A comfortable retirement calls for strategic planning. This may include leveraging investment vehicles that employers sponsor such as 403(b) or 401(k). It may also mean setting up your own individual retirement account (IRA).
With an IRA, you can invest in bonds, stocks, ETFs, and other paper assets. You can also opt for a self-directed account, also known as a precious metal IRA or gold IRA. With this variant, you can invest intangible assets and precious metals. Investors use gold IRAs for portfolio diversification and protection against inflation.
Why Invest in Physical Gold?
Precious metals such as palladium, platinum, silver, and gold are important for portfolio diversification. This allows you to invest in assets that will not lose value in the middle of an economic crisis. Adding gold to your IRA helps to protect your money by reducing the volatility of your investment and risks. It also serves as a hedge against economic downturns.
Other investment options for investing in gold are gold stocks, ETFs, and mutual funds. However, these options are still related to the stock market. So, your investment will be affected if the stock market falls. Therefore, investing in physical gold through a self-directed IRA is a better option for long-term holding.
Gold IRA Guidelines
When it comes to gold IRAs, you shouldn’t be surprised to know that there are specific rules. The IRS established these rules and ensure that all account holders comply. So, you should consider it a privilege that they permit IRAs to hold precious metals. Below are the rules that apply to Gold IRAs.
Account Administrator Guidelines
To open a gold IRA, you need an administrator or a custodian. This custodian could be a bank, a retirement company, or an insurance company. However, you must ensure that the custodian can handle precious metals. Not all financial institutes handle self-directed IRAs, so you need to be sure of what you’re signing up for.
Additionally, you cannot personally purchase precious metals for your IRA. The account administrator must carry out the transaction for you. Your responsibility is to choose the metal you want to invest in, then the administrator will arrange for the purchase, insurance, and shipping.
Approved Precious Metals
You cannot purchase just any kind of metal for a gold IRA. The Internal Revenue Service is strict about the quality of bullion the account should hold. Each metal has a specific purity standard and must be considered highly collectible. Also, the coins should come from the United States Mint or any other approved mint.
Generally, gold must have a purity of 24 karats. But the IRS allows American coins of 22 karats. As a result, you can purchase Gold American Eagle coin with your IRA funds. The IRS allows foreign bullion of palladium, platinum, silver, or gold. The minimum purity for each bullion is:
- Gold: 99.5% or 24 karats
- Silver: 99.9%
- Platinum and palladium: 99.95%
After purchasing precious metals, you cannot store them at home. Also, the custodian or administrator cannot store them for you. Instead, they will send them to a third-party depository. This depository should be on the IRS list of approved storage facilities.
If you keep physical gold or silver in your home for just one day, the Internal Revenue Service will regard it as distributed. This implies that you will pay penalties for your action. Therefore, before purchasing assets, ensure you select a suitable storage facility. The facility will take inventory of and secure your assets until you want to sell or distribute them.
Contributions in a self-directed IRA are limited to $5000 per year. But if you are up to the age of 50, you can contribute a total of $6000. You can fund your account by transferring funds directly from a traditional or Roth IRA, 401(k) rollover, or sending a check to your custodian.
As mentioned earlier, you cannot buy precious metals and mail them to the custodian. The custodian will use the funds in your account to purchase your preferred metals. Also, if you decide to withdraw your assets before the stipulated time, you will pay 10% of the asset’s value as a penalty. After selling the metal, the IRS will demand 28% of the profit made from the sale.
Retirement Age Rules
You cannot access your assets until you are 59 and a half years old. When you attain that age, no one will compel you to start taking distributions. However, by the time you are 70 years, you must make withdrawals and receive distributions.
Penalties for Early Withdrawal and Exceptions
As stated earlier, if you take distributions before the stipulated age, you will pay 10% of the asset’s value. However, there are exceptions to this rule. You can make a certain number of withdrawals without penalties under these conditions:
- The account owner is disabled.
- The account owner is hospitalized and does not have funds or insurance to foot the bills.
- The account owner is deceased and the beneficiaries want funds.
- The account owner loses his or her job and can’t pay for insurance.
- A beneficiary of the account holder needs funds for education (tuition, books, accommodation, and other related expenses).
Should You Open a Gold IRA?
If there are no rules, society will be in disarray. Hence, the rules surrounding a gold IRA should not scare you. Being able to own physical gold offers a lot of advantages such as hedging against inflation and other uncertainties and wealth protection.
To avoid falling into IRA loopholes, request a gold IRA kit, so a professional can assist you in settling up your account. The world will never run out of precious metals, so it is a good time to own a self-directed gold IRA.
Whether you already have a 401(k) or regular individual retirement account, a professional can assist you in transferring or rolling over the funds into silver or gold. Lastly, if you do not have a retirement account, an IRA kit will come in handy.