How To Buy Physical Gold in an IRA

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Purchasing gold is one of the best ways to diversify your retirement account and grow your wealth.

Precious metals like gold are considered a good hedge against inflation and can increase in value when the stock market is experiencing periods of volatility. 

For investors looking for a solid opportunity to grow their retirement account, gold should be your next investment.

Today we're going to share how investors can buy gold with a gold IRA account.

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Benefits of Buying Gold


Buying gold in an IRA has many benefits for investors. As previously stated, gold can protect investors against inflation risks.

Inflation can ruin your portfolio, which is why it's essential to make the best investment moves to help combat it.

In instances where inflation is on the rise, it's best not to have investments in cash since the value will depreciate.

gold coins protected by a lock

The good news is that gold has been known to outperform the inflation rate, making it a wise option for investors.

Gold also provides deflation protection. Deflation is a period where prices decrease, businesses actively slow, and the economy is facing excessive debt.

While deflation such as this has not been seen since the Great Depression, gold was noted to have survived this period. The purchasing power of gold soared tremendously while other prices dropped.

The U.S. dollar is one of the world's most important reserve currencies, but it's still relatively weak. The value of the dollar can decrease considerably during periods of inflation compared to other currencies.

Gold is often seen as a better, safer investment option for investors.  There's also been an increasing demand for gold. More investors are seeing gold as a commodity that should be invested in.

For this reason, there's no better time than now to begin diversifying your IRA with gold investments.

Finding a Gold IRA Custodian


One of the first things that you'll need to do is find a gold IRA custodian.  An IRA custodian is a highly-regulated bank, credit union, or non-depository bank that is allowed to custody assets in an IRA.

Getting a custodian is required to ensure investors avoid conflict with tax regulations that often occur with self-directed IRAs.

The custodian of the financial firm you choose will have several duties, including carrying out investment activities for your portfolio and providing administrative duties needed to keep your IRA in sufficient standing with the IRS.

This process is necessary to keep you in tax-deferred status.  You have a couple of options when it comes to finding a custodian.

You can either use the financial institution's recommended custodian or you can find one on your own through the RITA website.

How to Open Your Account


The next thing you'll need to do is open your account.

Luckily, gold IRA companies will typically streamline the process to open your account to make it easy for investors to get started. 

Be sure to shop around for the best company. There are certain things that you want to look for when choosing a company.

man looking at a clipboard

For instance, it's best to choose a company that has clear fee information that's easily accessible online. Also, it's essential to look for companies that have an A+ BBB rating.

You'll also want to choose a company that offers investors several options, like options for choosing a custodian and depository, lower entry fees, low minimum threshold, and support for investment diversity.

Fund Your Account


The next thing you'll need to do is fund your account. There are several funding methods to consider. Be sure to explore all options before making a decision.

Rollover

The rollover method is a common method for many investors. This method consists of funding your new account using a portion of your retirement account. But you can also use your entire retirement account if you choose to. 

According to the IRS, there are several types of accounts you can use for your gold. Some common accounts include IRA, 401(k), 403(b), and more.

If you would like to initiate a rollover, this can be done with the help of the assigned administrator of your current retirement plan.

Individuals who are 59 and a half years or younger have no more than 60 days to get their withdrawn money into a new account. Even if you're only a day late, this can result in a penalty of 10%, which can take a hit on your funds.

Additionally, you will have to pay income tax on the funds you withdrew.

Transfer

If you're under the age of 59 and a half and don't want to deal with the potential of missing the rollover cutoff, funding your account through a transfer may be the best-suited option.

Investors won't need to worry about taxes and fees since the money never passes through your hands. It will just be transferred from one account to another for a seamless transition.

Be sure to think about how much you want to add to your new account. It's best to build a diversified retirement portfolio. If your account only holds precious metals, your portfolio won't be diversified.

Keep in mind that you won't have the opportunity to grow your account with dividends when investing in gold. As a rule of thumb, it's a good idea to limit your gold investment between 5 and 15 percent.

Cash

It's possible to fund your gold IRA account with cash, but this isn't the most ideal solution. But you may not want to fund your account with cash since you've already paid taxes on it.

One of the greatest advantages of using an IRA is the ability to capture the tax advantage that comes with it. If you plan to use cash, just make sure you've thought clearly about your decision.

Calculate Your Fees


You will incur fees when opening your gold IRA.  Unfortunately, gold IRA companies are often less than transparent when it comes to what fees are present on their website.

The best way to combat this is to calculate your fees early on so that you can set your expectations and improve your financial preparedness.

There are some common fees that you'll find associated with a gold IRA account, including account setup and maintenance, storage, and insurance fees.

There will also be markup fees to consider. This markup will vary based on the company and the precious metals you purchase.  If you find a gold IRA company that claims to not charge fees for things like account maintenance, storage, or insurance, beware.

They may not charge these specific fees, but it doesn't mean you won't pay them. These fees tend to be added to other areas.  For instance, annual fees typically come from your assigned account custodian, with fees most often due to the depository.

Rules and Regulations


There are several rules, regulations, and restrictions involved with a gold IRA. For the best success, it's essential to understand what the IRS does and does not allow to help you avoid unnecessary mistakes along your investment journey.

An Overview of IRA-Approved Gold


While the term is called "gold IRA", there are several types of precious metals you can hold like silver, platinum, and more.  It's also important to note that the IRS has requirements for metal fineness and specifications about type, weight, and size.

To learn more about the requirements, visit the IRS website for specific details. A reputable gold IRA company should also be able to provide you with details on what type of gold is approved. 

