In the last decade, investing and retirement planning have become more than difficult. With the financial crisis and the Covid-19 pandemic, investors are looking for safe investment options.
Therefore, many have turned their attention toward Gold IRAs. We will discuss what the Gold IRAs are and how they can help you with portfolio diversification.
What is a Gold IRA?
The Gold IRA (Individual Retirement Account) allows you to invest in precious metals, including Gold, in physical forms. Traditional IRAs usually focus on investing in high volatile investments, and the IRS restrictions stop investors from having Gold and precious metals in their portfolios.
Congress passed a decree in 1997, allowing the usage of Gold and other metals security. Consequently, financial institutions started offering Gold IRAs to investors. In the past few years, Gold IRAs have become more and more popular since they are considered a viable option.
Gold IRAs: A Post-Financial Crisis Trend
The Great Recession wreaked havoc on the global economy, and it shook the investors in volatile markets. People lost their jobs, and investors lost a fair share of their investments for their retirement. Since then, people have looked for more stable retirement options.
While the Gold IRAs were not too popular due to their complex regulations, they gained investor attention after the financial crisis due to their long-term stability. Since there is an inverse relation between cash-backed assets and gold prices, Gold IRAs offer a more secure option to invest funds.
Benefits of a Gold IRA
While investing in a Gold IRA might sound like a good option, you need to understand the advantages of choosing it over a traditional IRA.
The Rising Price of Gold
The gold price saw a growth of more than 700% from the start of the century until 2011. There was a change of more than $1,500 in the price per ounce in 10 years.
The best part is that the gold prices didn't see any negative impact during the economic downturns throughout this time frame. We can expect to see some massive changes in the coming years due to the economic effects of the pandemic.
Long-term Safeguard and Protection
Inflation slowly takes away the purchasing power, and the best way to deal with it is by investing in Gold. It is a much better option compared to the paper assets that can fall drastically after a crisis. Therefore, it is an optimal solution to deal with inflation.
Diversification
Diversifying your portfolio allows you to mitigate the risk of high volatile investments. You can neutralize the short-term losses on stocks and bonds by investing in Gold. Gold IRAs are the best way to invest in precious metals whose value will continue to increase over time.
Tax Benefits
The best thing about IRA products is that you enjoy tax benefits. If you keep the Gold in the IRA and don't take it out in the physical form, you won't have to pay taxes on it.
Things to Be Aware of Before Opening a Gold IRA
Though Gold IRAs are a viable investment option, they have some complex regulations that you might find challenging. So, it is better to get a grasp of the challenges you can encounter when investing in a Gold IRA.
Fees and Expenses
Since the Gold IRAs require you to go through a complex process, you would have to pay certain charges. The average charges that you would incur are higher for a Gold IRA than for other IRAs.
The reason behind the high charges is the expenses for the custodian and other parties involved. Nevertheless, many institutions are offering IRAs with lower fees as it becomes popular.
Fraud and Theft
The most imperative thing about investing in Gold IRA is picking the right custodian. Since the custodian will be handling all the things on your behalf, it opens the room for theft and fraud. So, you should conduct proper research and choose the right custodian for your Gold IRA.
No Yield, No Dividends, No Interest
You won't receive any dividends or benefits that you can get from investing in stocks or traditional IRAs. You would decide to choose either interest/dividends or long-term rewards.
How to Open a Gold IRA
Now that you are fully aware of the benefits and drawbacks of investing in Gold IRAs, let's go over the step-by-step process of opening one. Remember, you should conduct extensive research and do proper analysis before investing in Gold IRAs.
Start with a Self-directed IRA
Firstly, you need to open a self-directed individual retirement account (also known as SDIRAs). The SDIRAs enable investors to invest in things other than conventional asset classes such as stocks. You can invest in Gold and real estate through an SDIRA.
You need to choose a financial institution to set up an SDIRA account. Remember that not all institutes will offer you SDIRAs. You need to find the ones that will open this type of account.
Choose a Custodian
Next, you need to find a custodian for your SDIRA account. It is a prerequisite by the IRS to choose a custodian. They will have the relevant licenses to handle the SDIRA accounts on your behalf.
