How Does a Gold and Silver IRA Work?

Disclaimer: We are reader supported.  We may be compensated from the links in this post, if you use products or services based on our expert recommendations. Please read our Advertising Disclosure.

There is no shortage of options for how to manage your retirement. Thankfully, individuals have a variety of funding sources available to them, including pensions, 401Ks, social security, and IRAs.

Unfortunately, the sheer breadth of available funding measures can also be overwhelming.

How can you choose and fund a retirement option that's right for you?

Why You Should Consider Owning Physical Gold

There are answers and a few basic principles that can help you select a retirement method that best fits your needs. One of the most obvious is that you shouldn't put all your eggs in one basket.

It is vitally important that you select retirement options that ensure you can have the money you need to live your golden years, no matter what the market conditions are like. 

This is one of the reasons that a gold and silver Individual Retirement Account (IRA) may be right for you. The sheer amount of increase in the price of precious metals is another.

Gold has risen more than six times in value since 1999, a rate of increase that far outstrips most stocks or bonds. As a result, many have found that there are major advantages to investing in this option for their retirement.

What is an IRA?

An IRA is a critical component for financial planning purposes. IRA stands for tax Individual Retirement Accounts. 

They are tax-advantaged accounts that allow an individual to plan for retirement but do so in a way that will give them certain tax benefits.

In other words, they are part of the government's efforts to ensure that Americans are adequately preparing for their retirement.

IRAs come in many different varieties. The most common is a Traditional IRA. In a traditional IRA, you deposit into an account, which is then invested. You are not taxed on the money you contribute to an IRA, and the gains are not taxed either. 

As such, your money grows tax-free. You are taxed on withdrawals, but most people are in a lower retirement bracket when they retire, thus creating a tax advantage. 

A Roth IRA is reversed: You are taxed on your contributions but not your withdrawals. Your investment gains do grow tax-free. This option is often a good one for individuals who are retiring but anticipate that their income level will rise in their retirement. 

There are also more unique kinds of IRAs, like SEP or SIMPLE IRA. Both of these IRAs are built for self-employed individuals and are meant to incentivize small business owners to contribute to their retirement accounts. 

All retirement accounts have income or percentage limits.

As such, you will have to work with a financial planner to make sure you are not exceeding these limits and to determine the best way to put more income into retirement accounts if you are hitting these limits. 

While the specific tax status of these IRAs varies slightly, the end goal is the same: They are part of an effort to get people to fund their retirement. Most individuals will use financial professionals to invest in IRA accounts.

These accounts are comprised of stocks, bonds, and other paper financial investment mechanisms. They are professionally managed and usually gain value over time.

What is a Gold and Silver IRA and How Does it Work?

Gold or Silver IRAs operate very similarly to traditional IRAs. They have the same tax-advantaged status and contribution limitations. 

However, instead of containing stocks or bonds, they contain either of these precious metals. With a gold or silver IRA, you are buying physical gold or silver. You can only make these purchases from an IRA-approved broker.

Once you buy the gold or silver, it is yours, although you cannot simply access it whenever you want. You will then hold the precious metal and allow it to gain in value over time.

When you retire, you will sell the asset and take the distributions as part of your retirement. 

There is one way in which you can use a gold or silver IRA to buy a stock or bond: You are allowed to use such an IRA to buy stocks or bonds from gold or silver companies.

You can also purchase an ETF or mutual fund that deals with one of these precious metals. However, you can also do this with a traditional IRA. Doing so within the context of a gold IRA might be a nice way of further diversifying your accounts.

In this sense, a gold or silver IRA works very similarly to a traditional one. You make a pre-tax contribution to an IRS-approved account and use the money from that account to invest in an asset.

You then manage that asset, allow it to grow, and make withdrawals when it is time for retirement. In the case of a traditional IRA, you will also pay taxes at that time. 

Furthermore, like traditional IRAs, you can make hardship withdrawals if needed. This allows you to access the funds early if you are experiencing some sort of financial crisis. Again, just like traditional IRAs, you will have to pay a 10% penalty, as well as taxes.

How can You start a Gold or Silver IRA?