There are several common IRA approved gold products to start with. Doing some research will help you decide what type of coins work best for your investment needs.  

It's also essential to note that precious metals must either be: certified or accredited by a national government mint/certain precious metal authorities.

Holding Physical Gold in an IRA


There are many options for individuals looking to get started with precious metals like gold in a retirement account. 

If you believe that the physical possession of gold provides your portfolio with more security and peace of mind, it's best to choose a gold or silver IRA. 

Physical possession of gold is a great idea for your investment portfolio. Many investors find that storing physical gold is an ideal option, but keep in mind that storing and insuring precious metals isn't cheap. 

Additionally, getting the gold shipped to you when it's time to distribute is relatively expensive as well. This is something that investors will need to think about as they determine their distribution method later on.

Understanding Age and Retirement Limits


Gold IRAs are considered self-directed IRAs, but they function similarly to traditional IRAs. However, these IRAs have the same type of limits on contributions and distributions that you will find with a traditional IRA.

Those less than 50 years old can contribute up to $6,000 to their account. If you are 50 years of age or older, you can contribute up to $7,000 to your account.

Understanding Taxes


Another thing that you'll need to consider with gold IRAs is taxes.  There are withdrawal requirements that can affect your taxes. Withdrawing before the age of 59 and a half will result in an assessed income tax. 

This tax is based on the value of the gold. You will also receive a 10 percent early withdrawal penalty for taking early retirement. 

Taking your gold early can take a hit on your wealth. If you can manage, it's best to wait until you've reached the penalty-free age to withdraw to avoid excessive fees.

Withdrawing From Your Gold IRA


Individuals who are 72 years of age must withdraw from their gold IRA. You have two options when it comes to taking your required minimum distribution: distribution in kind and liquidating your gold. 

An "in-kind" distribution ships your gold to you. But you will need to pay for shipping and insurance with this type of distribution.  These types of distribution can reduce tax burdens.

These distributions are also a flexible and convenient option for investors to get paid. Many investors prefer "in-kind" distributions because they want to avoid the process of cashing out their stocks. 

You can also choose to liquidate your gold and allow a gold IRA company to send you your funds. In most cases, an IRA company will purchase your gold back, but they'll buy it for less than what they'll sell it for. 

Liquidating your gold is an excellent option if you would prefer to have cash. Many people prefer cash for several reasons. Having cash can be beneficial in the case of an emergency, it's practical, and you'll also receive good money for your gold. 

Whether you choose an "in-kind" distribution or liquidate your gold, just be sure that the decision makes sense for you. Think about your short-term and long-term goals to help you decide the best way to distribute them.

FAQs


  • What is a gold IRA account?

A gold-backed IRA is essentially a self-directed IRA. A gold IRA can hold several alternative assets that help investors diversify their portfolios. 

It's important to note that self-directed IRAs are typically more expensive than other types of retirement savings accounts available. This is due to the additional layers of oversight and administrative work that are needed to maintain these accounts. 

The fees associated with a self-directed account can add up rather quickly and can reduce your returns.

For this reason, it's essential to understand the fees involved when opening up a self-directed account and make sure that you're comfortable with your overall return on investment.

  • Can you hold physical gold in an IRA?

Yes, you can hold physical gold in an IRA account, according to IRS regulations by placing it in a precious metals IRA. But if you would like to keep gold in this type of IRA, it must be kept in an approved institution.

Note that it's not possible to keep your gold at home or in a safe deposit box.  It's also important to note that gold IRAs often come with more expensive fees compared to traditional IRAs.

If you just want to purchase gold or silver, it's possible to buy gold outside an IRA.  If you have a standard retirement savings account and want to invest in gold for your portfolio, you can consider buying gold ETF.

This is a type of account that tracks the performance of gold.

  • How do I own gold in an IRA?

The idea of owning gold can sound complicated for some, but the process is quite seamless. Gold IRA companies are essentially precious metal dealers. The company will facilitate the creation of an IRA that enables you to hold precious metals like gold. 

A gold IRA company may direct you to an IRS-approved custodian and depository institution where you can physically store your gold.

  • What is considered IRS-eligible gold?

Most gold coins are minted specifically for collectibles. For this reason, there are very specific regulatory requirements that define which precious metals are suitable for investment. 

The reason for regulatory requirements is to ensure that investors are maintaining investment-grade assets in their accounts rather than just holding collectible items.

For more clarity, don't forget to check out the IRS's specific requirements regarding size, weight, and metal purity. These requirements help investors understand what kinds of coins and billions can be held in an account.

Final Thoughts

Gold IRAs are a great alternative for investors looking to build their retirement wealth. When you invest in gold, you are essentially turning part of your portfolio into a precious metals investment.

While turning your entire portfolio into gold isn't ideal, adding gold to diversify it is a good idea.  Investing in gold is deemed one of the best hedges against inflation and can provide a sense of security for investors.

Gold IRAs are self-directed. As such, investors can expect several fees that they'll need to pay attention to.

Some common fees associated with a gold IRA are seller fees, retirement account setup, custodian fees, storage fees, and cash-out costs. 

It's also important to note that distribution rules for a gold IRA are the same as a traditional IRA. Investors should make themselves privy to these rules to avoid early withdrawal penalties.

Though gold can be a great hedge against inflation, it's still important to be mindful of how much gold or other precious metals you invest in.

The potential returns can be high but the prices of gold can plummet unexpectedly. All investors should manage risks and plan accordingly. 

All in all, if you're considering investing in gold, talk with a financial advisor. An advisor will help you determine how the metal will fit into your portfolio and can help you come up with an investment strategy.

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