Everyone wants to secure their retirement but very few people think about diversifying their retirement planning to get the best savings possible. Gold IRAs are the answer to diversifying your retirement. Gold is the one material that vary rarely severely deflates. It is also one of the world’s oldest currencies. Just like every other investment though, you need to know how to get into the world of gold. Here is a beginner’s guide to help you on your path to setup a gold IRA.
What is a Gold IRA?
Gold Individual Retirement Accounts are a retirement savings method that uses physical gold as the investment instrument instead of stocks or mutual funds. It works almost exactly the same as a traditional self-directed IRA with the only difference being the precious metal. These accounts have the benefit of deferred tax.
Gold IRA vs Gold IRA Rollover
If you have done any research into a gold IRA before this point you have probably heard of gold IRAs and gold IRA rollovers. Unless you have spent much time in the financial world you might not know the difference. A gold IRA is an account that is opened and funded by cash. Gold backed IRA rollovers are when you move some or all of the funds from one retirement account into a gold IRA.
What Accounts Can You Rollover
There is a large variety of retirement accounts out there. Many of them can be turned into gold IRAs.
- 401 (k) Retirement Plans
- 401 (a) Retirement Plans
- 403 (b) Retirement Plans
- 457 Plans
- Thrift Savings Plans
- Traditional IRAs
- Gold IRAs
What Can I Invest In?
While the majority of gold IRAs are actually invested in gold the term has become an encompassing one that refers to not just gold but also to other precious metals. Precious metal IRAs can include gold, silver, palladium, or platinum. The majority of investors’ accounts are represented by gold and silver. The other precious metals are starting to gain popularity though.
Any metals in your individual retirement account have a required purity level. For gold, that level is .995 percent purity. Silver is .004 percent higher at .999 percent pure. Platinum and palladium both have a higher purity rate of .9995 percent. You can go for a higher purity level but the higher you go the more expensive it gets.
Because gold is the main investment method for precious metal IRAs it is what this article is going to focus on. Just like with the mandated purity level there is a limit to what kind of gold you can have in your IRA. The two main options are gold bullion and gold coins. Here are the exact coins that you are allowed to invest in:
- American Gold Buffalo Coins
- Gold American Eagle Proof Coins
- Gold American Eagle Bullion Coins
- Gold Canadian Maple Leaf Coins
- Gold Austrian Philharmonic Coins
- Australian Kangaroo/Nugget Coins
A Common question is if you can invest in gold jewelry as part of your IRA. The answer is no. Gold jewelry is considered too impure for the government to accept it. There is also a lack of certificates and markings on gold jewelry. Gold coins that aren’t listed above and gold scraps are not accepted for deposit into gold IRAs.
How Do I Store It?
Many people want to store gold in their homes because they have direct control over it. That is an option for people who are just investing in gold and not in a gold IRA. For those who are investing in a gold IRA you have to store them with a custodian unless you go through the lengthy and complicated process of setting up a specialized gold IRA.
The custodian is a financial institution that is certified by the United States government to hold gold and other precious metals for IRAs. These custodians are insured and offer security to their clients. There are a variety of reasons why you should want to store with a custodian.
Most homeowners and renters insurance policies won’t cover gold that is stored in the house. They view gold as too risky of an asset to insure. It is lightweight and easy for someone to steal. Those insurance companies that will insure it charge hefty premiums to those who store it.
The other major reason the government insists on using custodians is the fact that they can’t track the investments. The gold that is stored in an IRA is meant for retirement only and early withdrawal comes with a heavy penalty. By storing the gold with a certified custodian they are insuring that it isn’t spent early. Those who try to store it at home must fill out extra paperwork and are scrutinized much heavier than others.
Gold at the purity level of .995 (the lowest purity allowed) is fairly durable. You can store it in standard conditions. However, gold of a purity level of .9999 is significantly more fragile and require special care in its storage. High purity gold requires a climate controlled vault. For all of these reasons it is highly recommended that you store the gold with a custodian as opposed to attempting to keep it at home.
There are two different ways to store gold. Some gold IRA companies store gold in a combine vault. When gold is stored in a combine vault it is checked in and loaded into the vault with no way of tracking what gold belongs to what client. This means that you are almost guaranteed not to get back the same gold that you put in.
