What is a Precious Metals IRA?

A precious metals IRA, often called a gold IRA, is a self-directed IRA. This allows investors to invest in precious metals instead of stocks, bonds, or mutual funds.

These IRAs allow people to hold physical gold and other precious metals in both traditional and Roth IRAs, and SEP gold IRAs, which are IRAs for self-employed individuals.

A precious metal IRA can help investors diversify their retirement accounts and create a hedge against inflation and market volatility. There are also tax benefits to these IRAs.

How does a precious metals, or gold IRA, work? Let’s find out.

What Is a Precious Metal, or Gold IRA?

A precious metals IRA is a self-directed IRA. This means that you have a lot more flexibility in your assets when compared to regular IRAs. Instead of holding paper assets, like stocks, bonds, or mutual funds, in a precious metals IRA (Called a gold IRA, silver IRA, platinum IRA, etc.), you hold physical precious metals like certain coins, bars, or more. The metals must meet Internal Revenue Service purity standards to be held in an IRA, but gold coins, bullion, and other precious metals can be held, as long as they are purchased and stored correctly.

This type of IRA is often really attractive to those who don’t want to keep investing in stocks or bonds. By investing in precious metals, you can create an IRA that is resistant to inflation. This helps to ensure your retirement savings are safer in times of economic uncertainty.

IRS Requirements for a Precious Metal IRA Account

There are strict rules that govern what physical assets can be included in a precious metals IRA. For instance, gold must have a purity of .995. Silver must be .999 pure, and platinum and palladium must be .995 pure.

Some of the eligible metals for a precious metals IRA include American Eagle and Canadian Maple Leafs, gold bars from approved mints, and gold bullion coins and rounds produced by certain manufacturers. There are also ineligible items including any collectible coins, rare coins, or gold and silver that you already personally own.

What is most important for all IRAs, including traditional gold IRAs, a Roth gold IRA, or others is that they must be purchased through gold IRA companies. Then, they must be stored in a depository that is approved by the IRS. If you purchase gold for investment purposes, you can store them at home or in a bank, but you cannot use that metal for your IRA.

We’ve outlined all of the precious metals IRA rules for full transparency on this page.

How to Open a Precious Metal IRA?

Top open a precious metals IRA, there are a few steps:

Step #1 – Choose an IRA Custodian

When you have a traditional or Roth IRA, it is managed by a bank or brokerage. With a precious metals IRA, it is administered by a self-directed IRA custodian. These companies help to facilitate the setup of the account, ensure that everything is in compliance with IRS rules, and then handle the transfers needed to fund the IRA. There are many reputable custodians in the gold IRA industry, but some may have higher fees than others, so I recommend doing some research.

Step #2 – Fund the IRA

There are many ways to fund a precious metals IRA account, including the following:

• Direct transfer from an existing IRA
• Rollover from a 401(k), or similar
• Using cash to fund the IRA (This is subject to annual contributions limits, and you might have to pay taxes depending on the type of IRA you choose.)

Step #3 – Choose Your Precious Metals

When you work with a gold IRA company, you can buy gold, silver, platinum, or palladium to hold in your IRA. The custodian facilitates the purchase by using the retirement funds you have added to the account.

Step #4 – Store the Precious Metals

You have to store precious metals in an IRA at an IRS-approved depository. The custodian will facilitate this, too, but you may want to watch out for custodial fees.

How Do Distributions Work?

Like traditional investments, you can start accessing your retirement assets with qualified withdrawals when you turn 59 1/2. If you take out the items early, there is a 10% early withdrawal penalty. However, once you reach retirement age, the funds can be withdrawn (sometimes tax free) either in cash or as an in-kind distribution, which means you take possession of the metals.

Benefits of a Precious Metal IRA

When compared to regular traditional IRAs, there are specific benefits that a precious metal IRA can bring:

More Diversity

Working with a precious metals dealer to fund an IRA allows investors to diversify their retirement account.

Hedge Against Inflation

Historically, precious metals have retained their value, and even risen in value, when compared to the stock market in times of high inflation and times of uncertainty.

Security of Tangible Assets

Unlike stocks, when you fund an IRA with precious metals, you actually own a tangible asset. It can’t simply disappear like a paper asset might.

Are There Any Risks to Investing in a Precious Metals IRA?

Any investment holds risks, including precious metals IRAs. For instance, there might be price volatility. As with any investment, the value of the metals can go up and down. Another thing to consider is that you will have to pay storage fees and other costs, which could lower your purchasing power. Finally, gold and other precious metals might be less liquid than when selling stocks and bonds.

I recommend working with an expert in personal finance to make sure this is the right investment for you. They can explain more about the tax advantages of a precious metals IRA and how investing in alternative assets can be beneficial. Depending on which physical metals and what type of IRA you choose, you could use pre tax funds or after tax dollars. A precious metals IRA has the same contribution limits and the investment process is similar to traditional assets, but I always recommend working with a tax advisor or financial advisor for investment advice before holding gold and other metals in an IRA.