How Does a Precious Metals IRA Work?

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A precious metal IRA can be an important part of your retirement investing. Having one might give you serious protection from rising inflation. However, you need to know the IRS rules that encompass these tax-advantaged opportunities.

Investing in precious metals can be a great hedge against many kinds of economic uncertainty. Invest long enough, and you might have to weather a recession or two.

Also, inflation can erode the buying power of your money, whether it creeps up on you over a long time or spikes soon.  Gold and silver are precious metals you can buy personally.

However, doing so through an IRA can provide you with serious tax benefits on top of the benefits of investing in precious metals. Still, you need to know how to open one, potential alternatives, and how to avoid scams.

First, What Is a Precious Metal IRA?

As with mainstream IRAs, you have two choices. One is the traditional IRA, and the other is the Roth format. You get tax advantages in both cases, although each one has a different structure. 

In a traditional IRA, your contributions might be tax-eligible, and money grows in the account with deferred taxes. Retirement withdrawals are taxed just like regular income, but there is a 10% additional penalty for anything withdrawn before you turn 59 1/2.

Once you turn 72, you have to start taking the required minimum distributions, which are also called RMDs. 

The Roth format doesn't have any immediate tax benefits, as they are funded using after-tax income.

The money grows free of taxes and is then withdrawn in retirement free of taxes, but 10% penalties apply for withdrawals before you turn 59 1/2. There are no RMDs involved with a Roth account. 

If you are under the age of 50, then you can contribute as much as $6,000 per year to your precious metal IRA. Anyone 50 and up can make yearly contributions of as much as $7,000.

There are income limits and other rules that govern who can make account contributions. Gold and other precious metals are deemed by the IRS to be alternative investment classes.

As such, you can only hold them in a self-directed individual retirement account. Physical precious metals aren't investment options for mainstream IRAs.

Why Invest Physical Precious Metals in Your IRA?

You can have cash in an IRA, but that is devaluing at a rapid pace and inflation is out of control. 

You need an asset that's dependable, retains it's value, and even increases in value over time, and there is no better asset for this than gold. 

With the world's economy struggling through lockdowns, shortages, wars, and inflation, uncertainty has never been higher and investors are protecting themselves by placing physical gold in IRA's. 

A gold IRA investment prospers from these crisis that negatively affect most other assets. 

Risk is knowing the economic dangers and doing nothing to protect yourself and your family. 

Safety is knowing the economic dangers and taking action to protect your financial future, and this is easy to do with a precious metals IRA.

Which Precious Metals are Eligible for IRAs?

The IRS has strict limits on what you can put inside your IRA. Collectibles and rare coins are usually prohibited. That's because their prices might be subject to both spot prices and market preferences at the same time.

Gold products are the primary option in most cases. Rounds and bars must be at least 99.5% pure. Specific examples include American Eagle, Australian Kangaroo, and Canadian Maple Leaf coins.

Silver precious metal products are also known to hedge against market issues and inflation.

You can invest in many silver metals that have a minimum purity of 99.95%. Specific examples include Chinese panda, Australian Kookaburra, and American Eagle coins. 

Platinum and palladium products must all be 99.95% pure. Canadian Maple Leaf coins made out of platinum are eligible. Platinum options include Isle of Man Noble, Australian Koala, and American Eagle coins. 

Anything you invest for your precious metal IRA has to be bought through the account. Coins and metals already in your possession aren't permitted. 

You also have to store them with an approved depository, as personal or home storage will void your tax benefits and possibly even incur penalties.

How Do You Open A Precious Metals IRA?

Starting a mainstream IRA is usually pretty easy. Since gold and precious metals are considered an alternative investment class, the process involved is a bit more complex.

Not every IRA brokerage can handle a self-directed IRA, so you have to do your homework to find someone reputable.  Some of the biggest names you might turn to for an IRA, such as TD Ameritrade or Vanguard, don't do SDIRAs.

Only a select handful of custodians do, and some of them only do precious metals. Examples include Goldco - who is our top recommendation for precious metals IRAs, Augusta Precious Metals, American Hartford Gold, and Birch Gold Group. 

Funding your account can happen in one of two ways. The first is making contributions within the annual IRA limits already mentioned.

You can also do a rollover from a previous IRA or 401(k) plan, which might be necessary to hit the minimum opening balance requirement some gold IRA brokers have.  You'll have to pick a dealer for your precious metals that buy them for you.

