As you plan your financial future, it’s common to set up an individual retirement account of some sort. A Roth or Traditional IRA are often the product of choice. However, a great idea for many people is to have a gold IRA instead.
A gold IRA, also known as a precious metals IRA, is a type of individual retirement account that allows investors to hold physical gold and other approved precious metals like silver, platinum, and palladium. A gold IRA works similarly to a traditional IRA, except instead of holding paper assets like stocks, bonds, and mutual funds, it holds physical bars and coins made of precious metals. Here are the key things to know about how a gold IRA works and how it compares to a traditional IRA:
Opening a Gold IRA: To open a gold IRA, you must first open a self-directed IRA through an approved custodian that allows alternative investments like physical precious metals. The custodian will set up an account for you and allow you to fund it with contributions and rollovers from existing retirement accounts. They will also assist with purchasing, storing, and selling your precious metals holdings within the IRA. You are still limited to annual IRA contribution limits, which are $6,000 for 2022 for individuals under 50.
Funding a Gold IRAA: gold IRA can be funded through regular annual contributions just like a traditional IRA. You can also fund it via a rollover from an existing IRA or other eligible retirement account like a 401(k). There are no tax penalties for rollovers to your gold IRA. When funding with a rollover, the custodian will assist you in selling your paper assets, receiving the cash, and using the cash to purchase gold and other approved metals to hold in your account.
Gold IRA Asset Holdings: The key distinction of a gold IRA from other IRAs is the ability to hold physical precious metals instead of paper investments. Gold, silver, platinum, and palladium coins and bars meeting certain fineness requirements are allowed. Coin and bar options from approved government mints like the U.S. Mint are typical holdings.
Tax Treatment: A gold IRA has the same tax benefits as a traditional IRA when it comes to tax deductions for contributions and tax-deferred growth on gains inside the account. Distributions are treated the same by the IRS whether you withdraw cash from a traditional IRA or physical metals from a gold IRA. This means no penalties for withdrawals after age 59 1/2 and mandatory required minimum distributions starting at age 72.
Benefits of a Gold IRA: Proponents of gold IRAs point to benefits like portfolio diversification beyond paper assets, a hedge against inflation especially during economic uncertainty, and growth potential if the value of metals increases over time. Having a tangible asset like physical gold or silver can also appeal to more hands-on investors compared to only having paper investments.
IA gold IRA provides an alternative option to diversify your retirement savings outside of the conventional paper investments used in most IRAs. This option comes with its own unique mechanics, rules, benefits, and drawbacks. As with any major investment or financial account, diligently weigh the pros and cons of your situation before deciding if using some of your IRA contributions or rollovers to hold physical gold or silver is a wise retirement planning move for you.