bars. The limits on maximum annual contributions don’t apply to rollovers or transfers, and it’s not at all unusual to see six-figure rollovers.
If you have an orphaned 401(k) from a previous employer that you haven’t touched in years, or if you want to protect your other retirement accounts, a rollover or transfer into a self-directed IRA can put your assets to use.
H2: Are You Ready for a Self-Directed IRA?
Taking the step to start a self-directed IRA can seem daunting at first. It’s an extra level of control, but with it comes an extra level of responsibility. But you don’t have to undertake this journey alone. Goldco’s experts have helped thousands of self-directed IRA customers just like you navigate the process of setting up a precious metals IRA, buying gold or silver, and benefiting from the advantages of a precious metals IRA.
To many investors, buying precious metals for a self-directed IRA just makes sense. They’re looking for a safe haven to protect the wealth they’ve spent years accumulating, and they want the safety and security of a physical, tangible asset. And Goldco is here to help you find that safety and security with gold and silver.
With over $1 billion in successful precious metals placements and some of the best reviews in the industry, Goldco goes the extra mile to make sure that you’re happy with your gold and silver purchase. So if you’re looking to protect your wealth with a self-directed IRA, contact the experts at Goldco today to learn more about investing in precious metals with a self-directed IRA.