Is Buying Gold a Good Retirement Plan?
With the recent unease in financial markets, more and more Americans are looking for safety when it comes to their financial assets The weakness in the banking system has many people scared and...
Many Americans are getting nervous about their financial health. If high inflation weren’t bad enough already, the threat of recession seems to be growing every day. And those of us who remember the 2008 financial crisis can’t help but get nervous about the possibility of seeing major losses as a result of such a recession.
That’s one reason so many people today are looking at alternative ways to protect themselves and their assets against the threat of recession. One way they’re doing that is by moving their assets into a precious metals IRA.
If you’re not already familiar with a precious metals IRA, it’s really nothing more than an individual retirement account (IRA) that owns and holds physical precious metals rather than the more common financial assets like stocks, bonds, and fund shares that you might expect to see in most conventional IRAs. Aside from that, a precious metals IRA is subject to the same rules and regulations as any other IRA account.
By law there are only four types of precious metals you can hold in a precious metals IRA: gold, silver, platinum, and palladium.
Gold is perhaps the best known and most famous of the precious metals, and the one that gets the most press. Its ability to act as a store of wealth and an inflation hedge are part of the reason it remains so popular. But it isn’t the only option when it comes to a precious metals IRA.
Silver often plays second fiddle to gold, but it can outperform gold at times. In the aftermath of the 2008 financial crisis, for instance, gold nearly tripled in price but silver more than quintupled in price. Silver too, like gold, is trusted by many investors as a safe haven asset when economic uncertainty grows.
Platinum is perhaps best known today for its use in automotive catalytic converters. But it is also a precious metal eligible to be held in a precious metals IRA. Mints around the world have produced investment-grade platinum coins and bars for decades.
Palladium, like platinum, is best known for its use in catalytic converters. But due to its significant price growth in recent years it has become a new investment option for precious metals investors. While there are fewer coin and bar options available in palladium, the US Mint and some other mints produce palladium coins that are precious metals IRA-eligible.
A precious metals IRA has numerous benefits. Here are five of the most important ones.
One of the primary benefits of a precious metals IRA is portfolio diversification. Even if you have a mix of IRA, 401(k), or other types of retirement accounts, it’s likely that your investment options are limited to stocks, bonds, and various types of funds. Your ability to diversify your investment across asset types, geographic areas, etc., is going to be limited to the assets your IRA custodian or 401(k) plan offers. And very likely those asset options won’t include precious metals or even exposure to precious metals.
With a precious metals IRA, however, you can own physical precious metals coins or bars and hold them in an IRA account. Precious metals have helped diversify many investors’ portfolios for years, and it’s one of the most important roles they play. Precious metals have a reputation for being countercyclical assets, those which perform better when conventional financial assets aren’t doing well. And that’s why so many people turn to precious metals to protect their wealth when the prospect of recession looms.
Precious metals like gold also have a reputation for protecting wealth. Gold maintains its purchasing power over time, unlike the dollar. The dollar has lost 97% of its value since 1913, while the gold price has increased by about 9,000%.
Precious metals can also serve as hedges against inflation. Gold and silver, for instance, grew at annualized rates of over 30% per year throughout the stagflation of the 1970s. That’s phenomenal performance over such a long time period, but also an example of how precious metals can grow in value in the face of high inflation. Undoubtedly many gold and silver buyers today are hoping that gold and silver will replicate that type of performance today if inflation ends up becoming entrenched.
Precious metals have the potential to grow in value not just during times of recession or economic uncertainty but even during periods when markets are doing well. Since 2001, for instance, gold has grown at a 9.2% annualized rate and silver at a 7.5% annualized rate, versus 5.3% for the S&P 500 and 5.4% for the Dow Jones Industrial Average. If you’re looking at a precious metals IRA as part of a long-term investment strategy, be aware that precious metals can help you grow your wealth.
As a type of IRA, a precious metals IRA offers all the same tax advantages as any other IRA account. Allowing you to defer taxes until you take distributions, or to take tax-free distributions in the case of a Roth precious metals IRA, can help you grow your investments without having to take tax hits in the meantime.
A precious metals IRA can also be funded with a tax-free rollover or transfer from an existing 401(k), 403(b), TSP, IRA, or similar retirement account. So if you want to try to protect your existing retirement savings but don’t have the options available to you within your current accounts or plans, you can open a precious metals IRA to help you protect your retirement savings against loss.
Like other IRA accounts, precious metals IRAs come in two types, Traditional and Roth. A Traditional precious metals IRA is just like any other Traditional IRA in that it invests in precious metals with pre-tax dollars, gains are made tax-free, and taxes are paid at distribution. A Roth precious metals IRA invests in precious metals with post-tax dollars, gains are made tax-free, and no taxes are paid at distribution.
Most people who start a precious metals IRA start a Traditional precious metals IRA. This is because they fund their precious metals IRA with a rollover or transfer from their existing retirement accounts. Roth precious metals IRAs can be an option if you want to perform a Roth conversion from a 401(k) or Traditional IRA.
While you can start a precious metals IRA and begin funding it from scratch, you need to be aware that custodial fees and storage fees can eat into your returns. Most custodians will charge a flat annual fee no matter how many precious metals you store. For someone storing large amounts of precious metals, these fees often end up being a very small percentage of their holdings, whereas they can take a big bite out of smaller holdings.
