What Is a Precious Metals IRA?
A Precious Metals IRA enables investors to invest in gold along with other precious metals while still benefiting from the same tax advantages of an IRA retirement account. Just like conventional IRAs, a gold IRA can be a traditional IRA where investors use pre-tax money to invest in gold, or a Roth IRA in which they can make use of post-tax dollars to invest in precious Metals. Those with SEP or SIMPLE IRAs can also invest through a gold IRA.
Investors can also rollover existing retirement assets into a self-directed gold IRA. This allows investors to close on gains they may have made in other investment opportunities and transfer that wealth into precious metals, which can provide more stability and shield from corrections or market downturns.
The history of IRAs extends back to the 1974 Employment Retirement Income Security Act (ERISA), which allowed individuals to establish individual retirement accounts or IRAs.
Prior to ERISA (Employee Retirement Income Security Act, 1974), it was difficult to attain a tax-advantaged retirement account outside of an employer-run retirement plan. Following the passing of ERISA, individuals can create IRAs, which eventually brought in the development of Self-Directed Individual Retirement Accounts. Self-directed IRAs allow individuals to direct retirement funds to invest in non-traditional investments such as Bonds and real estate to name a few.
Gold is a tangible - physical asset that anyone can hold and take ownership, it offers stability against inflation, financial distress, and economic downturns. Thanks to concessions in the tax code, investors can even invest in gold through a gold IRA, which allows them to gain all the same tax benefits as a traditional IRA.
Advantages of a Gold IRA
Gold IRAs have a large sum of advantages for investors, both those nearing retirement and those earlier in their careers.
Two of the most common advantages are:
- Providing much-needed diversity to investors’ portfolios in both the long and sort-term
- Helps investors with risk management: The further along they get in their retirement planning, the less risk they want their portfolio to carry.
To do this, investors can decrease their holdings of stocks or bonds and increase the amount of gold they own.
This doesn’t mean that you have to propagate all of your assets into a gold-backed IRA, but even small percentages can safeguard your finances.
Investors who held or transferred gold into their portfolios during the 2008 financial crisis saw their investments heavily outpace those who kept their assets in stocks. And those portfolios that held gold continued to grow strong long after the crisis hit the lowest point.
See our article about Gold and Inflation - A historical truth.
Let’s take a more in depth look look at the benefits of gold IRA and precious metals investing:
Positive Growth Potential
There’s a well kept secret expert financial advisors don’t want you to know about: Gold is the second-best performing asset of the past 20 years. In fact, it’s grown about twice as fast as stock markets have. But financial advisers still recommend stocks and bonds to grow assets for two reasons:
- They’re still feeling the nostalgia about the 1982-2000 stock market boom. This was a period of unprecedented and even novel growth, with stock markets gaining around 17% per year on average. The Market has not seen growth like that since then, and while it did come close in 2019, it is unlikely to ever see this kind of gain again.
- Most financial advisors make their money off fees associated with stock trades, asset management and MER's They don’t make money selling people gold because people hold gold for the long term portfolio stabilization. Financial advisors and stockbrokers want to be able to charge for transaction, plus a small management fee every year for each type of asset you own. However, if you own gold for years and years, they cannot charge a trading fee because your assets are safe, secure, and stabilized.
While this is bad for financial advisors, it’s excellent for you because your gains aren’t being scraped off the top through fees. Keeping more money in your pocket truly is smart investing.
Some advisors may try to lure investors into annuities, promising guaranteed income year over year. What they often do not mention is the fact that your money is tied up for years, and you could pay lofty penalties just to get back your own money.
It also means that you could miss out on great gains if markets are doing well. With a gold IRA, you can benefit from gold’s stability, take advantage of future price growth which can sometimes be substantial, and still have immediate access to your money should you wish to sell your gold or transfer your wealth into other assets.
Tax Advantages of Gold IRA Investing
Investing in a gold-backed IRA offers the same tax advantages as a conventional IRA. You can invest in gold with pre-tax money (or post-tax money with a Roth gold IRA), roll over existing retirement funds with no tax deductions, and in turn, defer on taxation until you decide to take a distribution from your portfolio. And similarly like with contributions to a conventional IRA, yearly contributions to a traditional gold IRA can even be tax-deductible.
That also means that all the same IRA rules apply to a gold IRA:
- Early distributions may incur income taxes and an additional 10% penalty
- Required minimum distributions must be taken after age 72
- Annual contributions are limited to $6,000 (or $7,000 if you’re over age 50)
By keeping gold in an IRA account, many investors feel like they get a much better return on investment (ROI) than when they hold precious metals through a brokerage account, such as those offered by some financial institutions and mints. Don’t underestimate the flexibility of using pre-tax dollars and defer taxation on your gains for years or even decades. We recommend using Augusta Precious Metals or Goldco as your precious metals specialists.
Gold IRA's Can Hedge Against Market Correction
Investing in a gold IRA also provides investors with a greater element of control over their risk management. For many investors who may save for retirement through a 401(k) plan, the options available can be limiting.
By opening and funding a gold IRA, they gain an extra element of control over their investment portfolio, as they are the ones who determine what types of gold or silver they invest in.
A great advantage of having a gold IRA is that assets can be transferred easily and without tax consequences among retirement accounts. So, an investor who wants to roll over a portion of a 401(k) account into a gold IRA can do so relatively easily. And if that investor decides in the future to sell some of those precious metals assets to buy into stocks or bonds, that type of transaction can be done too.
Control over investments can:
- Help diversify your investment portfolio
- Deliver peace of mind knowing your investments are secure and stable
- Ensure that decisions you make will directly impact your retirement
Precious Metal IRA Approved Standards
Before choosing your precious metals investments, such as bullion or coins, it’s important to check that they meet IRA eligibility standards and guidelines for purchase. Purchasing precious metals that aren’t eligible for IRA investment may be considered a distribution of IRA assets, which could leave you liable for taxes and penalties. Some general guidelines for precious metals IRA assets include:
- Level of Purity
Gold – .995
Silver – .999
Platinum – .9995
Palladium – .9995
- Place of issue – some US Mint coins are automatically eligible for IRA investment even though they don’t meet the normal purity standards.
- Held in custody of an IRS-registered custodian until retirement age. At 59 ½ years of age, you can begin taking distributions in the form of physical precious metals or by selling your metals for cash.
Frequently Asked Questions
For more information regarding a gold IRA rollover please visit our FAQ Page.