Investing in a Precious Metals Individual Retirement Account (IRA) has become one of the most popular retirement plans for many people in the United States. Investors can choose several types of assets such as stocks, mutual funds, and bonds at a bank or a broker.
But a self-directed IRA allows an investor to own various types of assets, including traditional stocks and bonds, while adding other alternative asset classes, such as precious metals and real estate. The advantage of owning several assets is that you can choose when and how much of the asset you want to remove.
Although contributions are tax-deductible, an investor can realize returns on a tax-deferred basis until withdrawal and retirement. An IRA investor will be taxed on the withdrawals, but the advantage is that postponing the withdrawal until retirement may result in them being in a lower tax bracket.
How to Invest in Precious Metals
The main advantage of physically buying precious metals is that you have complete ownership of them, meaning you can store them wherever you please. Some of your storage options could be in a bank deposit box or a safe at home.
Choosing your storage facility allows you complete access to your precious metal investment at any time. Having that type of control over your precious metals allows you the peace of knowing that nobody has access to them.
Precious Metals IRAs
A Precious Metals IRA is an instrument for investing in gold, platinum, silver, or palladium with a purity of at least 99.5%. A key advantage of investing in a Precious Metals IRA is that it comes with the tax benefits of a government-approved retirement account. A custodian, such as a bank, trust company, or any other Internal Revenue Service-approved entity, can hold your self-directed IRA.
Another advantage is that you can add different forms of investments, such as stocks, real estate, and mortgages, to your Precious Metals IRA. Deciding between a physical possession and an IRA ultimately depends on your financial goals.
Why Choose a Precious Metals IRA
There are several advantages of opening a Precious Metals IRA, but one of the main ones is the tax benefits. Investors can defer taxes until they make a withdrawal from their account. Two more critical reasons investors choose to open a Precious Metals IRA are they can avoid fees and have control over their account. It’s a self-directed account that allows you to choose an IRA custodian, depository, and the IRS-approved precious metal that you want as part of your IRA.
It is important to not only have investments but to protect them. You can rest assured knowing that your precious metals are safely stored in a high-security facility that offers precious metals insurance.
Investments are attractive because they increase in value over time, and that’s exactly what a Precious Metals IRA has proven to do during economic instability and inflation. Investors choose to put a portion of their retirement fund in a Precious Metals IRA to offset the risk they hold in investments such as stocks, bonds, and futures.
Another advantage is when it comes to distribution. Investors who have stock holdings in an IRA will receive their distribution in dollars when it comes time for a Required Minimum Distribution (RMD). With the dollar’s diminishing value throughout the years, you might get less than you expected.
Owning precious metals in an IRA means that you are not required to liquidate or sell before taking distributions. You can liquidate inside the IRA, or you can take them out of the plan in a physical form and have them delivered to you. Having physical possession of your metals allows you to take it wherever you want.
How to Set Up a Precious Metals IRA
1. Select a Self-Directed IRA Custodian
A self-directed IRA custodian is an Individual Retirement Account holder with duties that include account setup, accepting contributions, and producing account statements. The custodian will also purchase the precious metals from the dealer and transfer funds from your 401(k) or traditional IRA to your self-directed IRA account.
A self-directed IRA custodian has a fiduciary duty to act in your best interest at all times. When selecting a custodian, consider their fee structures and services carefully.
2. Open an Account
After selecting a custodian, get in touch with them to open your Precious Metals IRA account, and they will assign an account partner to help you with the application process. Most self-directed IRA custodians accept applications via mail, email, or fax. Application processing and account activation can take anything from 24 hours.
3. Transfer the Funds
After opening your account, the custodian needs to transfer funds into it. The custodian does all the work, but they will need your authorization to withdraw the funds from your current custodian.
Transfers via a bank wire may take up to five business days, depending on your current custodian. Once the funds reach your Precious Metals IRA, the investing process has begun.
4. Select the Metals
Once the funds have reached your account, it’s time for you to select which precious metals you want as your investment. A consultation with your account partner is a great opportunity for you to understand the different metals and ask questions about the account.
You have complete control of this account, so it’s up to you to decide which metals you’d like to include in the self-directed IRA.
5. Ship the Metals
After you’ve decided the metals you want to invest in and have purchased them, the next step is to ensure they are safe. Most custodians will ship your metals to the Delaware Depository Service Company (DDSC).
The DDSC is compliant with the UL standards and Bank Protection Act and provides an insurance policy that Lloyds of London has underwritten. You can rest well knowing that the custodian stored your precious metals at this high-security vault facility that is a non-government depository storage site.
Once an account has been established and the metals have been purchased, the custodian will provide account statements detailing the wholesale value of the holdings.
How to Fund an IRA
One of the options to fund an IRA is by withdrawing the money from another retirement plan and contributing it to a Precious Metals IRA. Keep in mind that you have to make the deposit within 60 days from the withdrawal of the initial plan.
