Investing
While a gold IRA operates just like any other IRA account, the fact that it holds physical precious metals assets can be a little daunting, especially for those for whom a gold IRA is their first foray into owning precious metals.
One of the most common issues that arises with our gold IRA customers is how to read their gold IRA account statements. When you take a look at your first statement, it can seem a little daunting and overwhelming.
That’s why we want our customers to understand how to read their IRA statements. If you understand the difference between the spot value and the retail value of the gold in your gold IRA, your gold IRA statement makes much more sense.
Let’s go ahead and briefly run through how a gold IRA works, what your gold IRA custodian does for you, and then delve into how to read the IRA statements your gold IRA custodian provides you.
A gold IRA is just like any other IRA, except that it owns physical gold coins and gold bars. Other than that, it operates under the same rules and with the same tax advantages as any other IRA account.
Gold IRAs are a type of self-directed IRA, which means that not every IRA custodian is going to offer gold IRA custodial services. In order to start a gold IRA, you’ll need to find a self-directed IRA custodian that offers precious metals IRAs as an option.
Starting a gold IRA doesn’t have to be difficult. Once you have found a gold IRA custodian, starting a gold IRA is just as easy as starting any other IRA.
If you don’t know where to look for a gold IRA custodian, you can work with partners like Goldco who have worked with experienced gold IRA custodians over the years. When you do business with Goldco, you can choose the gold IRA custodian you want to work with, open your gold IRA, and decide how you want to fund your gold IRA.
One popular method of funding gold IRAs is through a 401(k) to gold IRA rollover. In this way, retirement savings that you already have in tax-advantaged accounts such as a 401(k), 403(b), TSP, IRA, or similar account can be moved into a gold IRA tax-free.
That allows you to use existing pre-tax dollars to purchase gold for your gold IRA, maintaining your existing tax advantages.
After you have funded your gold IRA, it’s time for you to decide what kind of gold you want to buy. But if you don’t already know, not every gold coin or gold bar is IRA-eligible.
If you were to use your gold IRA assets to purchase gold coins that weren’t IRA-eligible, such as a South African Krugerrand, that would be considered a distribution of assets and would subject you to potential taxes and penalties.
That’s why Goldco offers our customers IRA-eligible gold coins, so that you don’t have to guess at whether a certain gold coin is IRA-eligible or not.
Your gold IRA custodian is a custodian that offers self-directed IRA services. The role of a self-directed IRA custodian is that of a passive custodian that manages your assets but that does not take any action towards your assets without your direction.
A self-directed IRA custodian is not a broker or an investment advisor. A self-directed IRA custodian does not sell investment products, determine whether or not the investments in your gold IRA are suitable for your purposes, or do any due diligence for you.
You as the self-directed IRA owner are solely responsible for doing your due diligence, obtaining tax, legal, or investment advice regarding your IRA purchases, and ensuring that the assets you purchase with your gold IRA are in fact IRA-eligible.
It’s important to remember that, like any other IRA, a gold IRA is forbidden from investing in collectibles. The collectibles definition as it applies to IRAs in 26 U.S.C. 408(m) prohibits IRAs from acquiring coins or metals, with some exceptions.
Those exceptions are the gold, silver, and platinum American Eagle coins produced by the US Mint, and any gold, silver, platinum, or palladium bullion meeting minimum fineness requirements for a futures contract.
What this means in practice is that many popular gold coins like the South African Krugerrand, Austrian 100 Corona, or French and Swiss 20 Franc coins are not eligible for purchase by a gold IRA. Attempting to purchase those coins with IRA assets would be considered a distribution of assets and would subject you to potential taxes and penalties.
But it is not the job of an IRA custodian to prevent you from making such a purchase. They cannot give legal or financial advice, even if what you intend to do will cost you financially.
That’s why it can help to work with trusted partners like Goldco, since we offer IRA-eligible gold coins for your gold IRA. Goldco works directly with mints around the world to offer you gold coins direct from the source that are both guaranteed authentic and 100% IRA-eligible.
One of the responsibilities of your gold IRA custodian is to do a lot of paperwork. That includes recording assets held within your IRA, documenting funds that are added to or distributed from your IRA, and reporting any pertinent tax forms to the IRS.
But your gold IRA custodian will also provide you with quarterly account statements showing your gold holdings. When you view your account statement, you might find that the value of the underlying precious metals in your account is less than the value that you purchased the metals for, or the value for which you could sell those metals back to Goldco or another precious metals dealer. In reality, what’s happening is that the gold IRA custodian is providing you with a list of your assets valued at the spot price or melt value of gold, rather than the retail price of gold coins.
