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Americans today are starting to educate themselves more about all of their various investment options. More and more people today realize that they don’t have to have their money parked in a bank or at a staid traditional brokerage. They understand that they have options when it comes to saving and investing, and that periodically reassessing their investments, their options, and their financial performance can be a good thing.
This year saw a major wake-up call for millions of Americans, as massive bank failures had them reassessing the safety of their bank deposits. But it isn’t just bank savings accounts that Americans have been reassessing either. The bank failures were a reminder that the financial world isn’t static, and that something that may seem like a sure thing one day might not be such a great choice years later.
For many people that means reassessing the performance of their retirement savings and making changes to their retirement accounts, or determining whether their retirement savings can be put to better use. That’s why more and more Americans are doing research about various types of IRA accounts.
What Is an IRA?
An individual retirement account (IRA) is a type of retirement account that was first developed in the 1970s. It was intended to provide additional options to Americans to save and invest for retirement by allowing them to forgo paying taxes on investment gains until retirement.
While the annual contribution limit for IRA accounts is significantly smaller than the limit for workplace-sponsored retirement plans like 401(k)s, Americans still hold more money in IRAs than in 401(k)-type accounts.
Part of this is due to the fact that IRAs can be funded with rollovers and transfers from other tax-advantaged retirement accounts. This allows you to build up funds in, say, a 401(k) and then roll those funds over into an IRA account.
IRA accounts often allow for a greater variety of investment options than 401(k) accounts, which is why many Americans like them as a retirement savings vehicle. And with self-directed IRAs that can invest in an even greater variety of assets such as real estate, private equity, gold and silver, or commodities, the range of options for IRA investments is nearly limitless.
What Is a Gold IRA?
A gold IRA is a type of self-directed IRA which owns physical gold coins or gold bars. Like any other IRA, your gold IRA assets will be administered by an IRA custodian. But not every IRA custodian offers precious metals like gold as an investment option.
Gold IRA custodians are IRA custodians who often specialize in offering self-directed IRA services, particularly the administration of precious metals assets. Goldco works with experienced gold IRA custodians to ensure that our customers are able to find custodians who can administer their gold IRAs.
Two Ways to Fund a Gold IRA
As with other IRA accounts, a gold IRA is going to be funded in one of two ways, either with pre-tax dollars or with post-tax dollars.
Traditional Gold IRA
A gold IRA funded with pre-tax dollars is a type of Traditional IRA. Traditional IRAs can be funded through annual contributions or through rollovers and transfers from other retirement accounts that have also been funded with pre-tax dollars.
When you hear people talking about IRA accounts in generic terms, they’re normally referring to a Traditional IRA. A Traditional IRA is what most people think of as the “normal” IRA account.
A Traditional IRA invests with pre-tax dollars, assets grow tax-free, and you only pay taxes when you take a distribution. And if your income is below certain thresholds, the contributions to your Traditional IRA may even be tax-deductible.
Roth Gold IRA
A gold IRA funded with post-tax dollars is a type of Roth IRA. The primary difference between Roth IRAs and Traditional IRAs is that Roth IRAs invest with post-tax dollars. The other major difference is that there are no required minimum distributions (RMDs) with Roth IRAs, whereas Traditional IRAs must begin taking RMDs at age 73.
Assets in a Roth IRA also grow tax-free, and you pay no taxes when you take a distribution, assuming you’re over age 59½ and have satisfied the five-year holding rule.
Contributions to Roth IRA accounts are not tax-deductible, and above certain income limits you may not be allowed to make annual contributions to a Roth IRA. That has given rise to what are known as backdoor Roth conversions, in which funds from pre-tax retirement accounts are transferred or rolled over into Roth accounts, after paying the necessary taxes and/or penalties.
Additional IRA Variants
While most IRA accounts fall into either the Traditional IRA or Roth IRA category, there are additional subsets of IRA accounts that you’ll want to be aware of.
A Simplified Employee Pension Plan (SEP) IRA is a plan that allows employers to contribute to IRA accounts they set up for employees. Contributions are limited, and employees are not allowed to contribute to a SEP IRA. Taking a distribution from a SEP IRA is similar to taking a contribution from a Traditional IRA in that it would be considered as income, and subject to a 10% penalty if taken before age 59½.
A Savings Incentive Match Plan for Employees (SIMPLE) IRA is intended for small employers to start retirement savings plans for their employees. Both employers and employees can make contributions to a SIMPLE IRA.
