A Gold IRA can help protect its owner both from falling dollar values and against crashing stock markets.
Bullion.Directory 18 March, 2021
By Alison Macdonald
Commercial Editor at Bullion.Directory
When stocks drop in times of financial crises, gold tends to rise. As the dollar decreases in value, gold doesn't – it retains it’s value.
It’s this market-hedging effect that has seen Gold and now Gold IRAs help protect wealth because it keeps its value regardless of the ravages of inflation or cyclical recessions.
If the stock market drops just as you are about to make a withdrawl from your retirement savings this could have a dramatic impact on your financial plans. As an example in the recession of 2008, millions of IRAs that were invested heavily in paper stocks dropped by as much as 50% in value.
Gold on the other hand is traditionally a market hedge and investment diversifier, and it’s been a safe-harbor investment used to preserve generational wealth for millennia. When the markets were crashing in 2008, gold hit all-time record highs, helping to make up for other losses. In 2021, Gold once again hit new record highs as the Coronavirus took it’s toll and the prospect of a long-lasting recession coupled with high inflation became grim realities.
To get the most from gold you must also know how to buy and store it correctly – with or without a custodian – and for the canniest of investors, at maximum tax advantage.
Here are four practical tips you should know when investing in gold for your IRA – to avoid costly mistakes:
1. Choose How To Invest
Traditional and Roth IRAs both offer their investors tax advantages not seen when buying gold alone, however the point of taxation differs for each.
Traditional IRAs allow for tax-deferred growth, meaning you buy your IRA appropriate bullion free of tax and can use up part of your tax allowance when doing so.
When funds are put into the Roth IRA on the other hand there is no initial tax advantage – this comes at the time when the gold within the IRA is sold for distribution. While the traditional IRA creates a taxable event at point of distribution, the Roth does not.
Although there are many companies who offer self-directed IRAs, not all are set up to allow physical gold, so you’ll typically need to use the services of a Gold IRA specialist.
Firms that focus on Gold SDIRAs offer maximum benefits in terms of advice, efficiency, speed and lower costs, however not all gold IRA companies are the same.
You can check out the best gold IRA companies at irainvesting.com to see what company suits you best. Similarly Bullion.Directory lists over 70 Gold IRA specialists.
Because SDIRAs are “self directed”, the IRS says that the onus falls on you as the investor to make certain that the company you use is suitable. You must research and identify qualified, reliable advisors who can help you with your self-directed IRA and this is why services such as IRAInvesting.com and our Gold IRA category are so invaluable to new investors.
2. Hire A Trustworthy Helper
To comply with IRS rules, gold for use in an IRA must be held with an approved custodian. Not all custodians have facilities in place to handle or store physical assets such as precious metals bullion and so you need to use a specialist custodian.
This is the reason that Gold IRA companies have become so popular since the IRS relaxed rules on owning investment gold in an IRA. Because they have direct connections with IRS approved custodians and storage facilities they take all of the difficulties out of the process, by providing both the metals, access to a custodian and an IRS-approved gold depository.
Once you select a gold IRA specialist, they will handle all aspects of the trade and ensure everything is done to the letter of the law – especially given how costly a mistake may be in terms of penalties and fines!
3. Be Ready For Expenses
It’s important to be aware of additional financial expenses involved with a Gold IRA. You are typically due annual maintenance charges, storage fees and other ancillary expenses such as for paperwork, money wires and other miscellaneous costs.
Although some charge a percentage of the value you have invested, the best gold IRA dealers will usually roll these fees up into a fixed annual expense which can offer considerable savings. Other companies may even waive first-year fees knowing that gold IRAs are typically a long-term investment and that they will have opportunity to earn fees in later years.
4. Liquidate Your Assets
When the time comes to make a distribution, your custodian will need to sell your gold on your behalf. You are not able to receive the gold directly, only the funds from it’s sale. This is so the IRS can better track the money and calculate the tax due (if any).
If your holding was in a traditional IRA you would typically not be due any tax on the distribution. A Roth IRA would be due tax at your prevailing rate at the time (these rates may change)
Many gold IRA specialists will offer to buy back your gold from your IRA account at an advantageous price, especially if they were the original seller because they know the provenance of the metals and have been part of it’s full chain of custody.
Because of this close working relationship between your custodian and the IRA dealer, these sales can be near instantaneous meaning that the money can be in your bank account quickly.
Takeaway
A Gold IRA allows you to diversify your portfolio and has been proven to provide safeguards against inflation. They make an excellent vehicle for owning gold and other permitted precious metals
IRAs have additional tax advantages either at purchase or at the time of liquidation. If you want to pursue a Gold IRA, follow the tips above or read more on our Gold IRA page.
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