How Does a Gold-Backed IRA Work?
Between a banking crisis, high inflation, and the ongoing risk of recession, it’s no surprise that more and more Americans are trying to protect their wealth Memories of the 2008 financial crisis...
Many Americans today are looking for ways to protect their assets. Whether it’s college savings, retirement savings, or even just money in the bank, high inflation and the prospect of recession are weighing heavily on many people’s minds.
More and more people are discovering the benefits of a precious metals IRA and are turning to precious metals like gold and silver to help safeguard their savings in advance of a coming recession. Precious metals have long served as safe haven assets during periods of financial and economic uncertainty, and with a precious metals IRA investing in precious metals can be done simply and easily.
A precious metals IRA is simply an IRA account that owns and holds physical precious metal coins or bars. While most IRA accounts own financial assets like stocks, bonds, and shares in funds, a precious metals IRA owns physical assets.
We normally assume that people who are interested in a precious metals IRA already know all about IRA accounts. But not everyone has an IRA account, and not everyone may understand the rules and regulations surrounding IRA accounts.
An IRA (individual retirement account) is a tax-advantaged savings and investment account that is intended to help individuals save money for retirement. It’s similar to a 401(k) but differs in significant ways.
For one thing, annual contributions to an IRA are significantly lower than those to a 401(k), with a maximum annual contribution of $6,500 ($7,500 for those over 50), versus $22,500 for a 401(k) ($30,000 for those over 50). These limits don’t apply to IRA rollover contributions, which we’ll get to later.
Whereas 401(k) accounts are normally workplace-sponsored retirement plans, IRA accounts are something that you set up for yourself. IRA accounts can be a Traditional IRA, which takes pre-tax dollars out of your paycheck to invest, or a Roth IRA, in which you invest with post-tax dollars.
Investments through a Traditional IRA accrue gains tax-free, and you only pay taxes when you take a distribution. Investments through a Roth IRA accrue gains tax-free as well, and you pay no taxes when you take a distribution. IRA accounts can offer various advantages, which is why they remain a popular investment option.
A precious metals IRA can invest in numerous physical precious metals investment products, normally coins and bars. There are four different metals eligible to be held in a precious metals IRA.
When most people think of precious metals, gold is probably the first thing they think of. Gold has been synonymous with wealth for centuries. Its stability and rarity have made it a treasured and much demanded asset for those looking to maintain and protect their wealth.
Precious metals IRAs can buy and hold numerous types of gold coins, with certain stipulations. Normally coins are considered collectibles and are ineligible for purchase by a precious metals IRA. But American Gold Eagle coins and any gold coin or bar with .995 purity (99.5% gold) or greater are eligible to be held by a precious metals IRA.
Silver often falls into gold’s shadow, and it can be easy to overlook. But when gold climbs silver often does as well. And sometimes silver can even outperform gold. During the aftermath of the 2008 financial crisis, for instance, gold nearly tripled in price but silver more than quintupled.
Silver American Eagles are one popular precious metals IRA option, but any coin with a .999 purity or greater is eligible to be held by a precious metals IRA.
Platinum is best known today for its use in automotive catalytic converters, but it’s also a popular investment asset. The US Mint produces platinum coins that are IRA-eligible, and platinum bars and coins are available from numerous other mints around the world.
Palladium, like platinum, is also best known for its use in catalytic converters. While palladium investment options are more limited, the US Mint produces an IRA-eligible palladium coin, and palladium bars and coins are becoming more widely available.
As with any IRA account, the biggest question you’ll face is how to fund your account. With a maximum annual contribution of $6,500, you may wonder how you can grow your IRA account balance large enough to provide sufficient funds for retirement.
That’s because many IRA accounts are funded through rollovers from other accounts. A 401(k) to IRA rollover is perhaps one of the most popular and best known options, but funds from 403(b), TSP, and even other IRA accounts can be rolled over or transferred into a precious metals IRA.
A 401(k) to IRA rollover allows you to take funds from a 401(k) account and put them to use in an IRA account, bypassing maximum annual contribution limits. Very often this is done with funds from an orphaned 401(k) account, one from a previous employer that may have been forgotten for some time.
For others, their 401(k) plans may not offer the range of options they want, or the fees associated with the plan may be too high. And still others opt to roll over their 401(k) accounts into a Roth IRA. Whatever the reasons, these rollovers and transfers can be a good way of funding an IRA and protecting retirement savings by expanding your options.
In the case of a precious metals IRA, the coins and bars you own will be required to be stored at a precious metals depository. This storage will require annual fees, which can eat into the value of your precious metals. In many cases this might be a flat fee for most investors, so the more gold or silver you store, the lower the fees are as a percentage of your assets.
Conversely, if you’re starting off with only $6,500 in a precious metals IRA, storage fees might be higher than you want to pay. That’s why many precious metals IRA providers might recommend a minimum rollover of $25,000 or so worth of assets into a precious metals IRA, so that fees don’t eat you alive.
