People who invest in gold and other precious metals believe these assets are critical to survival if the global economy faces trouble. They feel that in times of crisis, gold and other precious metals may present a universal form of currency. That may be true, but you can also build wealth for retirement with a gold IRA in any economy. This article explains how to invest in gold with a self-directed IRA.
What Is a Gold IRA?
A gold IRA is a self-directed retirement plan that allows you to invest in alternative assets. You can invest in gold with other self-directed plans, too. Self-directed solo 401(k)s, health savings accounts and education savings accounts can all use precious metals to build wealth.
Gold and other precious metals present a solid, tangible investment strategy provided you know the rules to invest with your IRA. In fact, precious metals in your portfolio can help you create appropriate diversity and allow you the potential to score tax-sheltered gains if you decide to sell when gold prices start to rise.
How to Invest in Gold in a Self-Directed IRA
- Self-directed IRAs that invest in gold are commonly called gold IRAs, but these accounts can also invest in other precious metals such as silver, platinum, and palladium.
- Your IRA purchases the asset, and it’s titled in the name of the IRA.
- Precious metals must be physically held in a depository in your IRA’s name. This protects the tax-advantaged status of the assets.
- Some IRA administrators, like Advanta IRA, have relationships with depository facilities for precious metal storage.
- Not all precious metals are permissible assets in gold IRAs. Know the rules for IRA approved precious metals before you invest.
- If you decide to sell any precious metals owned by your IRA, all income is deposited directly into the account on a tax-sheltered basis.
- You can take a distribution of your precious metals—but if you do so before you reach retirement age, you’ll pay tax and early distribution penalties.
How to Fund a Self-Directed IRA
There are several different ways you can fund a newly established self-directed retirement plan.
Make a cash contribution.
If you make a cash contribution, make sure you adhere to annual contribution limits for IRAs. You can’t contribute more than the IRS allows for the self-directed plan you chose to use. For example, SEP and SIMPLE IRAs along with solo 401(k)s have higher contribution limits than traditional and Roth IRAs.
Transfer or rollover funds from an existing IRA
Transfers and rollovers allow you to move a portion or all of your funds from an existing IRA or 401(k) into your self-directed IRA or solo 401(k) with no tax implication. These transactions occur between your current custodian and your self-directed plan custodian, which protects the tax-sheltered status of those funds.
Transfer or rollover 401(k) funds from a plan with a previous employer
Using old 401(k) funds is a popular choice for individuals who left funds in a previous employer plan because they were unsure of where else those funds could be invested. Moving funds from an old 401(k) works just like the transfers and rollovers described above, with no tax liability for moving funds from one account to another.
Make Your Investments Wisely
It is critical to understand IRA investment restrictions set forth by the IRS. For example, jewelry cannot be purchased in your IRA. Anything deemed a collectible by the IRS is not permissible. Also, only certain types of coins are approved holdings in IRAs. So, make sure you do your research before you invest. But you should always check with the proper professional to ensure any precious metals you’re considering are IRS-approved assets.
Even in times of economic challenges, you can make sensible investments in tangible assets with gold IRAs that have the potential to build wealth for your retirement. Gold is often touted as a potential hedge of sorts to stock market downturns, as the cost of gold typically rises during these times. So, it’s worth considering.
If you’d like more information on investing with a gold IRA, contact Advanta IRA.
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This article was first published on July 8, 2022, and has been updated with current information.