Precious metals are emerging as a popular choice for investors looking to diversify their Individual Retirement Accounts (IRA). A self-directed IRA allows investors to not only own traditional stocks and bonds, but also to expand their portfolio with alternative assets such as real estate and precious metals.
If you’re newer to the investment world, or you’re looking towards the future and want to ensure that your hard-earned money retains its value, you may be curious about alternative investments. Before you choose the best way to invest for your situation, consider How to Invest in a Precious Metals IRA.
Methods of Investment in Precious Metals
There are a few different methods for you to invest in precious metals. These include the following:
- Physical possession-When you purchase precious metals, you have the option to store them wherever you want. You would have complete ownership and you can choose to keep your metals either at home or a safety deposit box, for example. This gives some investors peace of mind as they know that only they have access to their precious metals.
- Precious metals IRA-Precious metals IRA’s allow investors to invest in metals that have a purity of at least 99.5%, and can include gold, silver, platinum, and palladium. Precious metals IRA’s also have tax benefits and you can add in different forms of investments like stocks, mortgages, and real estate. With an IRA, a custodian will hold your investments for you.
Why Should You Choose a Precious Metals IRA
One of the biggest advantages to opening a precious metals IRA is the tax benefits. These accounts allow investors to defer taxes until they decide to make a withdrawal. Precious metals IRA’s also allow investors to avoid fees and have more control over their account. This means you can choose your own custodian, the types of metals you want as part of your IRA, and the depository that will hold them.
Precious metals depositories keep your investments safe in high-security facilities and they offer you insurance, so you know that your precious metals are well protected.
Also, precious metals are an investment that retains their value over time and through inflation and economic instability. Often, investors will use precious metals as a way to offset the risks that come with traditional investments like stocks and bonds.
Yet another advantage to precious metals IRA’s comes during distribution. For example, when it comes time for an RMD (Required Minimum Distribution), traditional stocks will be distributed in dollars. This can vary with the value of the dollar and you may get less than you thought you would.
FInally, when you own precious metals in an IRA, you are not required to liquidate or sell your metals before taking your distribution. You may liquidate inside the IRA, or you can take them out of the plan in a physical form and have them delivered to you. Having physical possession of your precious metals allows you to take it wherever you want and ensure that they are safe in your hands.
How to Set Up Your Precious Metals IRA
When you’re looking to set up your precious metals IRA, you will need to follow a few steps. These include the following:
- Select a custodian-The custodian has certain duties that include setting up your account, accepting contributions, and issuing account statements. They will also purchase the precious metals from the dealer and transfer funds from your traditional portfolio to the self-directed, precious metals IRA account. When you select a custodian, research their fees and services, and ensure that they will act in your best interest.
- Open your account-Once you’ve chosen your custodian, you will contact them to open your account. They will assign you a partner who will help with the application process, which will be done via email, mail, or fax. This can take approximately 24 hours.
- Transfer funds-Once your account is opened, your custodian will transfer funds into it. They will do all the work but they will need your authorization. Transfers can take up to 5 business days.
- Select your metals-Now that your account is funded, you can choose your precious metals. Your account partner can advise you on which metals are right for you and they can answer any questions you may have but as this is a self-directed account, you make the final decisions.
- Metals are shipped-Once you’ve decided on the metals you want and you’ve purchased them, you want to ensure that they’re safe. Most custodians ship metals to the DDSC (Delaware Depository Service Company). The DDSC has an insurance policy that is underwritten by Lloyds of London, they are compliant with UL standards and the Bank Protection Act and they are a non-governmental facility.
How to Fund Your IRA
There are a few different ways you can fund your precious metals IRA. These include:
- Rollover-If you have another retirement plan, you can withdraw money from that plan to fund your precious metals IRA. You will have to make the deposit within 60 days of withdrawal from the original IRA to avoid taxes or penalties. Also, keep in mind that you can only do this type of transaction once per year per account.
- Trustee to trustee-This type of transfer is also known as a direct transfer as it happens after an investor authorizes the transfer from a current IRA trustee account to the new IRA account. The IRS will not impose any penalties or taxes on this type of transfer and you will not be restricted to the number of transfers you may complete.
If you decide that you want to withdraw money from your IRA, you may be subject to some penalties and taxes depending on your age at the time of withdrawal.
The Difference Between a Roth IRA and a Traditional IRA
A traditional IRA allows investors to contribute a pre-tax income towards an account that will continue to grow and will remain tax-deferred. The amount of money that an investor can contribute to the account will depend on their age, income, and tax-filing status. Most traditional IRA’s allow investors to contribute between $5,500 and $6,500 yearly.
Investors will only be taxed when they withdraw from the account and they can claim tax deductions from their contributions. If the investor is younger than 59 ½ years old during the withdrawal, they will incur federal penalties unless they are dealing with unexpected medical bills or they are purchasing a house for the first time.
An advantage of this type of IRA is that investors can lower their current tax bracket because their contributions are tax-deductible. You can also invest more because the IRS will not deduct taxes from your original investment.
If an investor doesn’t qualify for a Roth IRA, they can contribute to a traditional IRA.
A Roth IRA allows investors to contribute their post-tax income to a tax-deferred account, but does not allow an investor to claim a tax deduction because they are taxed before they go into a Roth account. As long as the investor is 59 ½ years old they will not be taxed when withdrawing money, however if they are not at least that age, a federal penalty will apply.
An investor who is over 70 ½ years old can continue to make contributions to their account and there is no required minimum distribution with a Roth IRA, making it a great option for investors who suspect that their future tax rate will increase.
Final Thoughts
Investing can seem overwhelming but it doesn’t have to be. Finding a professional to help guide you is a great way to ensure that you’re making the right choices for your future. Investing in a Precious Metals IRA will help you to diversify your portfolio and provide you with the financial security that isn’t always guaranteed with traditional IRA portfolios.