How do I fund my gold IRA? This is a common question that is asked by those who’re opening gold IRAs, as they start to think about how they will purchase their precious metals. We shall look at how any investor can do this, but before we even get there, I will take you through a couple of basics that you need to know about IRAs and Gold IRAs. Read on to find out more.
Individual Retirement Accounts
If you want to get to your retirement years with the assurance that you will have a comfortable life, then you ought to embrace strategic financial planning right away. You might, for instance, need to leverage your current employer-sponsored retirement savings accounts, such as your 401(k) or your 403(b). This may also necessitate you to open your own IRA.
IRAs present you with two options, depending on their underlying regulatory requirements, which are:
- You can open an IRA that allows you to invest in paper assets such as stocks, bonds, ETFs, or other securities.
- Alternatively, you can open a self-directed IRA, which allows you to invest in alternative assets such as precious metals, real estate, promissory notes, etc.
Self-directed IRAs (SDIRAs) are becoming more popular by the day, and for a good reason-they offer real diversification opportunities, as they protect your retirement investment portfolio against inflation.
What should you consider before opening a gold IRA (self-directed IRA)?
Before you open a gold IRA, it is crucial for you to consider how such accounts operate, and what exactly you are getting yourself into. Some of the main things to consider include:
The type of account
For starters, you need to know the type of account that best suits you. Self-directed IRAs exist as either traditional IRAs or Roth IRAs. The difference between these two accounts comes down to the way in which your money is taxed.
With a Roth IRA, you usually pay taxes before making the contribution to fund your account. With traditional IRAs, on the other hand, you usually pay taxes upon withdrawing your proceeds.
Gold IRAs, like all other IRAs, come with fees. You may be charged different fees depending on the company you’ve opened your gold IRA with, but the most common ones across the board are:
- Set-up fees
- Precious metal storage fees
- Account management fees
The above fees range between $250 and $350 in the first years, and about $150 to $250 per year after that. If you already own another type of IRA (that isn’t a self-directed IRA), then you can confirm that the fees on a typical IRA are much lower, and there are also no storage fees incurred.
There is usually a limit to the amount of money that you can invest through your gold IRA. This amount varies by age. Investors under the age of 50 can contribute about $6000 per year, but once they hit 50, this contribution limit jumps to $7,000.
Storage of gold
All precious metals purchased through an IRA must be stored in an IRS-approved depository. If you come across a company that markets self-storage IRAs, then you should do a thorough background check, since the legality of self-storage options is questionable. If anything, the IRS usually penalizes those who attempt to hold their precious metals at home, after having purchased them through a gold IRA.
Why bother opening a gold IRA anyway?
There are several reasons why you’d consider making a gold IRA part of your long-term retirement investment strategy. For starters, having a gold IRA can diversify your portfolio. If you already have a wide variety of paper assets (ETFs, stocks, mutual funds, and other types of securities) that are in one way or another tied to the stocks market, then your portfolio is at a higher risk of collapsing under the weight of an economic downturn.
Channeling some of those funds into precious metals such as gold and silver can be a good approach to mitigate risk, to see to it that your portfolio can weather any economic downturn. One common trend that has been observed over the past few years is that the price of gold is negatively correlated with that of paper assets. Whenever stock prices are taking a nosedive, gold prices are usually impressive. On the other hand, when stock prices are doing well, gold prices are usually not that good.
Gold has also proven to be a great hedge against inflation, as its prices tend to go up whenever the value of the dollar is going down. Beyond that, the value of gold has been increasing steadily over the years and has presented many investors with the opportunity to profit.
Funding a gold IRA
If you are sure that you want to open a gold IRA, after having considered all the above information, then one final thing that you might want to consider is how you will fund your account. You need to know how you will channel money into your account so that you can begin purchasing precious metals. The three gold IRA funding options allowed by the IRS are:
Here, you can use check, cash, or wire transfer to fund your gold IRA, just as you’d fund your typical IRA. remember that there might be a fee if you opt to go with a wire transfer.
Rollovers are used if one is planning to take a distribution from a pre-existing IRA to roll it into their newly created gold IRA. Those who perceive this approach as the best for their situation are required to contact the administrator of their current IRA for instructions on how to go about the process. The administrator can take over the process and see to it that your funds are rolled over successfully. Alternatively, you can take the cash distribution yourself and deposit the money into your gold IRA. You should however ensure that you do this within 60 days, to avoid facing a 10% penalty- this does not apply to those who are over 59.5 years.
You also have the option to do a direct account-to-account transfer. All you need to do here is to fill out a form provided by your current IRA admin, or you can leave that to your gold IRA custodian. The funds will, in this case, be sent to your gold IRA, and will take about 5 days (with no taxes and penalties).
Now that are you are well-informed about the basics of gold IRAs, you can take it to the next level you contacting the experts in any of the recommended companies in the links below:
That will be all for this article in which we have answered the question, “How do I fund my gold IRA”, and have presented a couple of basic facts about gold IRAs that you should know as you open one. If you still have any more questions with regards to today’s topic, feel free to drop them in the comments section so that I can get back to you ASAP.
I wish you well,
Eric, Investor and Team Member at Gold Retired!