Can You Invest in Gold in an IRA?
Traditional IRAs are accounts funded with pretax dollars, while withdrawals will be taxed when withdrawing in retirement. Opening an IRA account at most brokerage firms typically takes only minutes.
However, if you decide to include precious metals in your IRA there are a few considerations you must keep in mind.
An individual retirement account (IRA) provides tax-advantaged savings solutions for your retirement. There are various kinds of IRAs, from traditional and Roth to SEP IRAs for self-employed people and SIMPLE IRAs offered by businesses to employees as contributions for employees’ IRA accounts.
If you want the maximum benefits from an IRA, it’s essential that you understand how taxes work and how your investment choices may alter their impact. One major advantage of an IRA retirement account is being able to avoid capital gains taxes when selling assets.
However, you will still pay income tax when withdrawing funds from an IRA at retirement and must pay a 10% penalty if withdrawing before age 59 1/2. This could have a major bearing on your investment decisions; for instance if selling an asset that generates substantial capital gains can justify paying extra taxes.
Gold does not exhibit high correlations with traditional investments that many people use as part of their retirement portfolio, making it a good way to diversify and protect from stock market declines. Some investors even see precious metals as possible protection from long-term inflation.
However, investing in precious metals through an IRA comes at some costs. Depending on the type of precious metals purchased and custodian selected, additional fees such as storage, insurance and management could apply.
Before investing, Click advises searching for a dealer with credentials from industry trade groups such as the American Numismatic Association or Industry Council for Tangible Assets. Furthermore, research their prices and reputation. Lastly, ask if your custodian offers online dashboards so that you can monitor precious metal performance; otherwise it may be wiser to find another custodian.
Gold and other precious metals can provide diversification in retirement account portfolios that rely heavily on stocks, mutual funds or ETFs linked to the stock market. However, physical precious metals don’t generate income like dividends, interest or capital gains distributions and do not benefit from company’s business cycles like stocks do.
Furthermore, IRA custodians that provide precious metals will charge fees for purchasing, storage and insurance of gold that could significantly raise the bar on how much price appreciation must take place before investors can see a profit from investing.
Physical gold IRAs must also be stored in an IRS-approved depository, although there may be companies advertising “self-storage IRAs,” the legality of which remains questionable and could result in fines or penalties from the IRS. Investors also need to keep in mind required minimum distributions (RMDs) upon reaching age 70 1/2 – just like with any IRA account.
If you invest in precious metals through an IRA, storage and insurance costs will vary from company to company and are usually charged by your custodian. Some gold IRA companies provide turnkey solutions where they handle every step themselves while others coordinate a direct institution-to-institution rollover with your current retirement account, saving you from dealing with transfer paperwork yourself and possibly incurring penalties if it exceeds a specified deadline date.
Gold can add diversification benefits and be seen as a hedge against inflation, making it a worthwhile part of an overall retirement plan. Since gold doesn’t produce cash flows like stocks do, however, it might not be suitable as an income stream in retirement. Therefore, consulting a fee-only financial planner before making this investment decision may be essential in order to calculate potential opportunity costs of investing in gold compared with investments which provide dividends.
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