When it comes to investing, you have plenty of options at your fingertips. You’ve probably heard about the importance of diversifying your portfolio, but why is this generally recommended? Think about our global economy for a minute. A natural disaster or an instance of geopolitical tension has the potential to rock our entire financial system, even if only for a few days. The fact is, fiat currencies, stocks, and bonds are susceptible to market fluctuations on a daily basis.
Precious metals—like gold, silver, platinum, and palladium—have consistently been considered assets of value for centuries, and can therefore provide protection against a volatile financial market and runaway inflation. Generally speaking, precious metals tend to move independently from the stock market, which means that owning both stocks and metals helps balance your portfolio and protect your assets.
But investing in precious metals comes with its own set of potential concerns, such as finding a viable and safe storage option. Rather than figuring out how to best store a large investment of metals at home, one of the simplest alternatives is to open a self-directed precious metals IRA account.
An individual retirement account, or IRA, is a type of savings account that aids in retirement planning with tax-free or tax-deferred growth. This allows you to stash and grow financial assets until retirement.
Types of IRA Accounts
A traditional IRA allows you to contribute pre-tax assets, which you can invest in the funds of your choosing. Your money is then able to grow tax-free over the years, until you’re able to withdraw from the account without penalty upon retirement. You will be subjected to taxes on the sum that you withdraw.
A Roth IRA is the opposite, allowing you to contribute post-tax assets into the funds of your choosing. When it comes time to withdraw, you can do so without taxation or penalty so long as the account has been open for at least five years.
A Self-Directed IRA provides you with options beyond stocks and mutual funds. With this type of account, you can also invest in LLCs, real estate, and precious metals. It offers both great tax incentives and more flexibility and control.
Setting Up a Precious Metals IRA
Does opening a self-directed precious metals IRA sound like a good option for you? Fortunately, it’s a simple process. You can either start by making a deposit into a new account or rolling over assets from another account. Be sure to speak with your financial advisor for more details specific to your situation.
When setting up a precious metals IRA, you’ll need to choose an IRA custodian. All self-directed IRAs are held by a custodian, which acts as the reporting agent to the IRS. Your custodian will also handle things like account setup, accepting contributions, and issuing account statements.
Next, you’ll need to invest in bullion products, many of which you can find right here at Provident. Bullion that qualifies as an IRA-approved product must meet minimum fineness levels.
- Minimum fineness for gold is .995
- Minimum fineness for silver is .999
- Minimum fineness for platinum is .9995
- Minimum fineness for palladium is .9995
The only exception to this rule is the American Gold Eagle, which has a fineness of .9167, yet still counts as a qualifying bullion product for IRA accounts per IRS code 4975.
Once you buy bullion products for your IRA, they will be shipped directly to the depository of your choosing. Your custodian likely has a list of approved and accredited depositories that they work with on a regular basis. These facilities are fully insured and equipped to store your bullion in secure vaults.
From there, you can continue to add bullion to fund your account at will. Your custodian will provide you with account statements that detail your holdings and their value. At the end of your IRA term, you can choose to either cash out your holdings or take ownership of the physical bullion.
The Perks of a Precious Metals IRA
Since the inception of IRA accounts in 1974, many people have opened them to help plan for retirement and reap the many tax advantages along the way. Most simply, as an IRA account holder, you can deduct your annual contribution from your taxable income; this allows many people to both save for retirement and lower their tax bill simultaneously. In fact, plenty of folks use an IRA to supplement a traditional 401(k) account since you may hold multiple IRA accounts at once.
There are some restrictions that you’ll need to be familiar with before opening a precious metals IRA account, such as annual contribution limits and custodian/storage fees. Your financial advisor or custodian can help answer any questions or concerns.
Precious Metals IRA vs ETF
Some wonder about the differences between a precious metals IRA and an ETF (exchange traded fund), and which would be the better choice to invest in. The question boils down to whether you prefer real assets or paper assets.
A self-directed precious metals IRA allows the investor to purchase and store qualified metals in a tax-advantaged account. The physical bullion is securely stored at a depository and the account is administered by a custodian. You can liquidate your investment at any time or transfer these assets to a different IRA account. Precious metals IRAs are favored by those who wish to buy and hold physical metals for some period of time.
An ETF does not allow you to take physical possession of metals or any other asset; they are simply documented as a paper security. If the assets in your ETF were to to lose value, your investment could potentially dissolve. ETFs are favored by traders and investors who need the ability to quickly move in and out of markets.
While your financial decisions must be made by you, a precious metals IRA is an important consideration for long-term investors. We recommend speaking with your trusted financial advisor, tax professional, or CPA for more detailed information. You can also visit Provident’s precious metals IRA page for FAQs and a list of trusted custodians. You’ll also find a contact form that allows you to get in touch with an IRA specialist in just minutes.
At Provident, we’re committed to helping you reach your investment goals, now and in the future!