Saving for retirement is a priority for most working people. There are several retirement options available for people who want to plan for life after work, one of which is a Gold IRA. Unlike traditional retirement plans such as the 401K and Roth plans, the gold IRA allows you to invest your retirement savings in gold and other precious metals. Read on to learn more about the gold IRA.
What Is A Gold IRA?
In simple terms, a gold IRA is an IRA account that allows investments in gold coins, bars, and bullion instead of the dollar-bound stocks, bonds, and mutual funds known to 401Ks and traditional IRAs.
A Gold IRA account holder can also invest in other precious metals such as silver, platinum, and palladium from mints approved by the IRS. The IRS also allows funds in a Gold IRA to be invested in gold-backed paper investments such as the stocks of gold mining companies, precious metals commodity futures, precious metals mutual funds, and Exchange Traded Funds (ETFs). Self-directed IRAs, as gold IRAs are also known can also be used to invest in real estate, private equities, and many other options which are not available in traditional retirement plans.
As said above, a gold IRA is self-directed. When we say self-directed, it means the Gold IRA account holder is responsible for making all the investment decisions with regards to the account, unlike traditional options like the 401k where the administrator of the account takes the decisions.
With a Gold IRA, you can choose any investment you want to go into your account. You only have to choose the asset, and direct your custodian to invest in the assets with a specific percentage of your savings. The good thing about this is that you can take advantage of the multiple options allowed by the Gold IRA to make huge gains. But you may be hurt badly if you made the wrong call. This is why due diligence is important before making any investment decisions with your retirement funds.
How Do You Get a Gold IRA?
A Gold IRA is different from other IRAs because it requires buying and storing precious physical metals. This creates a management complexity, which is why the account needs a custodian. A gold IRA is usually a financial services company such as a bank, brokerage firm, insurance companies, and others.
Custodians are specialists in managing the investments that are allowed in a Gold IRA account by the IRS. Because the management of a gold IRA is more complex than other IRAs, the administrative fees also tend to be higher, but so is the reward of investing in many options not permitted in regular IRAs.
Before choosing a custodian to hold and manage your gold IRA account, you need to do some research and due diligence. There are thousands of IRA custodians out there, but many are swindlers waiting for the next victim to defraud. You don’t want your retirement savings to disappear into thin air.
The ideal custodian must have been an active player with a lot of experience in the industry. Check out their history, how they relate to customers, their fees, website design, and whether they offer depository services. The IRS doesn’t allow people who own gold IRA to keep the gold or other precious metals they bought privately.
The precious metal has to be kept at an IRA-approved third-party depository. A custodian that offers depository services is usually preferable. Compare prices of different custodians and look out for any skirmishes between the companies and their customers and how the differences were resolved.
Check Book IRA
Some people may be able to open a gold IRA without a custodian, but you can only do this if you have a limited liability company that has a checking account, which is why it’s called Checkbook IRA. A checkbook IRA allows you to hold your precious metals in a safe-deposit box, i.e., you will not need the services of a custodian to run your gold IRA.
However, the cost of setting up and maintaining a checkbook IRA is far greater than using a custodian. If you have the cash to spare and have the prerequisite qualifications, the checkbook IRA will allow you to invest your IRA funds in precious metals and also keep it all by yourself.
What Types of Gold Products Are Allowed in a Gold IRA?
The IRS has stringent rules regarding the precious metals that can be held in a precious metals IRA. While you can invest in precious metals with the funds in your Gold IRA, only gold coins of 99.9 per cent purity can be held in a gold IRA, i.e., 24 karat gold products except for the 22 karate American Eagle Coin. Coins from the US Treasury as well as gold products from Canada, Australia, Britain, China, Austria, South Africa, Mexico, and selected private companies are allowed. The following gold products are allowed in a Gold IRA account.
- Austrian Philharmonics
- 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.
Custodians have different policies regarding the gold coins they hold, with some accepting only US Mint gold products while others may also hold gold from other parts of the world. When choosing any custodian, be sure about their policies before investing in them.
How To Fund Your Self-Directed IRA
Before you can start investing with your Gold IRA, you have to fund the account. There are several ways of funding a self-directed IRA. One method is to make monthly contributions like in every other retirement savings accounts. You can also rollover or transfer the funds from another retirement savings accounts such as a 401K account or traditional or Roth IRA into the Gold IRA.
In a rollover, you go to your old retirement funds administrator with paperwork from your new custodian stating your intention to transfer your funds in the old account into the new gold IRA. The administrator will then issue a check for the funds in your account, and you must deposit the funds into the other account within 60 days after which the IRS will tax you on the money as income and also penalize you for withdrawing funds from your retirement account before attaining the age of 59 ½.
In a direct transfer, you don’t see the money at all. You complete the paperwork to get the funds transferred, take it over to your old administrator and the money gets transferred from your old retirement plan to your new gold IRA.
Investing In A Gold IRA
Because it’s a self-directed IRA, you are in charge of all the investment decisions; your custodian is more or less an executor for your plans. When you see an asset that interests you, notify your custodian about it and provide instructions about how much of your savings should be spent on investing in that asset.
The custodian does not offer financial or legal advice about the financial or legal implications of whatever you try to do. This can lead to a lot of problems if your investment decisions are against the regulations of the IRS. You surely don’t want to get entangled with the taxman. To avoid any missteps, always retain a financial adviser and legal adviser to guide you through any grey areas regarding investing in your Gold IRA and the tax implications of your choices.
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