Gold IRA Guide – How to Start Gold IRAS
If one of your financial goals is to make smart investments, but you don’t know where to start, you’ve come to the right place!
This short but comprehensive guide has everything you need to learn about one of the best investment vehicles available today: a gold IRA. How can you open this account? How does it work? What are the benefits you can get?
If you have wondered how gold IRAs could help your investment strategy, read on and learn the basics about these retirement accounts!
What Will I Learn?
Understanding What a Gold IRA Is
Before addressing the benefits of buying precious metals through an individual retirement account, it’s essential to know what a gold IRA is.
A gold IRA is a self-directed IRA that allows you to make gold investments or buy precious metals, such as gold coins or silver bullion. These retirement accounts offer the same tax benefits as typical ones depending on the type you choose.
If you open a gold IRA, you can choose between a traditional IRA (tax-deferred) or Roth IRA (tax-free), which differ in when you must pay taxes.
Roth IRAs allow holders to pay taxes when they make contributions. Therefore, withdrawals are tax-free. On the contrary, traditional IRAs deduct contributions, requiring investors to pay taxes when they withdraw earnings.
Gold IRAs are not limited to a single asset and can hold different precious metals, including gold, silver, platinum, and palladium. In addition, they may contain alternative goods, such as cryptocurrencies and annuities, and conventional assets, such as bonds, mutual funds, and stocks.
Many investors decide to open gold IRAs because precious metals can protect investments against risk factors, such as inflation and market volatility. In addition, due to the intrinsic value of gold or silver, they could make your wealth grow over time.
What Is a Self-Directed IRA?
Now that you know what a gold IRA is, you may have another question in mind: what is a self-directed IRA?
Also known as SDIRA, it’s a type of individual retirement account (IRA) where you can hold multiple assets, including those usually prohibited in regular IRAs.
Although an SDIRA is often administered by a custodian or trustee, as an account holder, you can directly manage it. That’s why it’s called “self-directed.” However, these third parties cannot provide financial or investment advice.
Therefore, you are responsible for finding all the information you need about it.
Benefits of Gold IRAs
As mentioned, gold IRAs offer multiple benefits to investors, including the following:
Tax Benefits
Among the most attractive aspects of a gold IRA, there are tax benefits. According to the Internal Revenue Service (IRS), gold IRA tax rules are similar to a typical IRA. In other words, holders can enjoy certain benefits if they transfer their retirement funds from their existing retirement account to one of this type.
Such tax rules include limits on annual contributions, which are set at $6,000 for people aged 50 or $7,000 for those over 50.
In addition, since gold IRAs have been designed as long-term investments and are instruments to help people increase their wealth for their retirement, the income tax you must pay when making withdrawals remains the same as if you have a standard IRA.
However, if you open traditional IRAs and withdraw early, your gains may be subject to considerable tax implications.
Retirement Portfolio Diversification
Another benefit linked to a gold IRA is portfolio diversification. When you invest heavily in a single asset, market volatility, inflation, or any other negative event could affect your investments. Stock value, for example, often fluctuates considerably in periods of uncertainty. The same is true for the real estate industry.
However, when you open a gold IRA and buy precious metals, your portfolio is diversified. Therefore, if an asset performs poorly or plummets in value, your investments are not affected.
Many investors decide to invest in multiple assets and don’t recommend putting all the savings in just one area. Instead, acquiring different goods can favor long-term investment portfolios.
Greater Control
A gold IRA is an SDIRA. If you open one, you enjoy more flexibility and control when it comes to investment decisions. Also, when you choose this option, you decide how to manage your hard-earned money!
Higher Profit Potential
Precious metals like gold and silver have an intrinsic value that increases year by year. Throughout history, the price of gold has risen considerably.
Actually, in the last five years, it was up about 70%, going from $1,000 per ounce to $1,700 per ounce from 2016 to 2021.
Since gold prices have shown a steady rise year after year, this precious metal can be an excellent investment opportunity for those who hope to get gains for retirement. If you hold your gold IRA for a decade or more, you could make a profit!
Risks Associated with Gold IRAs
This retirement investment vehicle also has some disadvantages and associated risks that you should know. These are the main ones:
Higher Costs
If you have a regular IRA, you don’t have to pay storage or custody fees when you make an investment. However, if you buy precious metals through a retirement account, you must cover additional costs.
Such fees include costs related to the IRA custodian management, storage, insurance, yearly account maintenance, account set-up, brokerage services, and more.
Funding Restrictions
Gold IRAs also come with several restrictions. As mentioned, you need a gold IRA custodian since you cannot keep your investment in your safety deposit box. Also, if you have already purchased precious metals, you cannot transfer them.
However, although they can be harsh and make the process difficult, these rules or restrictions ensure that your investment is better protected.
Less Liquidity
Although you can make withdrawals starting at age 72 or earlier (it is subject to a tax penalty) when you have a precious metals IRA, physical gold, silver, platinum, and palladium are not as liquid as other assets.
In other words, selling them or finding buyers can be very difficult. Also, since the process is so tedious, many investors end up selling their precious metals below market price if they are in a hurry.
