With fear of recession growing in some sectors of the economy, and with the UK, Japan, and Germany already falling into recession, many Americans are looking to protect and safeguard their finances...
In the aftermath of recent bank failures, Americans have moved trillions of dollars of savings into and out of different financial institutions. Banks, money market funds, and brokerages have all seen funds flows of various types as Americans seek to exercise more control over their finances and protect themselves against the possibility of bank failure, recession, or other financial losses.
Many people are looking for alternatives to the status quo, and are looking for alternative assets that can provide them with an edge during recession, helping them minimize losses and maintain their wealth even through a serious crisis. And one tool that some people are turning to is a self-directed IRA.
What Is a Self-Directed IRA?
A self-directed IRA is a type of IRA in which you, the account holder, run your account. While a self-directed IRA is managed by a custodian just like any other IRA account, you decide which assets you want to invest in.
Whereas most IRA accounts limit you to financial assets like stocks, bonds, mutual funds, exchange-traded funds, etc., your options with a self-directed IRA are nearly limitless. You can invest in precious metals, real estate, commodities, private placements, and other alternative assets.
The only catch is that you’ll have to find an IRA custodian who offers you the ability to invest in those alternative assets. That means that most of the big-time brokerage firms you may be familiar with won’t be able to offer you a self-directed IRA. But Goldco works with IRA custodians who have experience offering self-directed IRAs to customers who want to take control of their financial decisions.
What Is a Precious Metals IRA?
A precious metals IRA is a type of self-directed IRA that owns precious metals such as gold and silver. Types of precious metals IRAs include gold IRAs and silver IRAs.
Notice that these IRAs don’t own shares in funds that own precious metals, they actually own physical coins and bars. If you start a precious metals IRA you could decide to buy 30 gold coins and 100 silver coins, which would then be managed by your precious metals IRA custodian and stored in a bullion depository.
When you decide to take a distribution from your IRA, you could either sell the coins and take a cash distribution, or take the coins as your distribution.
A precious metals IRA is another tool in your investment arsenal, allowing you to diversify your portfolio and benefit from owning tangible, physical assets rather than the standard financial assets that most people hold in their IRAs.
Types of Precious Metals to Invest In
While there are numerous different metals that can be considered precious metals, precious metals IRAs can only invest in four of them.
Gold is perhaps the best known precious metal, the metal everyone thinks of when you think of precious metals. It’s the precious metal that’s always in the news, and for good reason.
Gold was once the standard on which world currencies were based, and the last links between the US dollar and gold were only severed in 1971 when President Nixon closed the gold window. Gold has served as a store of value and a safe haven asset for centuries, and it remains a popular safe haven today.
Gold held in a precious metals IRA must have a minimum fineness of .995 (99.5% gold), with the exception of the Gold American Eagle coins produced by the US Mint, which are eligible for a gold IRA despite having a fineness of .9167.
Silver often plays second fiddle to gold when it comes to media attention, but it can make up for that by outperforming gold in price growth during bull markets. Throughout the 1970s, for instance, both gold and silver saw annualized growth rates of over 30% over the course of the decade, with silver’s growth rate ending up slightly higher than gold’s.
Silver’s gains were much more pronounced during the aftermath of the 2008 financial crisis, however, as gold nearly tripled in price but silver more than quintupled in price.
Unlike gold, silver has traditionally seen strong demand as an industrial metal. Currently one of the drivers of silver demand is the solar industry, as silver is an essential component of photovoltaic cells in solar panels.
Silver held in a precious metals IRA must have a minimum fineness of .999 (99.9% silver). The Silver American Eagle coins are also specifically mentioned in the US Code as being IRA-eligible, although they too feature a .999 fineness and would be IRA-eligible anyway.
Platinum is a precious metal whose primary use is in automotive catalytic converters. Nearly half of platinum demand in 2022 came from the automotive sector, with other industrial demand and jewelry making up the rest of platinum demand.
Investment demand for platinum can be highly volatile, and platinum prices don’t have the same reputation for long-term growth and stability as gold. Nearly three-quarters of all platinum produced today comes from South Africa, leaving the platinum market reliant on that single source. If political instability in South Africa were to impact the platinum market, prices could rise significantly, especially if platinum users were unable to find alternatives.