Also, the custodian is responsible for informing all transactions to Internal Revenue Services and other authorities. Below are the six factors that you should consider when looking for potential custodians:
- Expertise and Knowledge: The custodian should be an expert in this field with immense knowledge about handling SDIRA accounts.
- Fees: The custodian should be honest about the fees and the charges that you will have to pay.
- Flexible: The custodian should understand your needs and try their best to cater to them.
- License: The custodians should have the relevant licenses that are necessary for operating your SDIRA account.
- Proactive Approach: The custodian should give you valuable suggestions and advice.
- Track Record: Must have relevant experience and a proven track record.
How to Purchase Bullion?
Once you open your SDIRA account and have a custodian, the next thing is to start investing in Gold IRAs. But before that, you need to deposit in your SDIRA account. The most important thing is that you should never purchase Gold or any other valuable metal from a dealer directly.
Purchasing any precious metal from a dealer is strictly prohibited by the IRS. Always tell your custodian the items that you want to buy, and they will purchase them using your SDIRA account. You should carry out your due diligence to know if you are getting the right price for the gold bullion. The custodian will store the bullion or coin for you.
How to Store Bullion in Gold IRA?
Another vital factor that you need to know about is storing your Gold. The IRS strictly prohibits keeping Gold or any other precious metals in your custody. You need to store it in an IRS-approved storage facility, which your custodian will handle on your behalf.
Keeping any valuable metal in your home can land you in a world of trouble. You'll have to deal with the legal and monetary implications of keeping Gold in your home or any safe box. Only a custodian can buy, store, and keep a record of your precious metals.
IRS Fineness Standards
Gold IRAs are often more complex and difficult to understand than a traditional IRA. You need to follow the fineness standards that the IRS has set for Gold and other precious commodities. Here are some general rules that the metal needs to meet for the Gold IRAs:
- Gold, silver, platinum, and palladium should have a purity rate of 99.95% or higher
- The gold bars or coins must be from a reliable and certified refiner/manufacturer
- Bullion bars must be according to the required dimensions.
- The Proof coin must have a certificate of authenticity. They should be new, sealed, and in perfect condition with mint packaging.
Approved Precious Metals in a Gold IRA
Besides Gold, silver, and platinum, there are various other valuable metals that you can invest in according to the Gold IRA model. However, they need to comply with the fineness standards set by IRS. You can check the list of approved precious metals by the IRS.
IRS-Approved Gold and Silver
Here is a list of the few IRS-approved Gold and silver:
- Chinese Gold and Silver Panda coins
- British Gold and Silver Britannia coins
- Austrian Gold and Silver Philharmonic coins
- Australian Gold Kangaroo/Nugget coins
- American Gold Buffalo uncirculated coins
IRS-Approved Platinum and Palladium
Here is a list of the few IRS-approved Platinum and Palladium:
- Isle of Man Noble Platinum coins
- Canadian Platinum and Palladium Maple Leaf coins
- British The Queen’s Beasts Platinum coins
- Australian Platinum Koala coins
- American Platinum Eagle proof coins
- American Platinum and Palladium Eagle coins
Gold IRA Rollover
You might wonder if you can switch your traditional IRA for a Gold IRA. Well, that is possible, and you can do it in two ways. The first one is a direct rollover, where the custodian of your IRA will transfer funds to the other Gold IRA custodian. The transaction will automatically funds from your conventional IRA to the Gold one.
The second is an indirect rollover, where you tell your traditional IRA custodian to give you a check. You can collect the check from them and deposit the money into your SDIRA account to invest in Gold IRA.
Remember, you would only have two months to process this transaction; otherwise, it will count as an IRA withdrawal. It will get you on the Internal Revenue Services' watch since you would have to pay taxes on an IRA withdrawal.
Conclusion
Investing in a Gold IRA can open you to a wide range of benefits. However, you need to be aware of the legal and financial complications to make the right investment strategy.
Most importantly, you shouldn't hesitate to seek professional assistance before investing in Gold IRAs. So, if you want to invest in Gold IRA and diversify your portfolios, then you can feel free to contact us!