Starting a precious metals IRA doesn’t have to be difficult. And you can start a precious metals IRA and have it up and running in three easy steps.
The first thing you need to do is to set up your IRA. You can work with a trusted partner like Goldco to help walk you through the process of choosing a custodian who will manage your IRA assets, and a depository that will manage your assets.
Once your precious metals IRA has been set up, it’s time to fund it. Here’s where you choose whether to start from scratch or whether to roll over or transfer assets from existing retirement accounts. Depending on whether you have set up a Traditional precious metals IRA or a Roth precious metals IRA, you may be limited in your choices when it comes to funding your precious metals IRA.
Once your precious metals IRA has been funded, it’s time to decide which precious metals you want to buy. Remember that any coins or bars you buy have to be IRA-eligible. Goldco offers a range of gold and silver coin and bar options from mints around the world.
After you purchase your precious metals, they will be shipped to your depository of choice, where they will be held safely and securely. When you decide to take a distribution of your precious metals IRA assets, you can choose either to take that distribution in cash or to take a distribution in physical metal.
A precious metals IRA has numerous advantages. Here are three of the most important ones.
First and foremost, a precious metals IRA allows you the opportunity to make tax-free gains on your holdings of gold, silver, platinum, or palladium. And if you choose to take a distribution from your precious metals IRA in cash, the tax treatment is different than if you were to sell precious metals that aren’t held within an IRA.
The fact that a precious metals IRA allows tax-free rollovers and transfers allows you to move existing retirement savings into gold and silver without tax consequences. You don’t have to take a tax hit and suffer potential penalties by cashing out your retirement savings in order to buy gold and silver, you can simply roll over your assets into a precious metals IRA and enjoy the same tax advantages you already do.
Precious metals have served as safe havens and stores of wealth for centuries. They’re among the first assets people flee to when times start getting tough. And there’s good reason for that.
When paper currencies are inflated to worthlessness, when companies go bankrupt, and when everything seems like it’s going to hell in a handbasket, precious metals like gold provide a source of stability amidst all the confusion. It doesn’t hurt that precious metals often maintain their value when everything else seems to be becoming worthless either. During the 2008 financial crisis, for instance, gold gained 25% during the same period that markets lost more than 50%
Precious metals can also serve as a hedge against inflation, especially gold, which maintains its value over time. Whereas the US dollar has lost 97% of its value since 1913, gold has gained over 9,000% since then.
Gold and silver both performed well during the stagflation of the 1970s, with annualized growth rates of over 30% over the course of the entire decade. Even adjusting for inflation, their annualized growth rates throughout the 1970s were over 20%. If inflation were to become as problematic today as it was back then, and if gold and silver were to perform similarly, they could provide significant protection against inflation-related wealth loss.
Precious metals IRAs are subject to the same rules and regulations as any other IRA. You need to familiarize yourself with those rules and regulations so that you don’t make mistakes that could end up costing you.
Among the most important IRA rules is the prohibition on owning collectibles. Using IRA assets to purchase collectibles is considered a distribution of assets and can result in taxes or penalties.
The tax code considers all coins and metals to be collectibles, with a few exceptions. Gold American Eagle and Silver American Eagle coins are specifically exempted from the collectible designation for IRA investment purposes. Additionally, any coin or bar that meets certain minimum fineness criteria is IRA-eligible.
In practice, most precious metals coins produced by most mints around the world today are IRA-eligible, due to their high metal purity. It’s only older coins such as junk silver, Morgan silver dollars, Krugerrands, older American gold circulating coinage, among others, that are not eligible for ownership through a precious metals IRA.
Precious metals IRAs are also subject to the same IRA rules and regulations surrounding required minimum distributions (RMDs). If your precious metals IRA is a Traditional IRA, you’ll need to start taking RMDs at age 73 (age 75 after 2033). If your precious metals IRA is a Roth IRA, you won’t need to take any RMDs.
Your precious metals IRA holdings will also have to be managed by an approved custodian, just like the assets in any other IRA, and will have to be stored in a depository. You may hear about something called a home storage IRA, which purports to allow you to store IRA assets at your home. But such arrangements violate the laws and regulations surrounding IRAs and can cost you dearly in taxes and penalties.
Precious metals IRAs are a type of self-directed IRA, and will require you to know the IRA rules and regulations so that you don’t run afoul of them and suffer taxes and penalties. A precious metals IRA can give you greater freedom and flexibility, but it also comes with a greater share of responsibilities too.
If you think a precious metals IRA may be just what you need to protect your savings and investments, or even if you just want to learn more about how a precious metals IRA works, call the experts at Goldco today. With over $1 billion in successful precious metals placements and thousands of satisfied customers, Goldco has become one of the most trusted names in the precious metals industry.
We work hard to ensure that our customers are able to benefit from owning precious metals. Let us help you safeguard your hard-earned money today with a precious metals IRA.
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Free Precious Metals Guide
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