Platinum investment can be more difficult than gold and silver because there aren’t as many choices when it comes to buying platinum coins and bars. While there are literally hundreds, if not thousands, of different gold and silver coin designs to choose from, platinum choices are much fewer in number.
For platinum products to be IRA-eligible, they must have a minimum fineness of .9995, which most platinum coins and bars today satisfy.
Palladium, like platinum, is also primarily used in the automotive industry. Over 80% of palladium demand in 2022 came from its use in automotive catalytic converters. Industrial demand is the other major source of demand, with only minor jewelry demand and negligible investment demand.
South Africa and Russia are the two largest suppliers of palladium, with the two countries combining to produce nearly 80% of the world’s supply. Given South Africa’s political and economic instability, and Russia being nearly cut off from world markets as a result of its invasion of Ukraine, future palladium supply could be in jeopardy.
Palladium investment can be even more difficult than platinum investment because there are even fewer palladium coins and bars available than platinum coins and bars. But that may slowly change as more and more people become interested in buying palladium.
From 2020 to 2022 the palladium price saw significant price increases, hitting over $3,000 an ounce in March 2022. But the price has come down significantly since then, falling over 50% since then. So take that into consideration if you’re thinking about buying palladium.
Like palladium, platinum coins and bars must have a minimum fineness of .9995 in order to be IRA-eligible. Most palladium investment products on the market today meet those requirements.
While there are other precious metals such as rhodium that attract investor interest, by law only gold, silver, palladium, and platinum are eligible to be held in a precious metals IRA, and only if they meet the minimum fineness requirements. All other metals are considered collectibles, and using IRA assets to purchase them would be considered a distribution of the IRA’s assets and could result in taxes and penalties.
Self-Directed IRA Rules & Regulations
That’s a great segue into discussion of IRA rules and regulations, particularly those that are most important to precious metals IRAs. The collectibles ban is obviously one of the most important ones to be aware of.
The tax code considers all coins and metals to be collectibles, with the exception of certain US Mint coins such as the Gold American Eagle and Silver American Eagle, and any coin or bar meeting the minimum fineness requirements.
What this means in practice is that most coins produced in the last 20 years or so are going to be IRA-eligible. But certain popular investment coins such as gold Krugerrands, Austrian 100 Corona coins, gold UK sovereigns, or silver coins such as Morgan silver dollars and US junk silver are not eligible to be owned in a precious metals IRA.
In addition to the ban on collectibles, precious metals IRA assets are also forbidden from being stored at home. Oh, you may have read about “home storage IRAs” and how you can supposedly buy gold coins with an IRA and store them at home, but you can’t have your cake and eat it too.
If a home storage IRA sounds too good to be true, that’s because it is. By law your precious metals IRA assets must be managed by a custodian and are stored with a bullion depository. People who have attempted to use IRA assets to buy gold that they then store at home have been penalized by IRS for failing to comply with the law, and have faced severe fines and penalties. Goldco works with established precious metals IRA custodians to ensure that our customers have proper and authorized custodial choices for their IRA assets.
Finally, like any other IRA account, a precious metals IRA is subject to required minimum distributions (RMDs). If your precious metals IRA is a Traditional IRA, which most are, you’ll have to start taking RMDs at age 73. If your precious metals IRA is a Roth IRA, you won’t be subject to RMDs.
Learn More About Precious Metals IRAs
If you want to diversify your investments and take greater control over your finances, a self-directed IRA could be a good option. And a self-directed precious metals IRA might be one of the choices you could be interested in.
With a precious metals IRA you can enjoy the same tax-advantaged status as any other IRA account, allowing you to make tax-free rollovers and transfers from existing tax-advantaged accounts such as 401(k), 403(b), TSP, IRA, and similar retirement accounts into a gold or silver IRA. You can enjoy tax-free growth of your precious metals assets and defer taxation until you take a distribution. And if gold and silver really take off during the next recession, you can enjoy the benefits of precious metals price growth.
Goldco has helped thousands of customers benefit from starting precious metals IRAs, and we’ve made over $2 billion in precious metals placements. Our customers have given us numerous 5-star ratings, demonstrating our commitment to customer service.
If you have retirement savings that you want to protect, or if you just want to look at investing in alternative assets, call Goldco today to learn more about how a self-directed precious metals IRA can help you.
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Free Precious Metals Guide
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Free Precious Metals Guide
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