When things get rough economically, people turn to investments plans that serve as a haven from the economic issues. One haven investments people have to come to rely on is precious metals.
Precious metals such as palladium, silver, platinum, and gold are prone to some degree of volatility. Yet, they are still considered a superior investment choice by many.
Retirement plans are a great way to ensure you enjoy your retirement. However, holding these valuable metals in regular IRAs is not possible. Luckily, if you want to enjoy the safety these assets offer while saving towards retirement, you can open a special IRA designed to hold this type of asset.
In this read, we will be discussing some crucial things you need to know about this special IRA known as gold IRA.
What is Gold IRA?
Gold IRAs otherwise called precious metal IRAs refer to a type of retirement account that is self-directed. You can watch this video to learn more about self-directed accounts.
Self-directed retirement accounts make investing in several unconventional assets like real estate, cryptocurrency, and precious metals possible. They typically allow investments in assets that go beyond that which regular accounts can hold.
Gold IRA is a means through which people add gold alongside other valuable metals to their retirement portfolio. There are several reasons people choose to do this. One of which is that these assets are known throughout history to appreciate long-term.
Precious Metals that can be invested in IRAs
You can add the following assets to your individual retirement account:
- Silver
- Palladium
- Platinum
- Gold
However, that you can invest these assets doesn’t mean you can add just about anything made with them. The valuable metal you add to your retirement plan has to meet the following IRS requirements:
- Silver: Has to be 99.9 percent pure
- Palladium: Has to be 99.95 percent pure
- Platinum: Has to be 99.5 percent pure
- Gold: Has to be 99.5 percent pure
Not all products meet these requirements. Some products that do, however, are Australian Koala bullion coins, PAMP Suisse bars, and Canadian Maple Leaf coins. American Eagle coins do not fit gold’s purity standard of 99.5 percent, however, the IRS allows investors to hold this product regardless.
Holding of collectible or rare coins in IRAs is also not allowed.
Cost
One thing you need to know about a precious metal retirement plan is that it is relatively costlier than other types of investments. The fees you would need to pay for the account will be more because the account involves storing physical valuable metals.
Aside from the setup fee (this is usually a one-time fee and varies from one company to the other), you still have to pay some additional charges. Some of these additional charges include custodian fees, storage fees, and transactional fees.
These charges are usually unavoidable. For instance, you cannot avoid paying the storage fee because you need to store the assets in a depository that would charge you for their services. This is because storing valuable metals bought with IRA funds by yourself (in your home) is illegal based on IRS regulations.
If you are caught flouting this rule, you may be charged extra penalties and taxes. Aside from this, storing the assets in your home can be quite risky as you might get robbed.
What Percent of an Investor’s Retirement Fund Should be in Precious Metals?
Experts often advise anyone that invests in gold to be careful about the investment. Investing between 5 to 10 percent of your whole retirement money in this asset is a wise move. Portfolio diversification is one reason experts recommend this low investment percentage. Check here: https://www.thebalance.com/ to learn more about portfolio diversification.
For your portfolio to be properly balanced and designed, you don’t have to risk investing in just one asset type. So, investing all your funds in valuable metals will be a big risk that no financial advisor worth their salt will recommend.
Another reason you have to maintain this low percentage is that these metals’ performance often tends to lag when compared with other asset types like bonds and stocks. If you want to keep growing your retirement funds, then you may end up shortchanging yourself if you invest a bigger share of your funds in valuable metals.
Finally, these assets considered to be “safe haven” may not be all that safe. True, they provide a level of security during troubled times, yet, they are also almost as volatile as other investments choices. Also, even though their prices increase when stocks are struggling, the prices often fall back when stocks recover.
How to Set Up the IRA and Withdraw
If you choose to get this retirement account, then you would have to go through some procedures to open the account.
You would need to get a custodian, fund the account before you eventually buy the assets into it. The custodian or IRA Company will handle most of the investment details, hence, you need to be sure you take proper care when you are choosing one. You can check this inquirer.net gold IRA companies article to learn more about how to choose a reliable IRA company.
When the investment is eventually ready to withdraw, there are two withdrawal alternatives for you:
- Depository Purchase: This involves selling the assets to the depository storing them and then getting the dollar equivalent of the asset’s value.
- In-Kind Distributions: With this, your assets are sent down to you directly.
Conclusion
In this article, we have discussed some things you need to know about precious metal IRAs.