For this reason, you may see recommendations to start a precious metals IRA with a minimum of $25,000. That’s not to say that you can’t start a precious metals IRA with less than that. But at the current $6,500 maximum annual IRA contribution limit, it could take you several years of contributions to get to the point where fees start becoming a relatively low percentage of your assets.
Precious metals IRAs are sometimes marketed as though they’re only an option for older people nearing retirement. But that’s not true. A precious metals IRA can provide benefits for people from all walks of life.
If you’ve just entered the workforce there’s a good chance that you haven’t even thought about retirement. But very often those who start saving for retirement as soon as they’re working end up in the best shape in retirement, as there is no substitute for time when it comes to compounding investment gains.
If you’re looking to start a precious metals IRA as a new or relatively new employee, be aware of the fact that starting a precious metals IRA from scratch will often subject you to the same custodial fees as a rollover IRA, so that those fees will take up a higher percentage of your assets.
For instance, if you’re rolling over $50,000 to a precious metals IRA, a $180 annual fee would equal 0.36%, which is roughly in line with what many IRA and 401(k) funds charge as an annual fee. But if you’re starting out from scratch and making the maximum $6,500 annual contribution, a $180 fee equals a 2.8% fee, which is significantly higher as a percentage of your assets.
While a precious metals IRA can make sense for younger employees, particularly if you’re looking to hold precious metals for several decades, you may want to think about building up retirement savings first, then rolling over in a few years so that fees don’t eat up too much of your savings. Of course, economic conditions, the price of precious metals, etc. make a difference in these decisions too, so you’ll have to weigh all of those factors, as well as your own personal investment goals, when making this kind of decision.
Once you reach your mid-30s and early 40s, you’re probably starting to think about buying a house, saving for retirement, or paying for your children’s education. Maybe you’ve been a diligent saver and investor and have accumulated a nice little nest egg. Or maybe you’ve been spending a little too much and don’t have nearly as much money built up as you’d like.
Regardless of your financial situation, now is the time that you’re probably starting to think about your investment options. If you’ve made a lot of money in your investments, maybe you’re worried about how to protect them. And if you want to catch up with your investments, maybe you’re looking at alternatives that can help you continue to grow your wealth, even in the face of a potential oncoming recession. In either of those cases, a precious metals IRA can help you.
If you’re nearing retirement you’re most likely looking to reduce the risk profile of your investments. A sudden downturn in markets that could sink the value of your retirement savings is something you’re ill-equipped to overcome, because time isn’t on your side.
Millions of Americans watched in horror in 2008 as markets lost over 50% of their value. And then they waited for the recovery… and waited… and waited. It took years for markets to regain their pre-crisis levels, and it wasn’t until 2016 that markets began to take off again.
Losses like those from 2008 could be catastrophic if they happened to people today. And if they happened to someone within 5-10 years of retiring, or even worse, to someone already in retirement, it could be a loss that could be insurmountable. The closer you reach the end of your life, the less time you have to recoup investment losses.
That’s why many people start thinking about investing in gold and precious metals as they get older. They know that gold has a reputation for price stability, that it maintains its purchasing power over the long run, and that it’s been considered a safe haven for centuries. And more and more people are trusting their hard-earned wealth to precious metals as they prepare to protect themselves and their investments on the cusp of what could be a major recession.
A precious metals IRA is subject to all the same rules and regulations as any other IRA account. Required minimum distributions (RMDs) must be taken at age 73 from a Traditional precious metals IRA account. Distributions before age 59½ also may be subject to a 10% penalty.
Precious metals IRAs are also prohibited from investing in collectibles, just like other IRA accounts. While the tax code defines any coin or metal as a collectible for purposes of IRA investments, it makes exceptions for certain coins and metals.
In particular, specific coins minted by the US Mint such as the Gold American Eagle and Silver American Eagle coins are not considered collectibles for purposes of IRA eligibility. And any gold, silver, platinum, or palladium coins or bullion meeting minimum fineness requirement for futures contracts are also IRA-eligible.
Mints and refiners around the world are aware of these regulations, and most coins and bars produced today are produced to meet these requirements for IRA eligibility. Goldco works with many mints around the world to bring you these coins, ensuring that the precious metals you purchase for your IRA are guaranteed to be authentic.
If you’re wondering if you should set up a precious metals IRA account, you’re going to want to know as much about precious metals, IRAs, and retirement accounts as you can. You also are going to want to have an idea of your current financial situation, your financial goals, and a roadmap to achieve those goals.
For many Americans, the path to financial security lies with precious metals. Thousands of people just like you have made the decision to help protect their assets with precious metals. They’ve decided to exercise control over their financial future by setting up a precious metals IRA account.
The feeling of uncertainty leading up to a recession can be unnerving. But the feeling of loss during a recession can be even worse. Many Americans watched in horror as the investments they had spent a lifetime accumulating melted away during the 2008 financial crisis. And as they watched gold and silver take off in the aftermath of the crisis, they kicked themselves for not having invested in precious metals sooner.
Don’t let that happen to you. Call the precious metals experts at Goldco today to learn more about how a precious metals IRA can help you safeguard your hard-earned savings.
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