When looking for a custodian to store your gold make sure that the gold is segregated. Each client’s gold should be stored separately from another’s. This will insure that get the same gold back that you bought. You will want to get back gold of the same purity and this is the best way to guarentee that.
How Much Should I Buy?
The question of how much gold that you should buy really depends on you. Many experts believe that 10-15% of your retirement portfolio should include gold, while other experts suggest to have up to 30% gold in your portfolio.
How Do I Start An Account?
At this point you may be wondering how to start a gold IRA. The process is very similar to starting any other financial account, you want to do your research before you start an account. Reading this article and others like it. A solid understanding of what a gold IRA is and how they operate is key to knowing how to find the best deal.
Once you have an understanding of what a gold IRA it is time to look at gold IRA companies. These companies include two different areas of business, dealers and custodians. You will want to start by researching custodians. Custodians are the ones that are responsible for the safekeeping of your gold, you want to be able to trust them above all others.
We have a great article that has detailed some of the best gold IRA companies that are out there. But even then it is always wise to do some research on your own. Here are some basic tips on how to pick the right gold IRA custodian.
Reading gold IRA investment reviews that you find on lists or Google are a great way to start finding out whether they are trustworthy or not. Reviews on websites such as Yelp and Google serve as starters but those websites have less moderation than some other options. Websites like the Better Business Bureau or the Consumer Business Alliance. Both of these websites are moderated and rate entries on more than just user reviews.
After reading reviews you should have your list of gold IRA companies narrowed down to just a handful. Contacting the best companies on your list is the next step. While it is best to contact them in person you can also talk with them on the phone. Emails are best left to confirming details. Speaking with the company allows you to gauge as to whether or not they want to deal with you. It also is better for detecting lies.
An important question to ask any gold IRA company is to see a full schedule of their fees. You will want to know in advance any and all fees that you will be required to pay. Most accounts will have an opening fee, then a yearly storage and maintenance fee. The trick to finding the best fees possible is to get an idea of the current average fees before speaking with custodians.
A lot of companies base their fees off of the value of the gold that you have in your account. This can lead to a lot of fees if you have a significant amount of gold in your account. Instead you want to look for a gold IRA company that offers a flat rate fee, that is a fee that doesn’t change based off of how much gold you have in your account.
Once you have selected the gold IRA custodian that you want to use you should fill out the paperwork needed to start an account. This paperwork will take from one day to several to process. While it is processing you should ask your custodian what gold dealer they normally work with.
Starting with the custodian allows you to ensure that there will be less of a hassle during the transfer of gold. They will have a list of gold dealers that they do business with and when using one of these you should have little to no problem with the transfer process.
Despite the fact that the custodian says who they do business with doesn’t mean that you shouldn’t do a little research of your own. Use the same resources that you looked up reviews for your custodian on the dealers. Dealers should be more than happy to answer any of your questions too, they want to do business with you after all. If they are overly pushy though you might want to take that as a signal.
When you get the paperwork back it is time to sign on the dotted line and open up your account. At that point in time you will work with your custodian to purchase the gold. Throughout this process you will want to ensure that you are working with the same person from the custodian’s institution. This will help to make sure that the process is smoother.
The dealer will transfer the gold directly to your custodian. Typically the custodian will mail the gold in an unmarked, trackable shipment. If the dealer is close enough to the custodian they may opt for an armored transport but typically they will not have you conduct the transfer.
Withdrawing Money From Your IRA
Like with a traditional IRA you can withdraw money from your account penalty free when you turn 59 and a half. It is commonly believed that you can do it at any time during the year you turn 59 and a half, but that isn’t true. You must count out 6 months from the time you turn 59.
You must start withdrawing money from your gold IRA account by the time you turn 70 and a half. If you do not, you will start to be penalized for up to half of the withdrawals you should have been taking. By this age you should be taking out at least the minimum required so you don’t get penalized.
Investing in a gold with a gold IRA company is a great option for many people. Gold is a metal that holds its value through troubled times, increases even. When times aren’t troubled though gold doesn’t lose too much of its value. Investing in gold today can help you retire with the lifestyle that you want.