How can I invest in a gold IRA? What should I expect when investing through a gold IRA? Is using a gold IRA to invest complicated or easy? Such are questions that those who are trying to get started with investing in precious metals often ask themselves. Today’s post is dedicated to providing the answers to these questions, to help you understand what goes on in the gold IRA industry.
Gold IRA investing is gradually becoming popular amongst investors and those shopping around for retirement plans, due to the fact that it plays a significant role in the diversification of investment income. With most of their funds stuck in stocks and ETFs, investors are opting to protect their wealth by purchasing some physical gold through these unique retirement accounts. Fortunately, most of these investors follow a specific number of steps during the investment process, that you too can follow today as you also begin investing in physical gold. Read on to find out more.
Steps to Follow when Investing in Gold
Step 1: Educate yourself about Gold IRA Investing
It is essential to familiarize yourself with the basic concepts in the gold IRA industry. It is the mark of a prudent investor to do their due diligence before spending their money on any type of asset. In the case of gold IRA investing, you ought to acquaint yourself with:
- Bullion coins
- Gold funds
- Gold companies
- Gold mining stocks
- The world gold council
- Types of gold
- IRA-approved gold
- Gold futures contracts
What is a gold IRA?
A gold IRA is essentially a self-directed individual retirement account that allows the account holder to mainly invest in physical precious metals such as gold. The fact that it is known as a “Gold IRA” does not mean that you cannot use it to invest in other precious metals. You can, in fact, use your account to invest in IRA-approved silver, platinum, and palladium.
What is gold IRA investing?
Other types of IRAs allow investors to hold certain stocks, mutual funds, and other paper assets. Gold IRAs are different in that they allow investors to purchase and hold bars and coins, and have the investment overseen by Gold IRA custodians. Gold IRA custodians are companies or financial institutions that specialize in the oversight of gold IRAs owned by investors.
Gold IRAs are in many ways similar to regular IRAs, moreso when it comes to the rules set forth by the IRS. The difference arises in the type of assets allowed for use in these accounts. With a gold IRA, you can invest in alternative assets, which is something you cannot do with a regular IRA.
Note that the annual contribution limits and the rules pertaining to taking distributions are similar for Gold IRAs and regular IRAs. You can as such take distributions from your Gold IRA without getting penalized after hitting 59 ½ years. All withdrawals made before this age are perceived as early withdrawals, and they attract a 10% early withdrawal penalty.
The different types of Gold IRAs
The three main types of gold IRAs that investors can open include:
1. Traditional Gold IRA
This type of IRA is funded using pre-tax dollars. The investor’s contributions and earnings on the contributions are taxed when they are making withdrawals during their retirement years.
2. Roth Gold IRAs
These IRAs are funded using post-tax dollars. One does not get the immediate tax advantage, but they do not pay taxes on their distributions during retirement.
3. SEP Gold IRAs
They are available for self-employed investors as well as the employees of small businesses.
Step 2: Start Gold IRA Investing
With an understanding of what happens in the gold IRA industry, you can proceed to open your account and invest. Here is how to go about it:
Choose a Gold IRA custodian
The first step is to choose a reliable custodian so that you can open the gold IRA. Opening the Gold IRA only requires you to fill out some forms or paperwork, and can in most cases be completed quickly. Be sure to compare the fees, quality of service, and customer reviews for various Gold IRA custodians, to avoid ending up with a company that does not take your investments seriously.
Some custodians may charge you a fee to open your gold IRA, but if you are necessitated to make a large deposit upfront, you may end up not paying a fee at all. Consult with the IRA custodian about any other fees that they charge their customers before committing to open an account. A company that is not transparent about its fees upfront is a company that you should avoid.
Fund your Gold IRA
You can fund your Gold IRA by depositing some cash (check or wire) into your account. These funds will be used to purchase the physical gold or other precious metals that you prefer. If you have a pre-existing retirement plan, you can roll over or transfer the funds in those accounts, after consulting the customer representatives at the Gold IRA custodian firm. Investors who have 401(k), 403(b), 457(b) or TSP plans may attempt a Gold IRA rollover or Transfer.
Step 3: Choose the Metals you will use for Gold IRA Investing
The IRS requires that you only invest in IRA-approved precious metals if you are using a Gold IRA as your investment vehicle. IRA-approved precious metals have set purity requirements that must be met. With gold bullion, for instance, any product you purchase must be 99.5% pure. You can purchase gold coins for use for investment, but you cannot include rare and collector coins in your portfolios. You cannot also add circulated or pre-owned gold coins to your Gold IRA.
Step 4: Track and Follow up
With the right investments in your account, all that is left is for you to track the performance of your portfolio. Remember that gold performs better as a long-term asset, hence you should not start panicking due to short-term volatility. Also, do not invest all your retirement savings in gold. You should put aside about 5 to 15% of your portfolio for the purpose of Gold IRA investing. Investing in this asset has its unique risks, hence putting all your eggs in one basket will end up being detrimental to your financial future.
Frequently Asked Questions on “How Can I Invest in a Gold IRA?”
1. Where will my gold be stored?
If you invest in gold through a Gold IRA, then you do not get to hold the Gold at home or at a local depository. You, instead, have to ensure that the physical gold is stored in an IRS-approved precious metal depository. Such a depository is not only safe and secure from access by thugs, but is also insured by an internationally or nationally recognized insurer.
2. Will I be required to store storage fees?
Yes, You will, in most cases, be required to pay storage fees for the gold held in the precious metal depository. The storage fees may vary depending on a couple of factors, including whether the gold is stored in segregated or unsegregated storage (commingled storage). Segregated storage, in which your precious metals are stored separately from those of other investors, may cost you more in terms of fees.
3. How much money can I contribute to my Gold IRA?
The annual contribution limits for gold IRAs (and other types of IRAs) change from time to time, as the IRS takes into consideration some factors such as inflation. In 2022, however, investors aged below 50 can contribute $6000 per year to their gold IRAs, while those aged above 50 can contribute up to $7000.
4. Will I be allowed to take possession of my gold at any point?
Yes. Upon hitting 59 ½ years, you can withdraw the gold in the same form that you purchased i.e. coins or bars. Those who take physical possession of their gold after hitting the required retirement age are not usually penalized. Early withdrawals attract a 10% penalty.
That will be all for today’s post: How can I invest in a gold IRA? I hope that you enjoyed it and that you found it helpful. If you have more questions about it, kindly let me know so that I can respond to them ASAP. All you need to do is to drop them in the comments section below.
I wish you well,
Eric, Investor and Team Member at Gold Retired!