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Precious Metals IRA: How to invest for Retirement
When the stock market gets rough, some investors seek out safe-haven investments like precious metals. While gold, silver and palladium are subject to their own forms of volatility, many believe them to be superior long-term investment choices.
You can’t hold physical precious metal in a regular individual retirement account (IRA). However, there are specially designed precious metals IRAs that let you invest for retirement using gold, palladium, silver and other valuable metals.
What Is a Precious Metals IRA?
A precious metals IRA is a special form of self-directed individual retirement account. Self-directed IRAs allow you to invest in a broad variety of unconventional assets, including precious metals, real estate and art, beyond the usual options available in a conventional IRA.
Jim Garofalo, President and CEO of Professional Coin Galleries (PCG) says “Adding gold or precious metals to your retirement account may help protect your wealth in several ways, including reducing your potential investment volatility and risk, serving as a hedge in the event of an economic downtown and providing a tax-efficient shelter for potential gains,” he says.
What Precious Metals Can You Invest in for Retirement?
With precious metals IRAs, you can invest in gold, silver, platinum or palladium. That said, you can’t invest in just any gold, silver, platinum or palladium. The IRS has specific standards your precious metals have to meet:
- Gold must be 99.5% pure
- Silver must be 99.9% pure
- Platinum must be 99.95% pure
- Palladium must be 99.5% pure
Acceptable products that the IRS allows include American Eagle coins in both Gold and Silver, despite the fact that they do not meet the 99.5% purity standard for gold.
How to Open a Precious Metals IRA
Opening a self-directed IRA and investing in precious metals is slightly more complicated than opening a traditional IRA or Roth IRA. Here’s what you’ll need to do:
1. Select a Self-Directed IRA Custodian
Your self-directed IRA is held by a custodian. Custodians can be banks, trust companies or other entities like iPlanGroup that are approved by the Internal Revenue Service (IRS). Self-directed IRA custodians enable investors to invest in alternative assets, including precious metals, art and real estate.
2. Choose a Precious Metals Dealer
Next, select a precious metals dealer. You’ll direct the IRA custodian to send money to the dealer to purchase gold, silver, platinum or palladium. Find an experienced, reputable dealer that stands behind its products. Peter Fetherston, Vice President and Managing Director at Professional Coin Galleries (PCG) says ” We are experienced and are A+ plus rated by the Better Business Bureau. We work one on one with our clients to create a portfolio that works for them and we guarantee all of our products.”
3. Decide What Products to Buy
You’ll need to work with the dealer to select which products to buy. One of the most common and valuable choices are the American Eagle Coins issued by the U.S. Mint. There are many years and mintages to choose from in both Gold and Silver and they are extremely popular with investors.
4. Choose a Depository
Precious metals invested in a self-directed IRA must be stored in an approved depository, such as the Delaware Depository, for example. Your IRA custodian can recommend a depository, but you can select one on your own that meets the Internal Revenue Code’s requirements. Remember: You cannot store precious metals for your IRA yourself.
5. Complete the Transaction
Once you have a custodian, dealer and depository, you can complete your purchase. The IRA custodian will handle the payments, and the dealer will ship your precious metals to the depository.
How Do You Make a Withdrawal from a Precious Metals IRA?
When you take a withdrawal, you have two options:
- In-Kind Distributions: You can have the actual precious metal shipped to you after the distribution.
- Depository Purchase: You can opt for the depository to purchase the metal from you, giving you the dollar value of your investment.
In either situation, you will contact your custodian to start the transaction. Remember, though, that precious metals IRAs are subject to the same rules as normal IRAs. Your investments can appreciate in value without taxation while they’re in the account, but when you withdraw them, you may owe taxes and penalties, depending on your account type and how old you are.
By that same token, you’re required to start taking required minimum distributions (RMDs) when you turn 72.
Should You Open a Precious Metals IRA?
Precious metals IRAs may be a viable option for investors concerned about inflation and market volatility. They are an excellent alternative to traditional investment type IRA’s and are best when a client has more than one IRA and/or 401K. This can create some protection for one’s retirement nest egg.