How does a gold IRA work? Is there anything special about it? Should you opt for a gold IRA or for other types of IRA? Are there different types of gold IRAs? Welcome to this interesting article, in which I will be presenting information about gold IRAs that will help you make a more calculated decision if you’re planning on opening one. Let’s take a dive right into it.
What is a gold IRA?
A gold IRA works just like any other retirement account you may already have information about. It, however, has an added benefit in that it is a self-directed IRA, hence presents you with more control over your investments. You can, as such, add physical gold coins along with any other IRS-approved precious metals, including silver, platinum, and palladium.
As is the case with other types of IRAs, you usually invest your retirement savings based on specific tax requirements (you can do this pre-tax or post-tax), and then take your distributions starting from a later date. With a gold IRA (or a custom precious metal IRA), you’ll experience the same model of service delivery as with other IRAs, including:
- Having IRA beneficiaries
- Receiving quarterly statements
- Logging in to your account to check your investment balances
What are the different types of Gold IRA accounts that you can open?
Just like with conventional IRAs, there are different types of gold IRAs that offer unique tax benefits. They include:
Traditional Gold IRAs
These types of IRAs are tax-deferred retirement savings accounts that work in the same manner as pre-tax traditional IRAs. The IRS is in charge of setting the annual contribution limits for these IRAs. The limits can vary from one year to the next one, but you’ll find that those under 50 years pay about $5,500, while those above 50 years pay $6500. With such an IRA, you’re usually required to pay taxes on investment gains at the time you’re making withdrawals in your retirement years.
Roth Gold IRA
This is an after-tax retirement savings account that works like the regular IRAs. Whereas there’s no upfront tax deduction made on Roth IRA contributions, the main benefit of Roth IRAs is that one doesn’t have to pay any taxes on distributions during their retirement year.
SEP Gold IRA
These are gold IRAs that business owners and self-employed individuals can open. They work in a manner similar to that of pre-tax traditional IRAs, in the way contributions are not taxed, but they also offer higher contribution limits. Instead of abiding by the $5,500 limit, you can make contributions of up to 25% of your income, or even pay $53,000, whichever happens to be less.
How does one fund a gold IRA?
Upon completing the application process for a self-directed IRA, you should move to the next step, which is funding your gold IRA. This can be accomplished through one of the following methods:
You can fund your new IRA by doing an IRA to IRA transfer, which is fulfilled through the completion of the Transfer Request Form. Doing will this will ensure that the transfer is completed with no penalties and that it will be tax-deferred.
If you have a 401(k) or any other qualified retirement plan, you can the gold IRA on a tax-deferred basis.
To fund your account with cash, you will have to either submit a check or wire your money to your appointed custodian. The taxation approach here depends on your IRA account- it can either be pre-tax or after-tax.
The one major limitation of funding an IRA is that you cannot legally fund it using gold coins or bars that you already own. This arises from the fact that the U.S government only allows investors to hold certain coins and bullion in IRAs.
Upon the reception of funds by the newly appointed custodian for your IRA custodian, you will get the guidance you need to choose the approved gold coins and bullion, which are meant to be stored in a safe depository. I would not emphasize enough how important it is to work with a reliable service provider at this point, because it offers you an opportunity to get the right guidance when you are maneuvering such complex transactions.
With a reliable service provider, the process will be so seamless. With the wrong company, however, you could end up wasting a lot of time or have a hard time before getting your account set up and running.
Which investments can I place in my gold IRA?
As the name suggests, a gold IRA can only accommodate precious metal investments. The one thing to note, however, is that not just any type of precious metal can be held in your IRA. According to the Taxpayer Relief Act of 1997, IRS-approved precious metals can only be:
With each of the above types of precious metals, the IRS will only allow you to select one of the few accepted coins, bullions, bars, or rounds. To ensure that the value of gold IRAs is not diluted, the IRS only allows precious metal forms of a specified fineness. Doing this ensures that the long-term value of the precious metals is guaranteed.
All gold coins and bullion must, for instance, have over 99.5% fineness (or even higher). Some common examples you’ll come across include:
- American Eagle Coins
- American Proof Coins
- Canadian Polar Bear
- American Buffalo Coins
- Chinese Panda Coins
- Australian Kangaroo Coins
Silver coins, on the other hand, must have a .999 fineness or even higher. Some common options include:
- American Eagle Coins
- American Eagle Proof Coins
- Canadian Maple Leaf Coins
- Canadian Polar Bear
- Chinese Panda Coins
- Australian Philharmonic Coins
Platinum and palladium coins must both meet the 99.95% fineness requirement. Common options of these two types of coins include:
- American Eagle platinum coins
- American Eagle platinum proof coins
- Canadian Maple Leaf Coins (platinum/palladium)
- Platinum and Palladium bars & bars that are either produced by NYMEX or approved by COMEX refinery.
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That will be all for this article in which we have addressed the question “How does a gold IRA work?”. I hope you found it helpful and resourceful, and that it will enable you to get started in the best possible manner if you’re planning on opening a gold IRA. If you have any questions with regards to today’s article, kindly drop them in the comments section below so that I can respond to them. You can also share your insights about gold investments if you’ve already opened a gold IRA, or are a gold investor.
I wish you well,
Eric, Investor and Team Member at Gold Retired!