You may have seen the glut of advertising online, on television, radio, and in print about Precious Metal IRAs, more commonly called Gold IRAs. What exactly is a Gold IRA, and how does it work?
Gold Vs. Regular IRAs
"IRA" is typically an abbreviation for an "individual retirement account," though it is also called an "individual retirement arrangement." It's a broad term for the various holdings used for tax-advantaged retirement savings. In the simplest case, the investment is taxed once it is withdrawn at retirement when the individual's tax rate is likely lower than when working.
Typical IRAs are invested in individual stocks, bonds, or mutual funds. Gold IRAs are only invested in products that are included on the list of IRA-eligible products. The government only allows certain products to be purchased and held in your Gold IRA. Whether the products are Gold, Silver, Platinum, or Palladium, you can place any mix of products in your Gold IRA if they are IRA-eligible.
The main advantage of IRAs is the ability to earn tax-deferred growth on the value of your holdings. IRAs are superior to other types of funds in that they grow, and you only have to pay taxes on that growth once you begin to withdraw your funds. Because of this deferred taxation, your balance should grow more quickly.
So, who are the participants in setting up a Gold IRA? The Account Holder is YOU or whomever you designate as the owner of the IRA assets. The Trustee is the organization that is approved to administer IRAs. The Trustee can be a bank, financial institution, or a company that solely sets up IRA accounts. Then there is the Custodian. The Custodian is usually the company that securely stores the physical precious metals for you. The Dealer or Broker is the Precious Metals dealer that sells the physical assets to the Account Holder. The Dealer generally delivers the physical assets purchased directly to the Custodian and then to the Depository. These four parties – Account Holder – Dealer – Trustee – Custodian – all work together to buy and store the Gold IRA account for the Account Holder’s benefit.
IRAs are governed by a series of rules that the Internal Revenue Service monitors carefully. Some of these rules are:
- IRA retirement accounts must be opened with an organization that has IRS approval.
- The assets cannot be individually held; they must be controlled and stored with an approved custodian.
- Traditional IRAs usually invest in stocks, mutual funds, exchange-traded funds (ETFs), and other traditional financial instruments.
- Self-directed IRAs allow investment in other assets such as Gold and real estate. A Gold IRA must be self-directed.
The assets of a Self-Directed IRA (SDIRA) are still held in trust by an approved custodian. Still, the Account Holder makes the investment decisions instead of letting the Custodian do it for them. They generally do that in consultation with their Dealer. These IRAs allow for more flexibility but require additional effort by the account holder.
Evaluate Storage Solutions Since Gold IRAs involve physical metals, secure storage is essential. Your metals must be stored in an IRS-approved depository, so verify that the provider uses a reputable, safe facility. Decide whether you prefer segregated or non-segregated storage and confirm if insurance coverage is offered for additional asset protection.
A Gold IRA offers benefits such as tax-deferred growth, asset diversification, and protection against inflation.
1. Volatility of Gold Prices