With so much volatility in the economy, holding physical precious metals might seem like a better idea than stocks, bonds or even paper currency. If you want to hold physical gold within a tax-sheltered retirement account, a Gold IRA may be an option. However, there’s more to choosing a Gold IRA than just picking a metal and buying it. You’ll want to look closely at the provider, the account type, the fees, the storage arrangement and how the rollover works.
Rather than seeing a Gold IRA as a knee-jerk reaction to economic or market events, see it as part of your overall retirement planning. A Gold IRA may work well in some situations, but it may not be the best approach for your situation depending on your time horizon, risk tolerance and access to money.
What can the account actually hold?
A self-directed IRA may allow you to hold physical precious metals, but only if those metals meet the requirements. Gold is the most common precious metal that people choose for a Gold IRA, but eligible silver, platinum and palladium may also be available.
Not all coins, bars, collectibles and jewelry can go into a Gold IRA. They must meet the purity standards and must be bought and held through the correct type of account. You can’t hold the precious metals yourself, or you could run into tax issues.
Eligible precious metals for retirement accounts
The precious metals must be held by an approved depository instead of being kept in your home or a safety deposit box. It’s important to understand the difference: The account holds the precious metals, and you make investment decisions with the account.
Can you look past the marketing?
Some companies that promote a Gold IRA may use phrases like “protect your money,” “preserve your savings” or “independence from government and banks.” While those may be true, don’t rely on them alone when you’re deciding which company to choose.
A good company will be able to explain the steps involved in the Gold IRA process and will be willing to answer your questions directly. It should be able to tell you the different roles of the precious metals dealer, the custodian and the depository. Some companies offer a variety of services through their network of affiliated companies, but each service has a purpose – more on Yale if you want that route.
When evaluating a company, request information about:
- Fees for opening and maintaining the account
- Storage and insurance costs
- Spread costs and potential selling fees
- Available products and minimum purchases
- Buyback policy and expected payment timeframe
- Segregated vs. commingled storage
A company that offers a low introductory fee isn’t necessarily the best choice when you consider ongoing costs, the cost of the precious metals and the terms of selling them.
How do rollover and storage work?
A Gold IRA is typically funded by a rollover of assets from another IRA or employer-sponsored retirement plan. A rollover can be executed either as a direct transfer between custodians or an indirect rollover – check this helpful source. Direct transfers are sometimes easier since the money moves between retirement plan administrators without being handled by you. Indirect rollovers can come with tighter deadlines. In some cases, funds have to be re-contributed within 60 days to avoid taxes and possible penalties.
Another consideration is whether your current employer-sponsored retirement plan allows for an in-service distribution. A few plans permit it immediately, whereas most only allow the withdrawal after you terminate your employment, and even then there are often only limited circumstances where it’s allowed. This could impact when your account is eligible for a rollover.
Prior to beginning the process, make sure you understand the type of account, the tax implications, any paperwork needed, and the time frame involved. Speak directly with the appropriate parties about these details.
What does the storage choice change?
Precious metals require proper custodial services, record keeping, and insurance coverage. Your choice of storage impacts the way your metals are recorded and how they may be retrieved or sold in the future.
Secure precious metals storage
Segregated storage typically refers to storing your metals apart from other investors’ metals. With commingled storage, your metals will be mixed together with other investors’, but ownership of your share will be tracked separately. There isn’t necessarily a right or wrong option here; both types of storage have benefits and drawbacks, so it’s critical to be aware of the differences when choosing an account.
Make sure to ask questions about how audits of your metals are conducted, the level of insurance coverage, and the process for requesting a distribution of your metals once you retire. Shipping and distribution options may be important down the road, especially if you want your metals instead of a cash payout.
Are the trade-offs right for you?
Precious metals don’t generate interest, dividend payments, or rent. Any appreciation or depreciation will be based entirely on market forces, which can fluctuate quickly. While owning precious metals can add diversification to your portfolio, keep in mind that diversification doesn’t guarantee profits or protect against losses.
Precious metals and retirement planning
Furthermore, precious metals can be more difficult to access than a regular investment account. Selling your metals could involve a wide spread between what you buy and sell at, delays in completing a sale, and minimum purchase requirements. If you are planning on retiring soon, having a mix of readily accessible assets and investments that generate income might be just as crucial as having a small portion allocated to precious metals.
It’s less important whether the value of precious metals goes up or down, and more important whether you’ll have the resources necessary to cover your expenses and still meet your financial goals once you retire.
What should you check before opening the account?
Look at a list of fees from the custodian, find out the rules surrounding rollovers to a self-directed IRA from your employer’s plan, and determine what percentage of your retirement nest egg you’re comfortable allocating to precious metals. Before making the first deposit, make sure you’ve read and understood the terms and conditions of the account and have documentation to prove everything.