Investors may want to add some sparkle to your nest egg, which is possible through gold and other precious metals. If you’re one of them, adding a gold bar or coin to your individual retirement account can give you a hedge against market downturns and stock volatility. It’s a tangible asset that you can hold and sell whenever you want.
Exposure to gold and silver is also possible through exchange-traded funds that are connected with precious metals. You’ll also know more about their value and volatility through stocks, bonds, mutual funds, and others that are invested in gold mining companies. However, you can add actual coins like the American Gold Eagle or Canadian Maple Leaf in your retirement account through your IRA.
About a Precious Metals IRA
This precious metals IRA is a type of individual retirement account that lets you invest in bullion and coins. Know that in a traditional retirement account, you won’t be able to invest in various assets other than the stocks, mutual funds, and products that are deemed “safe” by the companies where you’ve opened your account. Know that you’ll have the opportunity to invest in the stocks of many mining companies, but it’s still different if you own a tangible asset in your portfolio.
Opening an SDIRA will let you invest in cryptocurrencies, gold bars, real estate, silver, platinum, palladium, and other unconventional assets. You’ll essentially open a retirement account with the same withdrawal rules, contribution limits, and tax benefits as the traditional one. On the other hand, the Internal Revenue Service implemented record-keeping requirements and additional tax reporting because of the complex nature of the assets that you’re holding.
Needing a Custodian
Established and large brokerage firms generally don’t include precious metals when it comes to investment products. Instead, you need to find the best gold IRA broker specializing in precious metals and other assets. These companies will often guide you in opening an account, transferring funds, and ensuring that you won’t incur any penalties during the entire process. A custodian is someone who will keep the bars and coins on your behalf because you’re not allowed to store them inside your house.
In some companies, the custodians will offer to help you out with the tax reports and other paperwork, so you won’t have to worry about anything. They will make sure that your account meets the requirements of the IRS, and they can help you with more comfortable retirement planning.
Essentially, the role of these custodians is to manage the storage needs that are unique to the precious metals. As was mentioned, investors are not allowed to store their gold at home for security reasons. If you’re the one personally keeping all the coins in your chosen depository or vault, it will be considered a withdrawal by the IRS. This can result in penalties for early withdrawal and taxation issues. In some situations, the IRS may even have the power to close down the entire account.
You need to follow the rules and mandates for precious metals. This is when you’re going to get in touch with a company, national depository, bank, or any other third-party provider that the IRS approves. The custodian will refer you to a storage or approved facility that’s essentially authorized to transfer all the precious metals on your behalf and store them up.
The Process of Buying
After you’ve opened the SDIRA for precious metals, the next thing to do is transfer funds from your original account to the new one. More about SDIRA on this page here. There’s an option to roll over a small percentage of your funds into the new account so you won’t have to pay additional taxes. This is because you’re essentially moving the funds from one qualified retirement plan to another.
The process may include depositing any extra cash you have every year. You must follow the contribution limits set by the IRS, and many companies can help you with these. With the funds successfully transferred, you can now pick the coins and bullion that you want.
Restrictions to Know
Know that the Internal Revenue Service has stricter rules regarding the physical bar or coins you can own. The bars that you’re only allowed to purchase should be at least 99.5% for their purity. You can buy various coins, including the American Buffalo, American Gold Eagle, Australian Gold Nugget, Canadian Maple Leaf, and Kangaroo Coins.
Collectible Coins are Not Allowed
You may have heard about popular coins that many investors are interested in. The IRS is not allowing the United Kingdom Sovereign Coins and South African Krugerrand to be held as part of your individual retirement account. Aside from this, you won’t be able to invest in any collectibles out there. You need to review the allowed coins and bars with your custodian before you invest in anything.
If you’re going to accidentally make a transaction where you’ve bought a coin that’s not allowed by the IRS, this will be considered as a withdrawal. There will be an income tax for the item’s value, especially if you’re younger than 59 ½. You can be subjected to an early withdrawal penalty, so make sure to purchase only the approved coins and bars.
Extra Costs to Know About
A gold individual retirement account may charge other custodial fees that you would not usually find in a traditional IRA. These are the following:
- Account Set-Up Expenses. The custodian may charge you with upfront costs so you can launch your new SDIRA. They can range from $50 to a few hundred bucks. However, some companies don’t charge these fees, especially if the deposit involves a large amount, so you might want to check this out first.
- Annual Maintenance Fees. The custodian will oversee everything, including tax reporting, account handling, and the keeping of transaction records. They might charge you an annual fee for maintenance to cover some of the administration expenses. There could be a flat fee that ranges from $75 to $250. Other companies will charge more if you have a large amount in the account, which can be from $225 for those containing over $100,000 and up.
- Seller’s Fee. Buying physical gold may mean that you might be charged for mark-up prices, which are often higher than the current spot price of gold. The costs may depend on the current conditions of the market as well as the handling of transactions. The standard is often about $40.
- Storage. The bars and coins that you own should be stored in a secure location. The fees can range from $100 for every $100,000 worth that you own and $1 for every $1,000 after this. Others may choose to charge on a percentage basis.