Losses
Thefts are not common in reputable and trustworthy depositories but can happen at some point. There is always a risk of loss, even in the safest investments. You can insure your assets, but this is an additional cost that you must cover.
Investing in Gold IRAs: Steps
Do you think a gold IRA is the right investment vehicle for you? If so, these are the steps you need to follow to open one:
Step 1: Pick a Reliable Gold IRA Company
Do you want to open one of these accounts? The first step you should follow is to pick the right gold IRA firm. There are many options on the market, but you must choose a reliable one to ensure your investments are protected.
Here are some of the things you should consider when picking a gold IRA company:
Customer Service: If they provide assistance, answer all your questions, and give you all the information you need, these gold IRA companies are trustworthy!
Funding your account: Do you want to make a gold IRA transfer? Do you think gold IRA rollovers are a better option? The best firms walk you through the process and explain all the available alternatives to help you choose the best one.
Precious metals purchase: Do you plan to buy physical gold? Pick a gold IRA firm that offers a wide catalog of products to choose from.
Experience: If you want the process to be easier and your assets to be protected, choose a gold IRA firm with expertise in opening your retirement account and buying precious metals.
A reliable gold IRA firm also gives you information about the different types of accounts and allows you to choose the one that best suits your investment strategy. Do you think a traditional gold IRA is for you? Make sure you choose a company that is specialized in this service.
Step 2: Fund your Gold IRA Account
Once you open your gold IRA and submit the documentation required, the next step is to fund your gold IRA to buy gold bullion or other precious metals. There are three options available:
Direct Transfer
A gold IRA transfer is the favorite option for investors since it’s tax and penalty-free. Also, the process is too simple since you can do it from home.
Transferring funds from your retirement savings accounts to your gold IRA is also a safe and risk-managed method. However, it can take days!
Gold IRA Rollover
Another option available to fund your gold IRA is a rollover. If you plan to diversify your portfolio, you can use the funds you already have in your current retirement account to buy precious metals.
The process to roll over a precious metals IRA is usually carried out by the account manager. Therefore, you may need to meet some requirements.
Cash Contributions
Finally, there are cash contributions. Whether you open a traditional or Roth gold IRA, you can fund your account with your own money or a check. You can also make a bank transfer, but these operations are usually subject to fees.
Step 3: Pick Your Favorite Precious Metals
Have you funded your gold IRA? It’s time to buy your precious metals. Contrary to what many people think, these accounts are not limited to just gold. Therefore, you can purchase different assets.
A gold IRA can hold different metals, including gold, silver, platinum, and palladium. However, according to IRS rules, the assets you choose must meet a specific level of purity and quality.
Therefore, choosing a reliable company to open your account and invest your money in precious metals is essential.
Final Thoughts
Opening precious metals IRA is not a piece of cake, but it does not require too much effort. As long as you know the basics of managing these accounts, they can be a great investment option!
Besides diversifying your retirement portfolio with an asset of intrinsic value such as physical gold, precious metals IRAs can protect your investments against inflation and even help you make a profit in the long term.
While there are some risks associated with gold IRAs, most have a solution! Therefore, with a good strategy and following all the safety practices, buying gold coins or other precious metals through a retirement account is one of the best decisions you can make!
FAQs
What Are The Costs I Must Pay When Opening A New Gold IRA?
Unlike standard IRAs, opening a gold IRA comes with a few fees, including the following:
Seller’s fee or markup: Gold products are often sold at the going rate, but their price may be subject to markups depending on the type of gold bullion you buy, including coins and bars. It may also vary depending on the seller, but it is a one-time expense.
Retirement account fees: It’s also a one-time fee, and you must pay it to open your new gold IRA.
Custodian fees: Gold IRA custodians charge annual fees for their services. Since you mandatorily require one, you must cover these expenses.
Storage fees: Precious metals must be stored in IRS-approved facilities. Therefore, you must also pay a fee for their services.
Cash-out fees: If you want to sell your gold to close out your gold IRA, you could find buyers who pay less than the market price, which also generates expenses.
What Does It Mean When Gold Is IRA Eligible?
As mentioned, the IRS sets some rules about gold’s purity and quality. Assets that do not meet those standards are not eligible for a gold IRA.
Regardless of whether you choose a traditional or Roth IRA to store your precious metals, you must ensure that the physical gold or other assets you choose comply with these rules.
Should I Pick a Roth IRA or a Traditional IRA?
Choosing the best option between a traditional and a Roth IRA depends entirely on your investment strategy. As mentioned, the main difference between both options is when you must pay the taxes. Therefore, before making a decision, ask yourself if you would like to pay them when making contributions or prefer to have them deducted from your withdrawals.
About Arthur Karter
Hi, I’m Arthur, and nobody wants to wake up in their 50s like me that they are in serious debt with minimal assets. This wake-up call forced me to reevaluate everything. After going through the school of Hard Knocks, I’m ready to help you by sharing the best retirement choices and how they differ from all the same-old, same-old options that financial advisors sell. These alternatives will help you build and protect your wealth.