SIMPLE IRA distributions are subject to general Traditional IRA rules regarding distributions and withdrawals, although if a rollover is made from a SIMPLE IRA to another IRA, it can only be after two years of participation in the SIMPLE IRA.
An inherited IRA, also known as a beneficiary IRA, refers to an IRA started by someone who has inherited IRA assets from someone else. In some cases when an IRA’s assets are left to you through inheritance, the funds can be rolled over into a new IRA in your name. In other cases, you must take distributions from the IRA.
This inherited IRA can be either a Traditional IRA or a Roth IRA, and the rules pertaining to this inherited IRA will vary depending on whether you’re a spouse or non-spouse of the original IRA owner, and whether the original IRA owner died in 2020 or before. If you inherit an IRA, you’ll want to look at some of the rules surrounding inherited IRAs, which can be very complicated.
A self-directed IRA is an IRA in which the account holder directly manages the IRA and which allows account holders to invest in a wider array of assets than they might otherwise be able to in conventional IRA accounts. Self-directed IRA accounts are administered by a custodian, like any other IRA account, but the account holder exercises greater control over the IRA’s investment direction than with a conventional IRA.
Self-directed IRA accounts can be either Traditional IRAs or Roth IRAs. A gold IRA is a type of self-directed IRA, and requires investors to find an IRA custodian who is willing to administer gold IRA assets.
A rollover IRA is a term used to describe an IRA account that is funded with money rolled over from another IRA or retirement plan. You can fund a rollover IRA with money from a 401(k), TSP, 403(b), or 457 plan, or from a Traditional, Roth, SIMPLE, or SEP IRA.
Rollover IRAs will be either pre-tax (Traditional) or post-tax (Roth), and the type of rollover IRA you can start will be dependent on what kind of funds you are rolling over.
3 Ways to Roll Over Funds to a Gold IRA
One of the overlooked aspects of tax-advantaged retirement accounts is that funds can be rolled over from one account to another, with certain limitations. IRS has a handy rollover chart that explains the different types of retirement accounts and which ones can be rolled over into which. In general, there are three types of rollovers and transfers that can occur.
Pre-Tax to Pre-Tax
The first type of rollover is a pre-tax to pre-tax rollover or transfer. This includes your 401(k) to gold IRA rollover, a TSP to IRA rollover, or an IRA to gold IRA transfer. Because you’re moving funds from one pre-tax funded account to another, the rollover can occur tax-free.
Post-Tax to Post-Tax
The second type of rollover is a post-tax to post-tax rollover or transfer. This is a little less common, but it would include a Roth 401(k) to Roth IRA rollover, or a Roth IRA to Roth gold IRA transfer. Because both the origin account and the destination account are funded with post-tax dollars, you normally don’t have to worry about any tax consequences from this type of rollover. The primary exception is if you haven’t yet satisfied the five-year holding rule for Roth accounts.
Pre-Tax to Post-Tax (Roth Conversion)
The final type of rollover is a pre-tax to post-tax rollover or transfer, what is known as a Roth conversion. This is when you move funds from a pre-tax account such as a 401(k) into a post-tax account like a Roth IRA.
Because you’re moving pre-tax dollars into a post-tax account, you’ll be on the hook to pay the income taxes on that rollover. If you’re under age 59½, you won’t have to pay the additional 10% penalty for an early distribution, as long as you satisfy the five-year holding rule for your Roth IRA.
Which Gold IRA is Right for You?
The decision about which type of gold IRA account to open is one that you’ll have to make for yourself after taking into account your financial position and financial goals. For many people the ease of moving a 401(k) into a Traditional gold IRA makes it an easy choice.
For others, the potential benefits of a Roth conversion from a 401(k) to a Roth gold IRA might seem appealing. And for those with existing Roth accounts, the only rollover option for a gold IRA is to roll over into a Roth gold IRA.
Whichever type of gold IRA account you choose to open, Goldco can help you navigate the process. Thousands of our customers have chosen gold IRAs for their gold investment needs, and their gold is now securely administered by experienced gold IRA custodians and stored safely at bullion depositories. Our specialists have seen all sorts of gold IRA rollovers, from large to small, Traditional to Roth, and can answer any questions you have about the gold IRA rollover process.
With over $2 billion in precious metals placements and over 5,000 5-star reviews, come see why so many of your fellow Americans have chosen to do business with Goldco. Call Goldco today to learn more about your gold IRA options.
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