If you transfer from the one retirement plan to the IRA within 60 days, you won’t be subject to tax or a penalty. It’s a popular way for people with employer-sponsored retirement plans such as a 401(k) to contribute to a Precious Metals IRA. Keep in mind you can do this type of transaction only once per year for every account.
Since many clients do not want to get involved in the intricacies of this process, IRA custodians handle it on their behalf. Once your custodian gets involved, they’ll determine which process works best for you.
Trustee to Trustee
This type of transfer is also referred to as a direct transfer since the transfer happens directly from an investor’s current IRA trustee account to the new IRA account once they’ve authorized it. The account holder doesn’t take receipt of the funds because they get directly transferred to the new account.
The advantage of this type of transfer is that the IRS does not tax it or impose any penalties. In addition, the account holder is not restricted to the number of transfers.
With both funding methods, investors need to do the same type of plan funding. For example, a direct transfer is possible only from a pre-tax account to another pre-tax account, and post-tax accounts must be transferred to post-tax accounts.
Withdrawing Money from an IRA
You need to remember two crucial things if you want to avoid taxes and penalties when withdrawing from your Precious Metals IRA.
The first is that you can withdraw money from your IRA at any time. To avoid a 10% Federal penalty, you should make withdrawals only after you are 59 ½ years or older. The second is that performing an indirect rollover withdrawal will entitle you to a penalty and tax-free transaction if you complete it within 60 days.
The Difference Between Traditional IRA and Roth IRA
With a traditional IRA, investors can contribute a pre-tax income toward an account that will grow and be tax-deferred. The amount that an investor can contribute usually depends on their age, tax-filing status, and income, but in most cases, they are allowed to contribute between $5,500 and $6,500 per year.
The investor will be taxed only upon withdrawal and can claim tax deductions for the contributions. The only time an investor will incur a federal penalty for withdrawing the funds is if they are younger than 59 ½ years. The only time you may make an early withdrawal is in the event of unusual circumstances, such as unexpected medical bills or a first home purchase.
One of the advantages is that investors can lower their current tax bracket since their contributions are tax-deductible. This account also permits you to invest more because the IRS does not deduct taxes from your original investment capital.
Any investor who doesn’t qualify for a Roth IRA because they’re in too high of a tax bracket can contribute to a traditional IRA. This is a good option if an investor believes their current tax rate is higher than it will be during retirement.
With a Roth IRA, investors can contribute their post-tax income to a tax-deferred account, between $5,500 to $6,500. Investors cannot claim a tax deduction for contributions because their contributions are taxed before they go into a Roth account.
Investors also do not have to worry about being taxed when they withdraw the money, as long as they are over 59 ½ years old. Otherwise, a federal penalty will apply.sss
Any investor who is over 70 ½ years old can continue to make contributions to this account. There is no Required Minimum Distribution with a Roth IRA, and it is perfect for investors who believe that their future tax rate will be higher than their present one.
Frequently Asked Questions
Can I Rollover or Transfer an Existing IRA to a Precious Metals IRA?
Yes, you can. Once you appoint a self-directed custodian, they can help you transfer or rollover from your current IRA custodian into a Precious Metals IRA.
How Long Does a Rollover or a Transfer Take?
It takes up to five business days, depending on your current custodian. Rollovers and transfers typically take place via a bank wire.
Do I Get Actual Precious Metals in My Account?
When a custodian doesn’t offer certificate or paper products, you will get physical precious metals in a safe box. If you open a Precious Metals IRA, you will purchase actual metals that you will be able to access during standard business hours.
Alternatively, you’ll have access to your account anytime online. When the mandatory age of distribution rolls around, you can liquidate your assets to receive cash by instructing your account partner or take physical possession of your metals.
Where Do You Store My Metals?
After you’ve purchased your desired metals, the custodian will ship your metals, using an insured carrier, to an approved depository, such as the Delaware Depository Service Company (DDSC). The DDSC’s insurance policy ensures that your metals are covered against physical loss, damage, and natural disasters while in a depository.
Are There Penalties or Taxes for Transferring from an IRA to a Precious Metals IRA?
The good news is that you don’t have to worry about paying taxes or penalties for transferring from a retirement fund to a Precious Metals IRA. Your self-directed IRA custodian will work with your current custodian to ensure they follow the proper procedure so that you don’t incur any taxes or penalties.
How Much Does It Cost to Maintain My Precious Metal IRA?
Ideally, the custodian you choose should charge a flat fee charge so you don’t have to worry about paying a percentage fee of your total account. For example, an annual fee of $175 if your account is less than $100,000 and an annual fee of $225 for accounts exceeding $100,000.
Most custodians don’t charge any other fees to maintain your Precious Metals IRA, and you can claim a tax deduction for all account fees.