Fortunately, you can start a gold or silver IRA by using one of any potential methods.
Most people will first speak with their Certified Financial Planner and ask for recommendations.

In some cases, the CFP may be able to point them toward a trusted coworker who can asset an individual in starting the gold or silver IRA.

These referrals often come with many advantages, including the comfort of knowing that they come from a trusted expert. This also likely means that the CFP can help keep your fees low.

Any individual can also start a gold and silver IRA. However, to do so, you must contact a trustee or custodian who has completed all necessary IRS paperwork and has all certifications.

They will walk you through the process, which will include setting up the account, funding it, and providing you with all the necessary paperwork.

This will enable you to monitor the price of your IRA and make determinations about when to buy or sell additional metals.  You will be able to buy or sell metals at a time of your choosing.

However, until you take distributions, all gains will be locked into the account. You can also buy the metal in any form of your choosing, including coins, bars, or more. 

While you can spend time finding a specific precious metals IRA custodian, the good news is that there may be one right under your nose. In many cases, Certified Financial Planners are certified brokers and can buy and sell gold for you.

Other times, you can find a bank, credit union, or more. The amount of certified brokers has risen with the demand for physical gold IRAs.

How Does a Physical Gold and Silver IRA Help My Retirement?

Though it operates differently from an IRA that has traditional financial tools, gold and silver IRAs do work the same way in terms of how they can help your retirement.

Gold, silver, and other precious metals gain value, and they have historically done so over time. These precious metals have a long history of doing well from a historical perspective. Over certain periods, they may outperform traditional stocks or bonds. 

When the value of the precious metal you purchase is greater than the value you bought it, you will gain money in your IRA.

Indeed, this is one of the chief benefits of a gold and silver IRA: It can help diversify your retirement holdings and ensure that you have a mechanism in place that can gain value, even during difficult economic times. 

Gold, silver, and other precious metals tend to outperform stocks and bonds during recessions. Furthermore, gold has usually done well in inflationary times, like the ones we are experiencing today. 

Some advisors also recommend diversifying within the precious metal field. This helps explain why many don't just sell gold and silver IRAs but also platinum and palladium.

By further diversifying the precious metals you own, you can better hedge against any potential difficulties that may arise from buying in just one asset class.

How can You Take Distributions from a Gold and Silver IRA?

 Just like a stock or bond purchase, the gain in value is unrealized until you sell the metal in question. You can do that at a time of your choosing.

However, like any other IRA, you cannot take withdrawals until you are at least 59 1/2, or without taking a hardship penalty. 

Once the sale is completed, you can begin to transfer the proceeds of that sale out of your IRA and into a bank account of your choosing. At this point, the money is yours. Of course, depending on the type of IRA you have, you will need to pay taxes on the sale. 

Furthermore, you will have to pay any transaction-related fees, as well as fees for the storage of the precious metal. Indeed, one of the main drawbacks to any gold or silver IRA is that there are higher fees than there are on more traditional IRAs.

What Unique Restrictions Exist with Gold and Silver IRAs?

While there is considerable overlap that comes with a gold or silver IRA, major differences also exist that make it somewhat more difficult than a traditional IRA.

While a gold or silver IRA is self-directed - meaning you have extensive control over where the money goes - that is not to say that you can access the gold or silver whenever you want or simply buy gold or silver from a local pawn shop and have that count towards your retirement savings.

You must buy the gold or silver only from an IRS-approved broker. In turn, they can only buy the gold or silver from an IRS-approved vendor, who must keep the gold or silver in an IRS-approved storage mechanism. 

This places some additional restrictions on your investment. You cannot simply take your gold and place it in an IRA account - you have to make the purchases in a manner approved by the IRS.

This means you can't access the gold or silver whenever you want, and you cannot simply take it out at a time of your choosing. Furthermore, you cannot turn gold or silver that you own into your retirement account.

You have to buy the gold or silver from an approved broker to access it for retirement purposes.

You can get a Free Gold Investors Guide from our top gold and precious metals company recommendation by clicking the link above or you can read our article of the top companies we reviewed this year:

>> CLICK HERE to read our list of the Top Gold and Silver Companies. <<