Gold is often called a safe haven investment because it’s not affected by inflation or the stock market. In fact, when the stock market is down, gold’s value rises. For these reasons, investors buy physical gold. But what if you could get the same protection against a down economy in your IRA? You can! In 1998, it became permissible to create IRAs for approved bullion.
Like we mentioned, a gold IRA can protect its owner from the declining dollar. As inflation erodes the dollar’s value, gold retains its inherent value and is not affected. The same issue is also present in stocks. If the stock market declines as you’re set to take out your retirement, you could lose money in your IRA. With a gold IRA, this isn’t something you need to worry about. Gold will always keep its value and because its used as hedge against stocks, when the stock market is down, the gold market is up. So, if the stock market tumbles before your retirement, your gold IRA will be worth more than paper money.
The number one piece of advice from financial planners is always: diversify your portfolio, and it makes sense. When it comes to investing, putting all your eggs in one basket puts you at risk to lose everything if that particular investment loses value. Just like diversifying with different stock options, you can add a gold IRA to your portfolio. This is also sometimes a better diversification option because gold is fundamentally different than stocks, giving it extra benefits as an investment.
If you’ve previously done some shopping for bullion, you’re familiar with the different bullion products. While all of these are options for personal investing, the IRS only accepts certain bullion products for your portfolio.
If a gold IRA is something you want to pursue, you should be aware that some things are similar to the normal IRA you’re used to and some things are different. We will review all the steps to opening up your own gold IRA.
The first step in setting up your gold IRA is to create a self directed IRA (SDIRA); this is an IRS requirement. A self directed IRA can be a Traditional or Roth IRA like a 401k, but it differs in what type of investments can be added. A self directed IRA opens up a huge amount of possibilities for investment, not just bullion. Investors can invest in rental properties or privately held companies with a self directed IRA; this is the appeal of this specific type of IRA.
Most companies that provide IRAs like your bank will not offer self directed IRA options so you’ll need to shop around. The companies you do find that offer self directed IRAs usually specialize in this type of account so if they are a trustworthy company they should be able to guide you through the process and answer any questions. Make sure you do your due diligence and find a reputable, helpful company for your self directed IRA, more on this below.
Another difference between a 401k and self directed IRA is: it’s an IRS requirement to have a custodian of your SDIRA account. This company will store your gold and administer your account. There are brokerage firms that can both open an SDIRA for you and be the custodian of the account. The custodian is more like a passive overseer; it’s up to the investor to be active in their SDIRA account and ensure they are compliant with IRS regulations.
While it’s up to the investor to choose investments for their SDIRA, the custodian should guide their customers through the process of SDIRAs and answer any questions. If they cannot do this, then you should find a custodian that will be more supportive to ensure you understand everything about your account. Below are some things to look for when choosing a custodian:
Once you have your account set up and custodian chosen, you will need to fund your SDIRA. This is the same process as any IRA account; you will add funds to the account, but then you can use these funds to purchase bullion. It’s very important to pay attention during this step! Do not buy bullion directly from the provider. This is disallowed by the IRS. You will need to direct your custodian to buy the bullion you would like with the funds in your SDIRA. This is the process for every gold IRA so your custodian should have no problem completing the transaction.
Another IRS requirement is that you cannot personally store the bullion in your SDIRA. This means no home lock boxes or safes! Your bullion needs to be stored in an IRS approved facility. When you open your account and choose your custodian, the custodian, the majority of the time, has a relationship with several approved facilities and will allow you to choose or they will recommend a company for you to reach out to. Although it may seem frustrating to not be able to possess your gold, these facilities carry complex, comprehensive insurance to ensure your bullion is safe. The insurance covers, usually, both storage and delivery.
You might have heard the terms “home storage Gold IRAs” or “checkbook IRAs”, but these types of accounts should be avoided. Storing your bullion at home isn’t worth severe penalties from the IRS. It’s important to have a reputable custodian and storage facility.
Yes! Just like other IRA options, you can opt for a direct or indirect rollover. If you choose the direct option, the IRA goes from custodian to custodian, so your IRA broker will send the funds directly to the custodian of your gold IRA. The indirect option involves your IRA broker sending you a check for all or a portion of your IRA and you sending it to your gold IRA custodian. This process must be done in 60 days or you will receive a penalty from the IRS, as it will count as an IRA withdrawal.
If it’s time for you to start receiving your distributions, there are two options: receiving the physical bullion or the custodian liquidizing the gold and sending you the money. Just like a normal 401k, if you’ve chosen the Traditional option you will pay tax on the amount withdrawn. With a gold Roth IRA, you will not pay any tax. The same early withdrawal rules apply to a gold IRA as a 401k. If you take out money before age 59.5 and don’t meet any of the exceptions, you will incur a 10% penalty.
Recommended Follow Up: Gold Investment Guide
If you’re ready to invest in bullion, Nationwide Coins & Bullion Reserve is a reputable precious metals seller that has over 100 years of combined experience! Our experts would love to help you choose a bullion that’s perfect to add to your gold IRA. We have both gold and silver bullion available and can answer any questions you might have about the buying process. We also welcome you to check out our blog that has information on investing, bullion and the most up to date market news!