Ever since the United States abolished the gold standard from its monetary system, the value of the yellow metal has more than quadrupled, making it a lucrative and secure form of investment. Gold and other precious metals have become another investment option for many retirement planners. This was made possible by the creation of the Gold IRA account, which is an Independent Retirement Account that legalizes investing in physical gold and other precious metals with the funds in your retirement savings account.
Gold increased in popularity due to its superior performance, stability, and security during times of economic downturn or political instability when fiat money and dollar-based investment options like stocks and bonds rapidly lose value.
In this article, we will talk about everything you need to know about a Physical Gold IRA.
What Is A Physical Gold IRA?
Like the name implies, a Physical Gold IRA is an Independent Retirement Account that allows the holder to invest in physical gold assets and other permissible precious metal products. In other words, a Physical Gold IRA enables the account holder to invest in physical gold products such as gold coins, gold bars, and bullion as well as physical silver, platinum, and palladium. The typical retirement account such as a 401K or traditional IRA account allows only dollar-bound assets such as stocks, bonds, and mutual funds. However, a gold IRA allows you to invest in a wide range of options which are not allowed in regular retirement plans.
A Physical Gold IRA is extremely versatile regarding the assets it permits, making it one of the best retirement plans for diversifying your retirement portfolio. Not only can you invest in physical gold assets and silver, platinum and palladium, but you can also invest your Gold IRA funds in gold-backed paper assets including the stocks of companies mining gold and other precious metals accepted in the physical gold IRA, precious metals mutual funds, precious metals commodity futures and Exchange Traded Funds (ETFs) among others. Physical Gold IRAs also permits investments in real estate, private equities, commodities and several assets which can’t be held in traditional retirement accounts like the 401K and traditional IRAs.
What’s Unique About The Physical Gold IRA?
In addition to supporting precious metal investments, a physical gold IRA is a Self-Directed IRA. By self-directed, it means the holder of the account is in charge of making all the investment decisions regarding the IRA. In a traditional retirement plan such as a 401K or Roth IRA, the custodian or administrator of the account makes all the investment decisions on behalf of the retirement investor. However, a Physical Gold IRA gives you unrestricted control of your retirement funds, while the custodian only implements your investment decisions and takes care of the daily management of the IRA.
A Physical Gold IRA allows you to select the assets that will go into your IRA. All you need to do is research an investment option and give instructions to your custodian about the percentage of your retirement funds that should be invested into the asset. This enables you to diversify your retirement portfolio far beyond what traditional IRAs can offer. The only issue with this freedom is that it leaves room for a lot of errors. If you are not sure of an asset, it’s important to seek professional help before making any decisions that can hurt your retirement plans.
Opening a physical Gold IRA requires the same process as opening other types of retirement accounts. However, a gold IRA offers some management complexities not present in traditional IRAs due to the investment options it can accommodate.
This is why Physical Gold IRA custodians are often specialists who have extensive experience and know-how in managing a wide range of investment assets out of the scope of dollar-bound investments.
It’s important to state that the administrative fees of gold IRA custodians are often higher than traditional counterparts, and this is largely due to the complexity of the management work they provide. You should consider several factors before choosing a custodian, including the following.
One of the most important factors to consider when choosing an IRA custodian is the legitimacy of the company. Often, people get swindled of their retirement savings after choosing scammers posing as real professionals.
To avoid any unfortunate occurrence, it’s important that you do your research and exercise a lot of restraint before selecting any company. Most custodians are typically banks, brokerage firms, insurance companies among others. Make sure to do your homework before choosing any financial institution to manage your gold IRA account.
Look for custodians who have an impressive and verifiable success record in the industry. Customer reviews are one of the best ways of knowing how a company treats its customers, so check out what their customers are saying about their services. Also, compare the fees of different custodians before settling for a company that provides the best services at an affordable price point.
A Physical Gold IRA requires a third-party depository to keep the gold or precious metal assets bought with the funds in the account. This means that you also have to find a reputable third-party depository approved by the IRS. It’s better to open your gold IRA account with a custodian that also provides depository services. But if you must use an IRS-approved third-party depository, make sure to be clear about their insurance coverage, fees, storage policies, security and safety, and track record.
Another way of opening a Physical Gold IRA is through a checkbook. This type of gold-backed IRA is available to people who own a limited liability company with a checking account. The checkbook IRA makes you the sole administrator of your gold IRA without the need for a custodian. But a checkbook IRA is more expensive to run compared to other types of IRAs. If owning a checkbook, IRA is the convenient option; then it’s worth it.
Types Of Gold Investments Allowed In A Physical Gold IRA
The IRS has strict regulations guarding the types of precious metals that can be held in a Physical Gold IRA. According to the rules of the IRS, only gold products of 99.9 per cent purity or 24 Karats can be held in a gold IRA. However, the IRS makes an exception for the American Eagle coin which is a 22 karat gold coin. Selected gold product from other state and private mints can also be held in the gold IRA. You can also add the following gold coins to a Gold IRA in addition to American-made and privately-refined gold products.
- Austrian Philharmonics
- Canadian Gold Maple Leaf Coins
- British Gold Britannia Coins
- South African Gold Krugerrand Coins
- American Gold Buffalo Coins
- Chinese Gold Panda Coins
Silver, Platinum, and Palladium products that meet the regulations of the IRS can also be held to a gold IRA account. Also, you can add the stocks of mining companies and other gold-backed investments.
There are three main methods of adding funds to your gold IRA. The simplest way is through the annual contributions you make into the account. The IRS stipulates the maximum amount of money a person can add into their Gold IRA account, and the limit changes year after year although it stays close to $55,000. Besides the direct contributions, you can also fund your account through a direct transfer and a rollover.
A rollover is a way of sending the funds in your old retirement account into another retirement account. In a rollover, your old custodian issues a check of the amount you want to transfer, and you must deposit the said amount into your Gold IRA within 60 days or risk tax penalties from the IRS.
A direct transfer involves sending your retirement savings directly from your old retirement savings account into your new Gold IRA account without you having any contact with the funds.
When your Physical Gold IRA has been funded, what’s left is to start investing with your self-directed IRA. You can choose any asset you like to buy, and your custodian will do the rest. However, it’s important to seek the professional help of a financial adviser or tax lawyer to ensure that you make the best investment choices without running afoul of the IRS.