No one can deny the fact that there always seems to be something new that makes times uncertain from a financial perspective. With that being said, the most savvy among us will look for whatever kind of legal opportunities we can to protect ourselves and our loved ones in an ever-changing world.
One of the more sought-after strategies is to set up an IRA based on physical precious metals. After all, the value of these has been talked about and enjoyed over the years, so why not?
Today, I’m going to talk to you about gold IRAs and how you may fund them. By the way, this is not me just throwing some random information out there. This is stuff that I have hands-on experience with so no need for you to be concerned.
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Understanding Gold IRAs
So, you may know that there are traditional and Roth IRA options when we look at the typical retirement accounts. In the same way, there are traditional gold IRA and Roth gold IRA options too. There are even SEP gold IRAs for those who would access these things through their employers.
The concept is not far removed from the Roth and traditional IRA counterparts. It’s simply the fact that these kinds allow you to make use of physical gold and other precious metals as a part of your retirement portfolio.
This means that your Roth and traditional gold IRAs will have contribution limits too, as well as withdrawal requirements. It’s a good idea to check what these are annually as they will change.
Why Is a Gold IRA Account a Good Idea?
Let’s talk about why you would want to go this investment route for a moment because, in my opinion, the advantages of doing so are simply undeniable.
Whether it’s gold coins, silver coins, platinum, or palladium, precious metals are nothing new to investors, and they have always been seen as a good way to bring some level of diversity to an investment portfolio.
Diversification is always a good idea because the concept of risk is pretty much intertwined with that of investing. Any investment can perform extremely well or it can tank and you can incur huge losses. If you completely invest in one thing and that happens, the recovery will be difficult.
However, if you invest in different kinds of assets and initiatives, then at least if one should go downhill, your whole portfolio isn’t going to collapse because of it.
Since these accounts are just like your typical traditional or Roth IRA with the difference being the underlying asset, it means that the tax benefits that come with them are also similar. I love the fact that pre-tax contributions are an option, which means that my taxable income is going to be reduced.
It also helps that there can be no taxes owed until it’s time to withdraw. Don’t forget that the idea of having different self-directed IRA options allows us to be able to decide when we want taxes to apply depending on how favorable we expect things to look down the line.
Gold, silver, platinum, and palladium hold inherent value. This is one of the main reasons they happen to be so sought after. Of course, I’m not saying that their prices can’t change. However, I’ve held them as well as assets rooted in fiat currency and I can tell you that the difference is nothing short of staggering.
In fact, sometimes when the power of money begins to weaken, I actually find that my precious metals will appreciate in value. Knowing this, I can plan around both kinds of investments in the long term.
This is a segue from what I just spoke about. Inflation can be unbearable sometimes. Even when it’s not, it still means the purchasing power of money is becoming less. Gold in particular works very well as a hedge against inflation because of the way it can hold its value well.
Potential Drawbacks of a Precious Metals IRA
I’m not gonna pretend like there are no downsides to investing in precious metals. So, why don’t I take a look at some of them here?
Earlier, I made mention of the inherent value that makes precious metals so good in a protective context. However, we invest because we want to see growth, right? Therefore, the price is not likely to see the kinds of jumps other investments can when they perform well.
This is compounded by the fact that at the required minimum distributions (RMD) age, there is no choice but to either take on the expenses of transporting your gold holdings or sell it altogether.
Generating income from gold the same way you would other investment types such as stocks is not really a thing. There aren’t going to be any dividend checks coming your way. Therefore, you will need to ensure that you have these more traditional investments working for you too.
I’ve tried to trade gold before and others have too, and we can tell you that it’s not the easiest thing in the world. Now, I’m not saying that trading other kinds of assets is easy. However, compared to ETFs or stocks, for example, commission fees, online brokerage platforms, and other elements can make the process highly complex.
While gold IRAs are a lot like their typical IRA counterparts, the fee structures are not exactly the same. You’ll find that the former comes at a much higher cost, and a lot of that comes from the fact that they simply require a greater level of management.
Your gold IRA company of choice is not doing that for free. On top of that, there’s the IRA custodian, which may or may not be a partner of the company, and the fact that an approved depository will need to be used for storage.
What to Think About Before Investing in a Gold IRA
Many will tell you to discuss your prospects with a financial advisor before you decide that you’re going to invest in a gold IRA, and I don’t disagree with that piece of advice. Things can go well when you go this route, but it can go horribly too. Here are a few things to think about before you decide to settle on this kind of investment:
- Consider what your investment goals are. Your interests may simply not align with a gold IRA and if that is the case, there would be no need for you to get involved with one.
- The idea of approved precious metals is very important. Canadian maple leaf coins, for example, are accepted, but collectibles aren’t. This is an IRS regulation. If you work with a reputable company, they will ensure you stick to acceptable gold bullion.
- A dealer and custodian will be in the mix and they must also be chosen well. Choosing where to open your account is one of the things you want to be super cautious about here. Do they buy back gold? What is the fee structure? Are aggressive tactics being used?
- Think about what you can afford to invest as you still need to function in the real world.
- How will you fund the account?
How Do You Fund Such an Individual Retirement Account?
This is the main question of the day, after all, and conveniently, it was the last question that we touched on in the previous section. So technically, there are three ways to fund a self-directed gold IRA:
- Gold IRA transfers – This will allow you to move funding from an existing retirement account to your gold IRA. The transfer will see the current custodian send the funds directly to the new gold IRA custodian. There’s a lot less hassle here since you don’t have to handle any money.
- Gold IRA rollovers – Another option that will make use of funds from your existing IRA is a rollover. Again, the funds will go from the old one to the new one, but there is one important difference. You will be given the money and it must be provided to the new custodian within 60 days or there will be a penalty. Bear in mind too that the required documentation must be completed.
- Direct funding – As is the case with typical IRA options, you can simply fund the account yourself but you must stay within the contribution limits annually. Bear in mind too that this means that you will have to factor in any wire transfer fees that can come with going that route.
Opening a gold IRA can be a great choice for those looking for security in retirement. This will require evaluating different gold IRA companies and choosing an optimal one. Of course, this kind of account only works with IRA-eligible gold and other precious metals.
When you open a gold IRA, you can fund it in different ways, such as a rollover, transfer, or directly. I hope that I’ve given you all the insight you came for today!