Anything you purchase gets sent to a depository. Options such as Patriot Gold Group and Goldco know how to buy precious metals within the government rules and keep you in alignment with them. 

Once that's all set up, you'll have to choose what metals to buy. As long as you buy within the IRS guidelines, you can choose coins, bars, and rounds that you like or prefer. Most dealers will mark which products are worthy of inclusion. 

Picking a depository might not seem like a huge decision, as most of them are very secure facilities. However, you have to choose one if you want the tax benefits. Fees and distance from where you live will vary.

How do You Make Withdrawals from Your Precious Metal IRA?

The primary intent behind IRAs is retirement savings. As such, the assets you put into one of these accounts are intended for long-term investing.

Taxes are not an issue if you sell your precious metals so long as the money stays inside the IRA, but withdrawals are a different story. 

You can make a precious metal IRA withdrawal in one of two ways. The first is a cash withdrawal. The second is an "in-kind" distribution.  

With a cash withdrawal, the depository, custodian, or broker will simply buy your metals from you. You'll never have them shipped to you. Instead, you get a wire transfer or check. 

An in-kind withdrawal is different because the depository will physically ship you the precious metals.

In a traditional IRA format, you will be subject to taxes. If you decide on this option, be sure you know where you're going to store your metals and make arrangements for proper insurance. 

In either case, you need to remember that anything you withdraw before age 59 1/2 might wind up getting hit with the 10% penalty. Look into other options you might have for cash flow needs if you can. An early withdrawal might not make the most sense.

Are Precious Metals IRAs Worth It?

A precious metal IRA can be a smart move for many investors. Between the tax advantages and the benefits of diversifying your portfolio, there are certainly potential upsides.

However, you need to be mindful of the costs and steps involved, as there might be other options. 

The depository and custodial costs can add up. Other expenses, such as account creation fees and precious metal markups, might also eat into the potential profit. Even selling can incur some costs, so you might not get the spot price when you cash out. 

There are alternatives to owning physical gold.  Certain ETFs can let you profit off the precious metals industry without actually owning any physical metals. Some strategic asset funds might also be viable choices.  

An ETF can prove convenient because you buy one and then maintain it inside a mainstream IRA. By doing that, you can mix and match them with other assets, including mutual funds, stocks, and bonds.

ETFs don't require a lot of active management on your part.

Strategic asset funds might be even better. A gold ETF will track the price of gold, but a strategic asset fund might own physical gold assets, so you don't have to. However, there might be minimum requirements in terms of income and assets you invest. 

However, if you invest in precious metals or the surrounding industry, always do two things. First, do your homework and research. Second, diversify. 

You might know a lot about stocks, bonds, and real estate just from daily news media. Precious metals are very different animals. You need to learn all you can about this alternative asset class. 

Diversification is also crucial. The real power of precious metals is how they often move in different directions than paper-based assets, but you can't benefit from this if you put everything into precious metals or just too much.

Make sure you have your portfolio balanced between many different asset classes.

Scams Are Out There

The Commodity Futures Trading Commission is one of them. They have several things they point out that people should watch out for.

That is also why at, BMOGAM Viewpoints we created our list of the Top Precious Metals IRA Companies because we have spent years investigating the precious metals industry an have narrowed it down to the very few, most trustworthy companies. 

First, be wary of promises of huge returns from investing in precious metals. This often happens online, through unsolicited calls, and TV and radio ads. Precious metals have promise, but no investment is a sure thing. 

Second, watch out for high-pressure sales tactics. One common giveaway is that they name-drop people of influence, such as politicians or celebrities.

They might also give you the impression that "smart" investors are already invested in what they have to offer. 

Third, one red flag is a financing agreement that lets you pay just a percentage or fraction of an investment's stated value. This is usually just another brick in a pyramid scheme that finances someone's lavish lifestyle. It's unlikely you'll ever see a cent back.

Fourth, don't sign agreements that have missing information. Where is the actual physical metal located now or in the future? Are the names of financial institutions missing? 

Any salesperson you talk to should be able to give you their professional licensing information. You can also confirm this through the website of the National Futures Association. Alternatively, call the CFTC toll-free at 866.366.2382. 

Anyone you talk to needs to be able to explain their investment options in terminology you can easily understand. If they're not able to, walk away.

While the precious metal industry does involve a learning curve, it's not so steep that you can't even know what's going on.

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 Precious Metals IRA Companies. <<