Individual Retirement Accounts (IRAs) have long been a mainstay in American retirement planning, often being funded with stocks, bonds, and mutual funds; but increasingly more investors have begun using gold as an IRA asset class to diversify and protect themselves against inflation in times of economic instability. We will explore in more detail here.
Gold in an Individual Retirement Arrangement: Why It Is Attractive
Gold has long been associated with wealth and security. Its allure lies in multiple factors; these include its precious material qualities as well as the historical associations it holds.
Gold as an Inflation Hedge: Gold has long been seen as an effective protection against inflation; as paper currencies lose purchasing power over time, its value remains preserved through gold ownership.
Diversification: Gold is an ideal way to diversify an investment portfolio because its price doesn’t correlate directly to stock or bond markets, creating an excellent way for you to protect yourself against market swings.
Safe Haven Asset: When geopolitical or economic crises erupt, investors often turn to gold as an insurance policy or source of protection.
There are two primary categories of gold IRAs.
Traditional Gold IRA: Similar to its regular equivalent, a Traditional Gold IRA uses gold as its principal asset and contributions are tax-deductible; however, distributions at retirement time will be taxed as ordinary income.
Roth Gold IRA: Funded using after-tax dollars, Roth Gold IRAs provide tax-free distributions in retirement.
Rules and Regulations
While having precious metals stored away in an Individual Retirement Account may sound appealing, the IRS has specific rules regarding holding such precious assets within an IRA:
Approved Precious Metals: Only 99.5% pure gold qualifies; other precious metals such as silver, platinum and palladium also may meet this standard, though their own purity requirements apply.
Storage: Gold in an IRA cannot be kept at home or kept in an individual safety deposit box – instead it needs to be safely held by an IRS-approved custodian, usually within a specialized depository facility.
No Personal Use: Your gold in an IRA cannot be used for personal consumption until a distribution occurs.
Gold offers diversification and protection, but investors need to be wary of potential downsides:
No Dividends or Interest: Unlike stocks or bonds, gold does not generate dividends or interest payments.
Storage Fees: Storing gold requires payment of annual storage fees, which could reduce returns over time.
Price Volatility: Gold may offer long-term stability, yet is susceptible to short-term market swings and price volatility.
Establish an Investment Typically, funding an IRA with gold requires four steps.
Create a Self-Directed IRA: This type of account provides access to more investments, including precious metals.
Select a Custodian: This financial institution that specializes in offering gold IRA services will act as the custodian to oversee storage, purchase and payment for precious metals purchased within an IRA account.
Fund your IRA: Funding can be accomplished via rollover, transfer or contribution.
Purchase Gold: With funds available in your IRA, you can instruct its custodian to buy gold for you.
Conclusion
Establishing an IRA with gold can be an exciting option for investors seeking to diversify their retirement portfolio and protect themselves against economic uncertainties. While any investment decision requires due consideration and research before investing, gold IRAs offer exciting possibilities as a bright cornerstone in one’s retirement strategy. Before diving in though, make sure you speak to professional advisors first to determine their suitability for you before diving in head first!
