How to Use a Self-Directed IRA to Invest in Gold and Silver

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When the stock market fluctuates, it’s common for investors to look for investments that are safe, like precious metals.

While palladium, silver, and gold all come with different volatility issues, many people believe these metals are superior long-term investment options that can grow or retain value. 

While you can’t hold your precious metals in a traditional IRA or Individual Retirement Account, you can choose a specially designed precious metal IRA. This account allows you to invest in your retirement using palladium, gold, silver, and other precious metals.

But how do you use one of these self-directed IRAs for silver or gold investments?

Keep reading to learn how.

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Defining a Self-Directed IRA

gold coins protected by a lock

A precious metals or gold IRA is a self-directed retirement account where you can deposit your retirement funds.

They are subjected to the same tax advantages as you’d get with a more traditional, standard IRA, but the main difference is what you can invest. If you have a traditional IRA, you can invest in mutual funds, bonds, or stocks.

However, if you choose a self directed IRA, you can include these assets along with silver, gold, or other precious metals.

Precious Metals Should Consist of How Much of Your Retirement Strategy?

You should be conservative if you decide to invest in a self-directed IRA for gold or silver.

Depending on your finances, you should consider not exceeding 5% to 15% of your retirement funds in gold, silver, or other precious metals. 

a couple listening to a financial advisor

There are several reasons for these percentages. First, any solid retirement portfolio should be diverse. So, you shouldn’t take unnecessary risks by investing solely in a single asset type. 

For example, no trustworthy financial advisor would tell you to put every asset you have into gold or silver. 

Additionally, even though precious metals like gold and silver have held their values over long terms, they may show a performance lag over other asset types, like stocks. This is even more apparent when you consider reinvested dividend growth potential.

So if you want to keep your retirement funds growing, you could shortchange yourself by putting everything in gold or silver. 

Finally, it’s important to note that these so-called “safe haven” metals aren’t a sure thing. Investors commonly turn to them when the stock market fluctuates or during inflation, but they have a history of being just as volatile as traditional stocks.

Even though the prices of precious metals tend to go up when the stock market drops, they tend to fall back off as stocks recover.

If you’re looking for inflation hedging or want paper or digital assets instead of physical ones, you may be better off choosing TIPS (Treasury Inflation-Protection Securities) or high-quality bonds.

With this being said, if you want to add precious metals like silver or gold to your portfolio, you have options.

Acceptable Precious Metals You can Invest

When you open one of these accounts, you can invest in palladium, platinum, silver, or gold. However, you can’t invest in just any quality with these precious metals.

The IRS outlines specific standards your investments have to meet, including:

  • Gold - 99.5% pure
  • Palladium - 99.95% pure
  • Platinum - 99.95% pure
  • Silver - 99.9% pure

Products that you can invest in while meeting these criteria include Australian Koala bullion coins, Canadian Maple Leaf coins, and PAMP Suisse bars.

 Also, the IRS will allow you to invest the American Eagle coins, even though they’re not 99.5% pure, to meet gold’s standard. In this account, you’re not allowed to hold Swiss Francs, collectible or rare coins, German Marks, or British Sovereigns.

Special Considerations Surrounding Self-Directed IRAs for Gold and Silver

Since this account involves buying and safely storing precious metals, there are a few additional considerations to consider when opening this account. One of the biggest things to keep in mind is that most of these accounts will cost more than other options. 

There are more fees added to a self-directed IRA than a traditional one, including transaction fees, setup fees, physical asset storage fees, and custodial fees.

Also, it’s hard to avoid these fees because the IRS has rules in place that prevents you from storing your precious metals at home. If you do and you get caught, you could be subjected to penalties or additional taxes.

Even if you could keep them at home, there is a considerable risk attached to doing so. For example, if someone robbed your home, you could lose a large portion of your retirement savings.

Steps to Open a Self-Directed IRA for Physical Precious Metals

You’ll find that it’s slightly more complicated for you to open this type of IRA to invest in precious metals than it would be to open a Roth IRA or a traditional IRA.

However, the following steps will guide you through the process:

  • 1. Choose a Custodian for Your Self-Directed IRA

A custodian will be in charge of holding this account for you. This custodian can be any entity the IRS approved, including trust companies or banks.

