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Precious Metals IRA
IRA accounts can vary, with many different option, however there is no IRA account more secure than one that holds physical goods, such as gold or silver. The simple truth is that stocks and bonds can decline and crash, and even the American Dollar looses its purchasing power. Precious goods such as metal however hold their value as a universal currency. You can also withdraw your own bullion’s and do with them as you will under IRA distribution rules.
An Individual Retirement Account has similarities with a typical 401K in that it offers both compound growth and tax savings. An IRA has some basic rules which are important to learn and know as below…
- Anyone with taxable income is eligible to an IRA within the same tax year, however a non-working spouse is also eligible from which their partner can contribute .
- There is limits to how much you can contribute however the growth in your account is not taxable until money is withdrawn.
- Money can be withdrawn at anytime however it will be taxable depending on which type of IRA you have (traditional or ROTH). If you withdraw before the age of 59 and a half you will also be subject to a 10% excise tax in addition to income tax.
- Exceptions for withdrawing before 59 and a half and not having to pay the 10% extra tax can be made in special circumstances, for example; disability, death, medical expenses and first home purchases.
How To Start Your Precious Metals IRA
1. Firstly you must contact a custodian. From this step on you will likely be assigned a single broker to deal with who will help you every step of the way. It is true they get paid high commissions from your IRA, however they also largely rely on your repeat business and your constant investment over many years. For this reason they are absolutely dedicated to you and it is in their interest to see that your IRA performs well.
2. Usually you must first fund your account with the funds you wish to invest. There are several options here, firstly you could invest with cash straight away, or the more common way for IRA accounts is to rollover your 401K to an IRA, and thirdly you can simply do a Roth IRA conversion. These methods are more common than simple cash simply because you will need a minimum of $10k to open your precious metal IRA. You will also need to decide if you want a self directed IRA or a traditional IRA.
3. Your IRA is now setup and is ready for you to lock in your price for the gold, silver, platinum or palladium. Depending on whether you have a self-directed IRA or not will determine if you select your own bullion’s. A price confirmation will be sent to you and confirmation on transaction will be needed. Once this is done it is wise to have paid storage and insurance on these assets, after all it is pure gold.
A Roth IRA works by paying in funds or assets that have already been taxed, this way any funds that you withdraw in your retirement are yours to keep in there entirety and the government cannot touch it as you have already paid tax on it.
A Traditional IRA is the opposite to a Roth IRA, instead of paying tax before you invest, you put in pre-tax funds or assets, however when you withdraw your retirement fund the government will tax you on whatever you have.
A Self Directed IRA can be either a Roth or Traditional IRA, the only difference is you have complete control over the assets that you are invested in, be it bullion’s, stocks, bonds, real estate etc…
So How Does a Precious Metals IRA Differ?
It dosn’t, a precious metals IRA such as a Gold IRA can be any of the above, the only difference is your only asset is gold, silver, platinum or palladium. Some IRA’s may only allow you to have on kind of precious metal or a mixture of whatever you choose.Technically all precious metal IRA’s are self-directed and you have ultimate power over what goes into them, however many investors leave it to the brokers or IRA custodian to decide on what to purchase.
All IRA’s are either ROTH or Traditional, then it is your choice if you want to control your own assets with self-directed or not. Then Precious Metal IRA’s are simply a type of asset you can invest in. A precious metal IRA can be Roth or traditioanl.
More About Precious Metal IRA’s
Typically there are 2 storage options with your IRA.
The first option is to have the bullion’s stored in self storage, you can have bullion’s sent directly to you. However you must consider the fact that you will have tens of thousands of dollars worth of goods, if not more. Obviously for insurance reasons you will have to store them securely, for most people a specialised bank is the best option.
Your second option is to have your bullion’s stored in a national depository, this is probably the most secure option, however it does come with a fee attached, most IRA custodians will recommend this and organise this all to be done for you. Most precious metal IRA holders choose this option and in reality never see their bullion’s, simply because there is no need to.
Precious Metal As A Hedge
As precious metals move independently from the stock markets many large investors including corporations use metal to hedge against their stocks. As bullion’s are used as the basic form of universal currency many investors and companies will hold their assets in the forms of bullion’s. Therefore as stock prices fall such things as gold will hold value or even increase. Having investments on both sides of the scale (bullion’s and stocks) is a safe way to ensure there is always assets with value that can be called upon in times of need.
Hedging can be done with many kinds of assets, such as art or real estate, and whilst property or art can jump hugely in value they can also drop in value just as dramatically. Gold has proven to be the most stable hedging option .
Other Types of IRA
Other than what we have covered there are other rarer types of IRAs, it is unlikely you will be eligible or want to go for one of these, however we shall run through these quickly.
Individual Retirement Annuity - Almost the same as the IRA, but like most annuities it is set up with life insurance companies instead of a bank.
Employer and Employee Association Trust Account (Group IRA): This is a traditional IRA setup by either an employer, a union or an employee association on behalf of the members of employees.
Simple IRA, Traditional IRA setup by a small business for their employees. This will be jointly funded by the employee and the employer will then match the employees contribution which will also be based on a percentage of the employees wage pay.
Spousal IRA, Can be either Roth or Traditional but funded by a married taxpayer on behalf of their spouse who has less than an annual salary of $2000.
Education IRA, Setup to provide funds that allow a beneficiary (children) to pay for higher education. There is no tax deduction for contributing to this type of IRA, withdraws are not taxed either.
Rollover IRA, A traditional IRA which an individual receives payment from a retirement plan.