Diversifying your retirement savings is the best way to secure your future and hedge against rising inflation. Precious metals remain the most enduring means of protecting your life savings.
Gold has received much attention from investors and has been the source of many financial discussions in recent years. As investors seek to hedge against economic downturns, gold has offered a stable investment to hold onto with the promise that gold will always have some value.
Gold is not just alluring, its value is also quite stable and for this reason, it has become a coveted investment security for a good reason. Countries, companies and individuals who can afford the pricey metal in assets acquire it.
Only a few investments have challenged the popularity of gold as a safe hedge against inflation and sociopolitical breakdowns.
If you’re concerned about inflation and other unforeseen calamities, gold may be a safe haven and a suitable strategy for securing your investments. Though in the shorter term, it can be just as volatile as stocks, over the very long term, gold has held its value remarkably well.
Just like any other form of investment, gold carries risks, so if you are looking to invest in gold then you need to learn How To Invest in Gold according to the level of risk you can bear.
There are many options for investing in gold and one of them requires an IRA (Individual Retirement Account). Before answering the question, “Can You Buy Gold For An IRA?”, you need to first understand what an individual retirement account is.
What Is An IRA (Individual Retirement Account)?
An individual retirement account (IRA) is a long-term savings account that individuals with earned income can use to save for the future while enjoying certain tax advantages. The IRA is designed primarily for self-employed people who do not have access to workplace retirement accounts such as the 401(k), which is available only through employers.
It provides an excellent opportunity for your retirement money to grow and compound faster than it would in a taxable account.
An IRA is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis.
How Does An IRA Work?
An IRA (individual retirement account) is a personal, tax-deferred account the IRS created to give investors an easy way to save for retirement. Anyone that earns an income can open and also contribute to an IRA, the only limitation is the total amount you can contribute to it in a single year.
You can open an IRA on your own through almost any bank, brokerage company, insurance firm, or investment company. And you can save your way for your retirement through the wide variety of investment choices that an IRA offers.
Because IRAs are meant for retirement savings, there is usually an early withdrawal penalty of 10% if you take money out before age 59½. However, there are some notable exceptions—withdrawals for educational expenses and first-time home purchases, among others.
Can You Invest In Gold From An IRA?
When you open an IRA, you can choose to invest in a wide range of financial products, including stocks, bonds, exchange-traded funds (ETFs), and mutual funds. And guess what, you can also invest in gold.
Buying gold in an individual retirement account (IRA) is touted as a way for savers to diversify their investments. Gold and other precious metals are considered a hedge against inflation and may rise in value during periods of stock market volatility.
A gold IRA can give you the tax benefits of a conventional retirement account, but you have to follow IRS regulations or risk fines and penalties. Purchasing physical gold to hold in a retirement account also can be more expensive than investing in assets like stocks, bonds, or mutual funds. It’s important to make sure you understand all of the costs and expenses before buying physical gold to keep in an IRA.
It is important to know that for you to invest in a gold IRA, you need a high level of knowledge in precious metal investment and sufficient amounts of cash.
A key selling point of gold IRAs is that you own the physical gold itself. If this doesn’t matter to you, there are other ways to add exposure to precious metals to a retirement portfolio, such as buying stock in gold mining companies.
What is a Gold IRA?
The term gold IRA refers to a specialized individual retirement account (IRA) that allows investors to hold gold as a qualified retirement investment. Investors with gold IRAs can hold physical metals such as bullion or coins, as well as precious metals-related securities within the portfolio.
A gold IRA must be held separately from a traditional retirement account, although rules involving things like contribution limits and distributions remain the same. Investors can open gold IRAs through a broker-dealer or other custodian.
Gold IRAs usually have higher fees due to the specialized custodians required to handle the account. The storage of the precious metals must be at a facility approved by the IRS.
How Does Gold IRA Work?
To have a Gold IRA account, you must go through an approved broker to buy or sell gold and other precious metals. You are considered the owner of these metals, while the Gold IRA company acts as the mediator between you and the custodian. Depending on the company, you may have a choice of financial custodians and depositories, or you may be limited to the ones chosen by the company.
When you open a Gold IRA account, you will have options on how to fund the account. This can be done in many ways, including rolling over assets from a traditional IRA account, a 401K, or direct funding through cash, check, or wire transfer.
Unlike most traditional IRA accounts, a Gold IRA account is self-directed. This gives you greater flexibility in controlling when and what you buy, though it will require a higher level of personal involvement and some paperwork.
How to Fund Your Gold IRA
Gold IRA companies, which are essentially precious metals dealers, will facilitate the creation of an IRA in which you can legally hold gold and other precious metals. Gold IRA companies can steer you toward an appropriate IRS-approved account custodian and depository institution where your gold will be physically stored.
After you must have chosen a gold IRA company to open a Gold IRA account with, you can then go ahead to fund the gold IRA account. There are various options for doing this.
Rollover
Many people fund their new account using part or all of the funds held in an existing retirement account. IRS rules permit funding a gold IRA with money drawn from another IRA, 401(k), 403(b), 457(b) or Thrift Savings Plan. To initiate the process, you need to contact the administrator of your current retirement plan and inform them of how much you want to roll over.
NB: If you are younger than 59½ years old and using a rollover to fund a gold IRA, you have a maximum of 60 days to get the withdrawn funds into the new account. Even being a day late will trigger a 10% early withdrawal penalty, and you will have to pay income tax on the withdrawn funds.
Transfer
To avoid the prospect of missing the rollover cutoff, many people choose to let their gold IRA company coordinate the rollover via a direct institution-to-institution transfer. Since the money never technically passes through your hands, you don’t have to worry about taxes or penalties being assessed.
One important caveat for both IRA rollovers and transfers is to consider how much you want to funnel into your new account. Most conventional IRAs give you the ability to build a diversified retirement portfolio. An IRA holding nothing but precious metals is, by definition, not diversified, because precious metals comprise a single asset class. Furthermore, even though the gold appreciates tax-free while inside the account, it doesn’t offer you the opportunity to grow your money via dividends. The conventional wisdom is that you should limit your investment of precious metals to 5% to 10% of your overall portfolio to achieve appropriate diversification.
Cash
You don’t want to fund a gold IRA with cash because you will have already paid taxes on that money, and the point of using an IRA as your investment vehicle is to capture the tax advantage that comes with using pre-tax dollars
Should You Invest in a Gold IRA?
Many investors choose gold as a way to diversify their portfolio, either by investing in a gold IRA or by directly purchasing the metal. While gold can certainly have a place in a well-diversified portfolio, it is important to balance the risks of buying gold compared to other assets.
When saving for retirement, it is important to choose assets that will provide a return over time. Unlike stocks and bonds, gold does not pay any dividend or yield to the owner. The only opportunity for profit comes from the appreciation of the gold price itself.
Bottom Line
If you are considering a Gold IRA, consult a financial advisor to determine how the metal would fit with the overall goals of your investment portfolio. In general, it’s never a good idea to put all of your eggs in one asset basket.
If gold seems like a solid choice for you, investment experts suggest putting no more than one-third of your retirement funds into a gold IRA. More conservative experts recommend you have no more than “10% to 15% of a personal total portfolio invested in gold.