Ever since the IRA regulation on investing in precious metal with IRA funds was changed, people have opted for Gold or Precious metal IRAs that enable them to invest in Gold, Silver, Palladium and Platinum. The reason for investing in gold and other precious metals is to protect cash from the uncertainties of the paper money as the value of gold and other precious metals usually move inversely with the value of the dollar.
So the reasoning is that if some of your wealth, in this case, IRA funds were domiciled in precious metals with relative stability, you will have something to fall back upon when a monetary crisis wipes out the value of paper money. But that is not all there is to the matter of buying gold. You must understand the process of investing in precious metals before you invest your pension funds. Even when they are relatively stable, gold and other precious metals also behave according to some market forces. You should do your homework to protect your investment.
First, you need to have an IRA account before you can invest in a Gold IRA. But not every IRA provider is licensed to operate a Gold IRA. Before you open the account, make sure your IRA custodian is empowered to operate a gold IRA. If that is settled, then you can fund your IRA with either direct deposits or a 401(k) rollover. After funding your IRA account, you can now go ahead and use some of the funds to invest in gold.
However, you are not authorized to invest personally. The custodian of your self-directed IRA account is the entity 
allowed by the IRS to invest in gold with the funds in your IRA account. Whenever you want to buy gold with your IRA investments, you need to give your IRA custodian or trustee instructions on the amount of your IRA funds you intend to invest in gold. The custodian will be responsible for buying the gold according to your instructions.
Furthermore, you can’t take physical possession of the gold or store it by yourself. After buying the gold, your custodian will store it at a third-party depository approved by the IRS.
While a gold IRA allows you to invest your IRA funds in gold, there are strict guidelines to be followed when investing your IRA funds in gold. The IRS strictly specifies the types of gold that are allowed in an IRA. One of the functions of your custodian is to tell you about the types of physical gold you can buy within the IRS rules.
Different types of gold products are allowed in the IRA portfolio. You can buy gold coins and bar minted in the US and some selected foreign mints. Also, the gold bars and coins must be 99.9 per cent pure or 24 karat gold before you can include them as investments in your IRA account. An exception is made for the 22 karat American Eagle coin, so your trustee can buy them to diversify your IRA funds.
Some of the other coins and bars allowed in a precious metal account are:
- Canadian Gold Maple Leaf Coins
- British Gold Britannia Coins
- South African Gold Krugerrand Coins
- American Gold Buffalo Coins
- Chinese Gold Panda Coins
- Gold Bullion bars of minimum purity produced by approved mints.
Most of these gold products have a low premium, which makes them ideal for investment.
When you want to invest in gold, it is essential to buy gold with small premiums if you’re going to make some profit on the transaction. Premiums are usually additions to the spot price of gold which helps the manufacturer cover the cost of production. A thumb of rule to remember is to always buy at or very close to the spot price of the gold product. If you are going to buy above the spot price, make sure you don’t go over 10 per cent of the spot price. This is because buying at a higher premium makes it harder for you to make a profit when you want to sell the gold.
The premium of a gold product is calculated by deducting the spot price from the price you bought the gold, then divide your answer by the spot price and multiply by 100.
For example, if you bought an ounce of gold at $1250 while the spot price was $1200, the premium of the gold is 4.2%. What this implies is that the price of gold has to rise over 4.2 per cent before you can make a profit on your gold bar.
The choice you make depends on the reasons for investing. If you are investing in the long term and won’t be liquidating the gold anytime soon, it’s better to buy as close to the spot price as possible. But you can buy at a higher premium if you wish to liquidate the gold and cash it in the short term, although this might attract some tax on the profit. To avoid breaking the law, discuss with your custodian about any gold investments before buying. You should also seek the advice of a tax attorney to understand the tax implications of buying and selling different types of gold products with your gold IRA account.
Investing some of your IRA funds in gold makes a lot of economic sense as it helps diversify your investments in case of an economic meltdown that results in the dollar quickly losing its value.
Investing in gold requires having some insight into the workings of the gold market. You should take some time to learn about buying gold correctly so that you can enjoy the maximum benefits of your investments and increase the value of your portfolio as the years go by. Remember your IRA is your pension plan for a comfortable retirement. Don’t take any action that you may regret in the future. Gold and other precious metals can be alluring, but wrong
investment choices in precious metals can quickly fritter away the value of your portfolio.
It also helps to follow some due diligence when choosing a custodian. Whether your custodian is a bank, a trustee agency, or a financial institution with a license to provide custodian services for a gold IRA account, make sure to check out the history of the custodian. In addition to a track record of responsible stewardship of clients’ IRA accounts, you should remember to consider the fees charged by the custodian. The higher the custodian fees you have to pay, the more deductions that will be made from the profits of your gold investments. You should also check out the third-party depository that will be responsible for safeguarding your physical gold.
- What is the level of security provided for your investment?
- Do they have enough insurance cover in case of an armed robbery?
- How much do you have to pay for the service?
All these ultimately affect the statement of your IRA account at the end of the month.
Do your homework and make sure your retirement funds are in the best hands. After all, you could have kept it in a safe at home, or somewhere only you and your spouse know about. When investing in gold, make sure you are looking out for pitfalls in your decisions and steer clear of tax issues.
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