Can I Buy Gold Bullion in an IRA?
Precious metals such as gold are seen as an ideal way to combat inflation and diversify your portfolio, but before opening an Individual Retirement Account for precious metals it is important that you thoroughly consider all its pros and cons.
Gold doesn’t generate income or capital gains distributions like stocks and ETFs do and, therefore, won’t be tax-deductible until withdrawal at retirement age. Furthermore, there may be fees involved with buying, selling and storing your precious metals IRA account.
Legal Tender
As can be imagined, owning precious metals for an IRA involves considerable paperwork and fees. You will need to partner with a dealer, an IRA custodian and depository that meet IRS requirements in order to manage them successfully.
Your IRA custodian will purchase and store gold on your behalf, typically incurring one-time set-up and ongoing maintenance fees that vary by institution.
When choosing a dealer, do your research. Check to see if they belong to industry groups like the American Numismatic Association and Professional Numismatists Guild; ask whether they possess all required licenses and insurance; ensure their product selection includes bullion bars, rounds and coins so you have options when cashing out your gold.
Taxes
Gold IRAs generally follow the same IRS rules as traditional pre-tax and Roth IRAs, such as contribution limits and minimum distributions at age 70.5 or 72. But because precious metals are considered collectibles by the IRS, investors may be taxed differently.
Gold IRAs require the services of a custodian that specializes in holding physical precious metals, typically leading to higher fees.
Fees associated with precious metals investing are generally the result of higher storage and management expenses associated with this industry, which are recouped through buyback programs offered by many providers. When cashing out your investment, physical gold may not be as liquid, which makes it ideal for retirement accounts where assets can remain invested over decades without needing frequent liquidity needs; plus it typically has lower risk due to being outside the fluctuating stock market environment.
Storage
Gold or precious metals IRAs are self-directed investment accounts designed specifically to invest in hard assets. You can set one up using either pretax funds or posttax Roth funds; either way, however, your investments must be held by an expert custodian that knows how to handle precious metals.
Most IRA companies require you to store physical gold bullion at an IRS-approved depository and charge an administration fee, usually calculated as a percentage of its value.
American Eagles and other legal tender gold coins may also be purchased with an IRA; however, only coins meeting the IRS’s fineness requirements of 99.5% purity or higher qualify as eligible investments for bullion IRAs; collectible coins such as Krugerrands do not. When cashing out an account you’re likely to incur high transaction and storage fees which could pose issues if gold prices have experienced significant drops since buying.
Cash-Out
Although gold may play a place in your retirement portfolio, physical coins and bullion might not be the most efficient means of investing. Instead, exchange-traded funds that track gold prices could provide better opportunities to purchase and sell at any given moment when markets are open.
If you decide to use your IRA funds to purchase physical precious metals, take care to select a reliable dealer. Consult with your IRA custodian or look for dealers affiliated with industry trade organizations like the American Numismatic Association or Industry Council for Tangible Assets for advice when making this selection.
Keep in mind when investing in gold through a self-directed IRA that there will be additional fees and transaction costs associated with investing via an ETF or mutual fund, which should be factored into your decision as to how much precious metals you should include in your IRA portfolio.
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