Investors have the freedom of choosing from different asset types, including mutual funds, bonds and stocks at a broker or bank. However, opting for a self directed IRA lets investors own different asset types, including regular bonds and stocks, while also adding several other asset classes including real estate and precious metals. One of the biggest benefits of possessing multiple assets is that investors can choose the exact amount of assets they intend to remove.
While the contributions tend to be tax deductible, investors can get returns on tax deferred basis till retirement and withdrawal.IRA investors are taxed on withdrawals. However, postponing it until your retirement could help you enter a low tax bracket.
How to Invest in Precious Metals
Physical Possession
Physically purchasing precious metals makes you their owner, meaning that you can keep them wherever you want. Some storage options include a safe in your house or a deposit box in your bank. Opting for a storage facility offers you easy access to all of your investments whenever you please.
Precious Metals IRAs
Precious metals IRA is at its core, an instrument to invest in palladium, silver, platinum or gold with a minimum purity level of 99.5 percent. One of the biggest benefits of investing in Precious Metals IRA are the tax benefits you can avail from a retirement account approved by the government.
Custodians like trust companies, banks or any entity approved by the Internal Revenue Service can hold the self directed IRA you own. Another benefit worth keeping in mind is that investors can add different investment types like mortgages, real estate and stocks to their precious metals IRA. The decision between an IRA and physical possessions depends on an individual’s financial goals.
Why Choose a Precious Metals IRA
Starting a precious metal IRA comes with a wide range of benefits, with tax benefits being the main one. Investors have the freedom of deferring their taxes until withdrawing from their accounts. Other noteworthy reasons many investors opt for precious metals IRA are that they can prevent fees and control their account just the way they want.
This self directed account lets you select a depository, IRA custodian, and the precious metal approved by the IRS you want in your IRA investment. Remember, merely having investments is not enough, you have to safeguard them as well. Rest assured, you can breathe a sigh of relief knowing that the precious metals you invested in are stored safely inside a high security and insured facility.
These investments are especially attractive for many because their value increases with time, especially during inflation and economic instability. Possessing precious metals in IRA also means that you don’t have to sell or liquidate prior to taking distributions. Investors have two options – they can either liquidate in the IRA or take the assets out of their plan in physical form and get them delivered to them. When you possess your metals physically, you can take them wherever you please.
How to Set Up a Precious Metals IRA
Select a Self-Directed IRA Custodian
Self directed IRA custodians are essentially IRA account holders responsible for setting up accounts, producing account statements and accepting contributions. These custodians also buy precious metals from dealers, after which they transfer funds from traditional or 401 K IRA accounts to their client’s self directed IRA account.
Open an Account
After choosing a custodian, contact them to open a precious metals IRA account. Once you do, they will assign you an account partner for helping you with the entire application procedure. In most cases, these IRA custodians receive applications through fax, email or mail. The application process usually takes around 24 hours.
Transfer the Funds
Once your account is open, the custodian will have to transfer funds in it. Remember, while the custodian will be doing most, if not all of the work, they will require authorization from you in order to withdraw funds from the current custodian.
Select the Metals
After your account receives the funds, you can go ahead and select the precious metal of your choosing to invest in. Consider consulting with the account partner assigned to you for understanding the different metals available. Since you will have total control of the account, you can choose any metal you please for the self directed IRA.
Ship the Metals
After deciding the metals to invest in and purchasing them, you must work on making sure they are safe. In most cases, custodians ship the metals to the DDSC (Delaware Depository Service Company). This company is completely compliant with the Bank Protection Act and UL standards and offers an insurance policy underwritten by London Underwriters.
How to Fund an IRA
Rollover
A common option many people use for funding an IRA is to withdraw the money from a different retirement plan and adding it to their Precious Metals IRA. Remember, you have to deposit the money within 2 months from the initial plans withdrawal.
