A number of investors, according to Lear Capital founder Kevin DeMeritt, choose to hold gold in a self-directed individual retirement account because of how it’s historically performed during recessions, high inflation and other economic complications.
The precious metal, according to the World Gold Council, “exhibits long periods where it moves without any apparent link to inflation trends.” During the longest inflationary era the U.S. has experienced, which lasted from April 1973 to October 1982, gold’s value rose — as this National Mining Association chart shows, ultimately escalating from $58.42 in 1973 to $376 in 1982, a more than 500% increase.
The precious metal’s strong performance throughout that time frame, the World Gold Council says, “confirms its potential value during periods of rapid price rises.” In 1980, in fact, gold reached a new high of $850 an ounce, according to an article in The Guardian on gold’s highs and lows.
Gold has also retained its value well during recessions. During economic downturns, investments such as stocks that are contingent on investor sentiment may decline as concerns grow about whether or not the current conditions will make robust returns possible.
During the 15 recessions the U.S. has experienced since 1919, however, premium rare coins have performed well, according to Lear Capital. In the 1980s, in fact, the Professional Coin Grading Service’s collectible rare coin index rose an impressive 660%.
In the past two decades, gold prices have generally increased, according to Lear Capital data, rising approximately 566% from 2001 to 2022.
However, if you’re thinking about investing in physical gold assets, there are a few key steps you should be aware of to ensure the process is completed correctly.
- Establishing an Account
If you purchase precious metals as an investment and decide to keep the items at home, you won’t be able to take advantage of the tax-related benefits holding them in a self-directed IRA can provide.
The U.S. government has allowed certain precious metal assets with a specific purity level to be included in IRAs since 1986, according to the Journal of Accountancy, published by the American Institute of CPAs and Chartered Institute of Management Accountants.
With a precious metals-backed IRA, the taxes you pay on the assets that are held in the account will be deferred until you retire, which allows you to purchase items like gold coins as investments, and reap the benefit of any price increases they experience over time.
Before purchasing any physical precious metal assets, though, you’ll need to first set up a self-directed IRA, unless you already have one that’s active.
A self-directed IRA is a financial account that allows you to save using a mix of assets; some, like stocks and bonds, can be held in a conventional IRA, while others — such as gold coins — are eligible for inclusion in a self-directed IRA. Precious metals including gold, silver, and platinum, for example, can be included in Lear Capital’s Lear Advantage IRA.
You can also include other items in a self-directed IRA, including stock and bonds, as well as assets such as real estate.
You’ll need to fill out an application to create the new IRA account. Lear Capital, which has successfully processed more than $1 billion IRA-related transactions, can help guide you through the process.
- Funding the Account
After establishing your self-directed IRA, there’s another step you have before buying gold and other assets: adding money to the account to fund your purchases.
One option is to add money from a checking or savings account; alternatively, you can choose to reallocate a portion of another eligible retirement account, often within just 24 hours of when your new account is created. A number of accounts — including a Roth, SEP, or SIMPLE IRA; 401(k); 403(b); 457(b); pension plan; or Thrift Savings Plan account — can be rolled over into a self-directed precious metals IRA.
The funds can be added to your new IRA account without incurring any tax penalties in two ways — by using either a direct trustee-to-trustee transfer, or the 60-day rollover approach.
In a trustee-to-trustee transfer, money is moved from your current IRA provider to your new gold IRA provider. In a 60-day rollover, your current IRA account custodian will mail a check to you directly. You then need to send it to your new IRA provider to get it deposited into your gold IRA account within 60 days to avoid tax implications or possible fines.
“If you have a 401(k) or an IRA, and you’d like to take a portion of that and move it over to a self-directed gold-backed IRA, you can do that,” Kevin DeMeritt explains. “[It] takes you about five, 10 minutes to put the paperwork together. You don’t have to [roll over] your whole IRA; you transfer any portion that you feel comfortable with.”
- Purchasing Precious Metal Assets
Once your account is funded, you can begin selecting the precious metal assets you’d like to hold in the IRA, in accordance with their value, your savings goals, and other factors.
To be eligible for inclusion, items need to possess certain qualities. Gold assets, for instance, need to have a specific purity level — at least 0.995 for gold, and 0.999 for silver.
“The government has made these rules that it has to have a fineness to it,” Kevin DeMeritt says. “If it has that quality, then you can add it to an IRA; if it does not, then you cannot — with the one exception being an American Eagle [coin], which does not have that fineness, but the government made an exception.”
The Internal Revenue Service also requires precious metals you purchase to hold in a self-directed IRA to be stored in an approved depository. Lear Capital customers’ assets, for example, are kept at the Delaware Depository, where the items are insured for their full value, in case a fire, flooding, or another event causing physical loss or damage occurs.
“To continue to get the tax benefit of that retirement account, you cannot hold those metals yourself,” Kevin DeMeritt says. “The government needs to confirm that you actually have [them].”
If you’re interested in finding out more or establishing a gold-backed IRA, Lear Capital can be a resource.
“Simply give us a phone call,” Kevin DeMeritt says. “One of our representatives will get you the paperwork to transfer whatever portion of that IRA or 401(k) or 403(b) you would like to roll over to a physical precious metals IRA. It’s a pretty easy process.”
