Many people who are looking to diversify their retirement or investment portfolios are now turning to Gold IRA. This is because Gold has from time immemorial been a store of value and is known as a hedge against the volatility in the stock and finance market. This stability has made it an attractive alternative for those looking for assets for long-term investment.
In this volatile and uncertain economic terrain, one cannot afford to just make investments without thinking it through. It will be a crying shame to spend one’s youthful days working and saving for retirement, only to have that saving wiped out or of no value when it is most needed.
That is why this article will take time exploring the basics of Gold IRA and the benefits; we will also share tips on how to get started, so, stay with us…
Meanwhile you can check out this site: https://www.dol.gov/ for information on different types of retirement plans.
What is a Gold IRA?
A Gold IRA is an individual retirement account that is self-directed that enables the accountholder to invest in gold and other precious metals like platinum, silver and palladium. This is not like the traditional IRAs where account holders mostly invest in bonds, stocks and mutual funds; Gold IRAs have their physical assets that are stored in secure depositories.
Also known as precious metal IRAs, Gold retirement accounts are opened and managed through a custodian. It is this custodian that buys the gold, arranges storage and takes care of every paperwork on behalf of the accountholder. The IRS has a specific standard of purity that the precious metal must be at to qualify as an asset for this account.
Gold must have 99.5% purity
Silver -99.9% purity
Palladium- 99.95% purity
Platinum -99.95% purity
Types of Gold IRAs
There are different types of precious metals Individual Retirement Accounts and they are:
- Traditional – In this type of account, contributions are made from income-before tax (pre-tax dollars), and the taxes are held off until when the account holder makes a withdrawal at retirement.
- Roth – This is the opposite of No.1, meaning that the contributions are made with income after tax (post-tax dollars), so there is no tax on the withdrawal.
- Simplified Employee Pension (SEP) – This is designed for small business owners and people who are self-employed and they have a higher contribution limit than Nos 1 and 2.
How Does a Gold IRA Work?
The following are steps explaining how this retirement account works:
Step 1. Choose a Custodian and Open an Account
The first step in the process is to choose a custodian and open a self-directed Individual Retirement Account through the individual or agency. There are many reputable custodians such as Goldco and others that you can work with. This custodian is the one that handles the buying of the precious metal(s), arranging storage and also paperwork to ensure that every IRS regulation is duly adhered to.
Step 2. Fund the Account
There are many ways of funding your account and they are:
- Direct Contribution – This entails making cash contributions into the account.
- Rollover – This involves transferring funds from an existing 401(k), Individual Retirement Account or any other type of retirement account.
- Transfer – This entails transferring assets directly from another custodian or retirement account.
Click here for more information on rollover and transfer methods of funding your account.
Step 3. Select and Purchase Gold/Precious Metals
Once you have funded your account, you now go ahead to select the precious metal you want. Note that they must fall within the approved products which include the following: –
- American Eagle coins and bullion
- Canadian Maple Leaf
- Austrian Philharmonics
Step 4. Storage
After you have bought the precious metal of your choice, it must be stored appropriately which is in a depository that is approved by IRS. You are not allowed to store your assets at home. Your custodian will arrange storage and also keep you updated regarding your holdings.
Step 5. Withdrawals
The rules for withdrawal from this account is that same as for other Individual Retirement Accounts and they are as follows:
- There may be penalties for withdrawing before you are 59 and half years old.
- The Required Minimum Distributions (RMDs) starts at 72 years old; this applies to only SEP and traditional gold IRAs.
- You can withdraw the physical gold when it is time for withdrawal or sell it and get cash.
Benefits of a Gold IRA
This type of retirement account comes with a number of benefits, and they include the following:
- Hedge Against Inflation – Following the history of precious metals and how they maintain their values through economic upheavals and inflation, this IRA is a great hedge against inflation.
- Diversification of Portfolio – The addition of precious metals to one’s retirement portfolio reduces overall investment risks through diversification. Since gold goes against the grain of the stock market, it provides a buffer when there is a market downturn.
- Protection from Economic Instability – Gold is known as a safe-haven investment because it tends to perform better than other assets in time of geopolitical tensions, financial crisis or currency devaluation.
- Tax Advantages – These accounts provide the same tax advantages as the Roth and traditional IRAs in addition to the possibility of tax-free withdrawals and tax-deferred growth.
- Physical Ownership – Unlike other paper assets, you have your physical precious metal stored in a secure depository.
Having seen all these benefits, you may have started considering how this account will favor you. The question who is a gold IRA for? is easily answered by the above benefits and more that come with having this account. Additionally, with this plan, you can rest assured that your investment is secure no matter the upheavals in the economy or geopolitical unrest that may occur before your retirement.
Conclusion
This article has taken time to share some basics about gold individual retirement accounts and how they are beneficial to the accountholder. We have explored its long-term value and tax advantages.
One thing you must bear in mind is that a reputable custodian is the first step to getting this retirement plan right; so, ensure that you do your due diligence before choosing a custodian. Also monitor the market conditions and comply with IRS regulations so that you can maximize your account and ensure your financial security.