If you’re unsure which entity to choose, you can ask your local bank or visit the IRS website for further research. These custodians allow you to invest in alternative assets for your retirement, including real estate and precious metals like gold or silver.

  • 2. Pick a Gold or Silver Dealer

The next step is to pick out a dealer for your precious metals. Once you find one you like, you’ll direct your appointed custodian to send money to this dealer to buy palladium, platinum, silver, or gold.

However, before you choose this dealer, you’ll want to do a lot of research.

Ideally, any precious metal dealer you work with will be part of industry trade groups like the ICTA (Industry Council for Tangible Assets), ANA (American Numismatic Association), or the PNG (Professional Numismatists Guild).

Also, make sure to ask the custodian you choose, as they may already have working relationships with specific precious metal dealers. Even if they do, take a few days to do your research into these dealers to confirm their quality.

  • 3. Decide What Products You Want to Purchase

You’ll have to work with your dealer to determine what precious metals you want to buy for your account. One of the most popular options is the American Eagle Bullion Coins that the U.S. Mint issues.

However, you have other options, so be sure you explore every avenue before making your final choice.

  • 4. Pick a Depository

The IRS has strict guidelines regarding the storage of your precious metals when it comes to self-directed IRAs. Any gold or silver you invest in this account has to go into an approved depository for storage, like the Delaware Depository.

The custodian you picked can recommend a depository if you don’t have a preference. You can also choose one on your own, but you want to ensure it meets the IRS-outlined requirements.

Remember, you are not allowed to store your precious metals at home without risking penalties and fines.

  • 5. Finish the Transaction

You can finish the purchase process when you choose your custodian, precious metals dealer, and depository. Your appointed IRA custodian will handle all of the payments, and the dealer will ship your gold or silver straight to the depository for storage.

How to Make a Withdrawal from Your Self-Directed IRA

You have two main options when it comes time to make a withdrawal from this account. Which one you choose is entirely up to your preferences, and your options are:

Depository Purchase - You can allow the depository that stores your precious metals to buy them from you. If you do, they’ll give you the dollar value of your investment at the time of the withdrawal.

In-Kind Distribution - After distribution, you can choose to have your gold or silver shipped straight to your door.

No matter how you choose to make a withdrawal, the first step is to contact your custodian to start the transaction process. However, you have to be aware of the fact that self-directed IRAs have to abide by the same rules that govern traditional IRAs.

As long as your investments stay in the account, they can appreciate without taxation. If you choose to withdraw the precious metals, you may owe penalties and taxes to the IRS, depending on how old you are and the account type.

On the same line of thinking, you have to take the RMDs (Required Minimum Distributions) when you turn 72. 

These minimum withdrawals can be complicated to figure out because you’re forced to take them at intervals that match the whole gold or silver pieces you own, and it’s easy to reach thousands of dollars per ounce when you deal with precious metals.

As a result, you may find yourself withdrawing more value than you would if you had a traditional IRA.

In addition, if you choose to take in-kind distributions, you have to have the cash available to pay the taxes the IRS charges from the gold or silver they shipped to you, or you have to sell your precious metals quickly.

Why Open a Physical Gold and Silver IRA?

Any investors who are concerned about market volatility or inflation commonly choose these accounts as a viable option to invest in their retirement.

However, they do have some risks attached, just like a traditional IRA and are more expensive than other investment options.

Also, a self-directed IRA for gold or silver only generally makes sense if you already have a strong portfolio and want to add a little diversity to your investments by having reasonable amounts of physical palladium, platinum, silver, or gold.

If you want easier access to precious metals as an investment without having to open a specialized IRA, find your custodian, pick a dealer, and choose a depository, you can consider investing your retirement in ETFs (Exchange-Traded Funds) or mutual funds that track prices or indexes for precious metals.

This option exposes you to precious metals with lower costs, and you can hold them in your current retirement accounts.

In any instance, remember that gold or silver and precious metal funds should make up a reasonable part of your retirement plan. You don’t want them to be your whole investment strategy because diversity is crucial.

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