The “accurate” or “true” market value on any one given day can be found by visiting bullionvalues.org or by asking Goldco, your precious metals dealer, for the price at which you could sell those metals.
Here’s what that means in more detail.
When you look at the spot price of gold, let’s say $2,000 an ounce, that’s the price per ounce of a 400-ounce Good Delivery bar on international markets. Those bars circulate within a limited number of warehouses around the world and rarely leave.
For gold that’s sold in the form of coins or bars, the price you’ll pay is based on the weight of the gold multiplied by the spot price, plus a premium that is added on top of that. The premium takes into account the costs to produce the coin, package it, transport it, market it, plus any profit margin for the seller.
Most precious metals coins trade at a premium to the spot price or melt value of the coin. In fact, if you see precious metals coins offered at below the melt value, it can often be a sign of a gold scam.
When it comes to declaring the value of gold coins that you’ve bought, they’re going to be valued at the melt value, which is the weight of gold multiplied by the spot price, rather than by the retail price that you paid for them or the retail price that you might be able to get for them when you sell.
Let’s illustrate this by looking at the case of the American Eagle One Ounce Silver Proof Coin from the US Mint. If you were to go to the US Mint website on May 24, 2024 and purchase that coin, you would pay $80 for it.
If you used funds from your silver IRA to purchase that Silver American Eagle coin, the statement from your silver IRA custodian would not report a market value of $80. The statement would show a market value closer to $30.32.
Your silver IRA custodian would explain that the reason for the difference between the $80 you paid and the $30.32 market value is that the silver IRA custodial statements only reflect the spot or melt price of the silver in that coin. In this case, the spot or melt price of the silver in your coin was roughly $30.32, which is why your silver IRA custodian would use that valuation for your silver IRA statement.
The same would go for gold coins purchased by your gold IRA. Rather than stating the price you paid from the US Mint for a Gold American Eagle coin, your gold IRA custodian would use the current valuation of gold, $2,334.00 an ounce, to value the gold coins in your gold IRA.
The best explanation of this comes from the Retirement Industry Trust Association, the trade association for self-directed IRA custodians:
4. DOES A SELF-DIRECTED IRA CUSTODIAN PROVIDE VALUATIONS FOR MY INVESTMENTS WHICH ARE NOT PUBLICLY TRADED?
No. A Directed Custodian only reports (and does not determine) the valuations it receives from the investment sponsor/issuer (or the investment’s agents) or an independent valuation submitted by the account owner, and does not guarantee the accuracy of any valuation it reports. As such, the account owner should not rely on valuations reported or delays in reporting valuations in making investment decisions. The account owner should obtain valuation and other information directly from the investment sponsor or other sources in making their investment decisions.
In other words, it’s not the job of your gold IRA custodian to guess at the retail value of the gold in your IRA. Your custodian will report the types of coins you hold and the melt value, but that could vary widely from what the actual retail value of those coins is.
When you receive your gold IRA account statement from your custodian, you’ll normally see a section entitled Investment Positions. This is a summary of all the tangible physical precious metals assets you hold in your gold IRA.
It will have categories for price per share and unit price, and will also state what it calls a market value for your assets. This market value is what we call the melt value or spot value.
Let’s say that you have ¼-ounce gold coins and the unit price is listed at $500, since gold is at $2,000 an ounce. Let’s further assume that you have 100 of those gold coins. Your IRA custodian will multiply 100 by $500 to arrive at a melt value of $50,000.
You paid more for those coins because your purchase price included a premium, which is not reflected in the melt value. And depending on when or to whom you sell those coins, you may very well get more than $50,000 when you sell those coins.
But that can’t be ascertained ahead of time, so you’ll only see the melt value listed. Once you understand the difference between the retail price you paid and the market value or melt value listed on your statement, understanding your statement becomes simple.
At Goldco we want our customers to feel confident and taken care of when it comes to their purchases of precious metals. Our commitment to quality precious metals products, outstanding customer service, and transparency has made us one of the best gold IRA companies to do business with.
With over a decade of experience in precious metals and over $2 billion in precious metals placements, we have extensive practice in addressing any concerns you may have. And with over 5,000 5-star reviews from our customers, we stop at nothing to make sure that our customers are pleased with their purchases.
If you have any questions about your gold IRA statement, or if you’re interested in learning more about gold IRAs and how they work, call Goldco today to talk to one of our knowledgeable and experienced representatives.
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