When planning for retirement, many people go for the traditional individual retirement account (IRA), where they can save money in a tax-deferred manner. However, there seems to be a growing sentiment among investors today that investing in precious metals, such as gold and silver, is the way to go when saving for retirement. This is because these precious metals are known to be less vulnerable to negative market forces, such as inflation. Also, it has been a great concern that the US dollar and other currencies may be losing their purchasing power.
If you also share such concerns, gold IRAs may sound like a perfect and exciting proposition. However, you mustn’t jump the gun just yet and should know a few things about investing in gold IRAs. You can learn more from sources like https://learnaboutgold.com/gold-iras/ and similar websites. In the meantime, here are a couple of crucial things you need to know about gold IRAs.
What gold IRAs are
Gold IRA is a self-directed and specialised individual retirement account held with the Internal Revenue Service (IRS). It’s created specifically for storing precious metals, such as gold, silver, platinum, and palladium. Gold IRA differs from the traditional IRA because you’d be storing physical gold or other precious metals rather than paper-based assets, such as stocks and bonds.
Compared to a conventional IRA, the setting up of a gold IRA involves a lot more. You start by finding a certified custodian. After this, you can now buy precious metals and transfer them to a depository, from where your custodian would manage them.
You also need to familiarise yourself with the set IRS guidelines regarding the purity of precious metals. Some of the IRS-accepted gold include the following:
- American Gold Eagle proof coins
- American Gold Eagle bullion coins
- Chinese Gold Panda coins
- British Gold Britannia coins (from 2013)
- Canadian Gold Maple Leaf coins
- Gold rounds and bars produced by COMEX or NYMEX
This same principle applies when you’re buying precious metals such as platinum, silver, and palladium. Below are some accepted silver coins:
- American Silver Eagle bullion coins
- Austrian Silver Philharmonic coins
- Mexican Libertad coins
On the other hand, IRS-accepted platinum includes the following:
- Australian Platinum Koala coins
- Isle of Man Noble coins
- American Platinum Eagle coins
Meanwhile, IRS-approved palladium includes these coins:
- Palladium rounds and bars made by COMEX or NYMEX
- Canadian Palladium Maple Leaf coins
- American Palladium Eagle bullion coins
You’ll need to work with a trustee to open a gold IRA. They’d be responsible for looking after the handling and storage of your gold on your behalf.
Reasons to add gold to your retirement portfolio
You also need to understand the reason for opening a gold IRA before going any further. Some of the benefits of gold IRA are explained below:
- Investing in a gold IRA could safeguard your investment from excessive tax. This is usually guaranteed so long as the gold remains held in the IRA.
- There’s guaranteed security of your investment because economic uncertainties don’t negatively affect the value of gold. Instead, gold’s value increases during these times. This makes gold IRAs a safe and suitable investment, perhaps one you could rely on when planning your retirement.
- It’s always recommended to never place all your eggs in one basket as this exposes you to great risk. When this happens, you might end up losing everything. However, a gold IRA could be an excellent way to diversify your portfolio as gold differs from other investment choices, such as bonds and stocks.
- Gold may be an excellent long-term investment because its value continually keeps rising. Its overall value after decades may considerably be more than your initial investment.
How to create a gold IRA
Another essential thing to consider is the correct procedure when opening a gold IRA. Here’s an overview of the steps to follow:
- Open a self-directed IRA: This is a requirement by the IRS. It can either be a Roth IRA, such as 401k, or a traditional IRA. With a self-directed IRA, you can hold not only precious metals but also other investments like limited partnerships, private placements, real estate, and other types of alternative investments. But companies that provide self-directed IRAs aren’t that common, so you’d have to look around for an institution that offers this service.
- Choose a custodian: Opening a gold IRA also requires you to have a custodian, who’d be in charge of storing and administering your account. When looking around for a suitable custodian, you should consider factors such as their service fees and whether or not they’re licensed. You’d also want a custodian who’s open and supportive to help you better understand what you need to know about your gold IRA.
Possible challenges to expect after investing in a gold IRA
Investing in gold IRAs, like every other investment, has its challenges and risks. Therefore, it’s best to become familiar with these setbacks to know whether it’s a risk you’re willing to take. Here are some of the challenges you should expect:
- Fees: There are different expenses associated with gold IRAs, such as setup, brokerage, storage, shipping, and annual fees. These are fees you don’t need to pay when setting up a traditional IRA. As a result, it’s easy for these expenses to overwhelm you, especially if you didn’t have enough information and weren’t adequately prepared.
- Theft: It’s your custodian’s responsibility to ensure your stored gold is safe. Therefore, this makes you vulnerable to theft if you’ve chosen a dishonest custodian with a record for stealing and committing other deceitful acts. To protect yourself from being a victim of theft, do exhaustive research and ensure the custodian you find is trustworthy.
Gold has been drawing attention from investors because of its known stability compared to traditional assets, such as stocks and bonds. Because of this, many people saving for retirement see investing in gold IRAs as an ideal way to protect themselves from market volatility and inflation. But before you go ahead, be sure to have this guide in mind to walk you through some essential information you need to know about this investment option.