If the money is transferred on time, you will not need to worry about being subject to a penalty or tax. This is a popular method used by many individuals who possess retirement plans sponsored by their employers, for example, a 401 k to fund their Precious Metals IRA. Remember, you can only perform such a transaction once a year.
Trustee to Trustee
This transfer type is also called a direct transfer because the transfer takes place from the current IRA trustee account of an investor to the brand new IRA account. What’s more, the owner of the account does not take the fund’s receipt as they are directly transferred to their new account. One of the main advantage of a trustee to trustee transfer is that you don’t have to worry about IRS’s taxes or penalties. The account holder also has the freedom of transferring as often as they please.
Withdrawing Money from an IRA
It is important to keep two vital things in mind if you want to steer clear from penalties and taxes whenever making withdrawals from the Precious Metals IRA. Firstly, you can withdraw money whenever you want. If you want to prevent a federal penalty of ten percent, it would be best to only withdraw after the age of 59 and a half.
Secondly, performing indirect rollover withdrawals can result in a tax free transaction, only if one completes it within a period of 60 days.
The Difference between Traditional IRA and Roth IRA
Traditional IRA
When it comes to traditional IRA and investor can provide a pre-tax income to an account with growth potential and get tax deferred. In most cases, the amount you can contribute is around $5500 to $6500 a year. Investors are taxed whenever they withdraw. However, they can get tax deductions for the contributions if they claim for them.
As mentioned above, there is a federal penalty for those who withdraw the funds before the age of 59 and a half. The only exception is for people facing unusual circumstances like first home purchase, unexpected medical bills or high education fee.
Investors who aren’t eligible for Roth IRA, mainly because the tax bracket they are in is too high can opt for a traditional IRA. It is a decent option for investors who think the current tax rates they are getting are higher compared to what they will be upon retirement.
Roth IRA
When it comes to Roth IRA, you can contribute your post tax income to tax deferred accounts. The amount for this ranges around 5500 to 6500 Dollars. Unlike traditional IRA, you cannot claim tax deductions for the contributions as they are taxed prior to going in a Roth account. What’s more, investors don’t have to worry about paying taxes when withdrawing, as long as their age is over 59 and a half.
Individuals over the age of 70 and a half can contribute to this account whenever they please. Roth IRA doesn’t have any required minimum distribution, which is why it is ideal for people who think their tax rates in the future will be high compared to the current rates.
Frequently Asked Questions
Can I Rollover or Transfer an Existing IRA to a Precious Metals IRA?
Yes, that is indeed possible. A self directed custodian can help you rollover or transfer from the current IRA custodian to a precious metals IRA.
How Long Does a Rollover or a Transfer Take?
More often than not, this process takes about 5 business days. However, this mainly depends on the current custodian you have.
Do I Get Actual Precious Metals in My Account?
If you don’t get paper products or a certificate from your custodian, you will receive physical precious metals in your safe box. Those who open a precious Metals IRA account can buy real metals, which they can access during business hours.
Where Do You Store My Metals?
Once the custodian buys the metals you desire, they will ship them through a carrier. This insured carrier takes your metals to a reliable depository like the Delaware Depository Service Company. This depository has an insurance policy that covers physical loss, natural disasters and damage while your asset is in the depository.
Are There Penalties or Taxes for Transferring from an IRA to a Precious Metals IRA?
There are no penalties or taxes for transferring funds from retirement funds to your IRA account. Your IRA custodian can guide you during this process and even work with the current custodian, making sure they follow the right procedures to avoid penalties or taxes.
How Much Does It Cost to Maintain My Precious Metal IRA?
Generally, custodians tend to charge flat fees. This means that you don’t have to pay a percentage out of your account. For instance, there is an annual fee around $175 in case your account has less than 1 million Dollars. However, if the amount exceeds $100,000, the custodian will likely charge you around $225 per year.
In most cases, custodians do not have any hidden fee for maintaining their client’s Precious Metals IRA. You can also claim tax deductions for the account fees.
