A precious metals IRA can add hard assets, like gold and silver, to your retirement portfolio mix.
After reviewing multiple precious metal IRA trustees, we are providing this overview of what it is and how the process works.
A precious metals IRA is not for everyone, because it does involve more fees than is the case with traditional retirement accounts.
But if you want to better protect your retirement savings from various forms of crisis, read on to learn how you can set up a precious metals IRA for that purpose.
What is a precious metals IRA?
A precious metal IRA, sometimes referred to as a gold and silver IRA, is a special type of retirement account that enables you to hold physical precious metals in the account.
It works within the framework of a special type of IRA, known as a self-directed IRA (SDIRA), that enables the owner to invest in alternative assets, like precious metals, private investments, and even real estate.
The reason for using an SDIRA is that IRA accounts held with banks and brokers do not hold physical precious metals.
How does a precious metals IRA work?
Unlike opening an IRA with a bank or investment broker, a precious metals IRA requires that you choose a trustee that will manage the account.
These are unique trustee that specialize in SDIRAs. The precious metals you will hold in the account will be held in a physical depository, known as a custodian.
The trustee will purchase the metals for your IRA, and they will be shipped to the custodian. You will not have the ability to take physical possession of the metals yourself, unless you direct your trustee to make a distribution.
Other than the fact that the precious metals IRA is designed specifically to hold gold, silver, platinum, and palladium, the account works like any other type of IRA.
You can contribute up to $7,000 per year – for $8,000 if you are 50 or older – for 2024. Those contributions must be provided out of earned income, and will generally be tax-deductible in the year taken.
Year | Contribution Limits |
---|---|
2023 | $7,000 ($8,000 if you’re age 50 or older) |
2024 | $6,500 ($7,500 if you’re age 50 or older) |
Investment gains on assets held in the IRA are tax-deferred until they are withdrawn. You can take withdrawals, beginning at age 59 ½, subject only to ordinary income tax.
However, if you take withdrawals before you reach that age, you’ll also be subject to a 10% early withdrawal penalty.
Precious Metals IRA Types
A precious metals IRA can be set up as either a traditional IRA or a Roth IRA. If you choose a Roth IRA, your contributions will not be tax-deductible in the year they are made.
However, distributions taken from a Roth IRA are free from federal income tax as long as you are at least 59 ½ years old, and have participated in a Roth IRA for at least five years.
Roth IRAs have another advantage over IRAs and most other retirement accounts.
Required minimum distributions are not required on a Roth IRA. That means you can hold the account for the rest of your life.
It is also possible to set up a SIMPLE or SEP IRA account if you are self-employed, allowing for larger annual contributions.
But many precious metals IRA trustees do not accommodate these account types.
What precious metals are allowed in an IRA?
The types of assets that can be held in an IRA are governed by the IRS. In addition to traditional investments, like stocks, bonds, mutual funds, exchange traded funds (ETFs), and certificates of deposit (CDs), precious metals are a permitted asset.
However, those assets must meet very specific requirements.
First, the metals must be produced by manufacturers accredited by the following: NYMEX/COMEX, LME, BMA, NYSE/LIFFE/
CBOT, and ISO-9000, or a national mint to be held in a retirement account.
The minimum fineness requirement for bullion is:
- Gold .995+
- Silver .999+
- Platinum .9995+
- Palladium .9995+
The fineness requirement points to another limitation of a precious metals IRA: it must hold bullion-type metals only.
Bullion refers to the fact that the metals held in the IRA must be valued strictly based on their metal content.
That can be in either bar form or coins, like the American Eagle and Canadian Maple Leaf gold and silver coins.
You are not permitted to hold numismatic coins in a precious metals IRA.
That’s because the value of numismatic coins is determined either mostly or entirely by their value as collection pieces, and not by the actual metal content.
Pros & Cons of a Precious Metals IRA
Precious metals IRAs and precious metals themselves have benefits and drawbacks you need to be aware of before opening an account.
Pros
- Precious metals IRAs enable you to hold assets that can’t be defaulted on, since they are not obligations of a company or a debtor.
- The precious metals held in the account can provide valuable protection of your overall portfolio during times of extreme volatility.
- You can take distributions from your precious metals IRA either in cash or in the metals themselves.
- Once established, many SDIRAs accommodate other asset classes, including physical real estate, private equity, and tax liens.
- A precious metals IRA is tax-deferred, so there will be no tax liability until you take withdrawals.
Cons
- Precious metals IRAs have high minimum initial investments, which may require a rollover of funds from another retirement account.
- Precious metals IRAs have more fees than traditional IRAs, due to the physical nature of the assets they hold.
- Not all SDIRA sponsors are reputable, and you need to do your research before opening an account.
How to Open a Precious Metals IRA
Opening a precious metals IRA is a more complicated process than opening a traditional IRA.
It involves the following steps.
1. Research the best precious metals IRA company
Precious metals IRA companies are smaller and less well-known than the banks and brokers that offer traditional IRAs.
For that reason, you’ll need to research any companies you are considering. Look for a third-party rating sources, such as the Better Business Bureau, Trustpilot, and the company’s Google listing.
Investigate several companies, paying close attention to the number and type of metals investments they offer, as well as the fees they charge.
2. Select your preferred custodian
The precious metals IRA company will work with a custodian that will take physical custody of your precious metals.
Some companies work with a limited number of custodians, while others will allow you to choose one yourself.
There are many custodians available, but Equity Trust is a popular choice, and one many precious metals IRA companies work with.
The company has been in business for 50 years, and has an A+ rating with the Better Business Bureau.
3. Begin the paperwork and rollover process
Precious metals IRA companies have high minimum initial investments, often $25,000 and up.
Since you will not be able to fund your account with a single annual IRA contribution, you will need to complete a rollover of funds from an existing IRA or other retirement plan.
Though the paperwork and rollover process is similar to other types or plan rollovers, you should pay careful attention to how it will be handled by the trustee you choose.
In most cases, a representative of the company will walk you through the process, and even help to complete the paperwork.
If you are doing a rollover from another retirement plan, it’s best to do what is known as a trustee-to-trustee transfer.
That’s where the funds are transferred directly from your current IRA trustee to your precious metals IRA trustee.
That will eliminate the possibility of the funds not reaching the new account within the 60-day time frame allowed by the IRS.
If you fail to meet the deadline, the IRS will consider the transferred to be a distribution, subject ordinary income tax and a 10% early withdrawal penalty if you are under 59 ½.
4. Purchase desired precious metals
Once your precious metals IRA is established, you can choose which metals you want a hold in the account.
Gold bullion coins, like the American Eagle, are popular because they are widely recognized and available. But you can also add gold bullion coins issued by other governments, like Canada, Australia, and South Africa.
Gold coins come in various denominations, including 1 ounce, ½ ounce, ¼ ounce, and 1/10 ounce. You can also purchase bullion bars, in sizes ranging from one ounce to 100 ounces.
Bars are not as recognizable as coins, but they have lower price markups since there are no minting fees involved.
5. Complete the transaction
It’s important to understand that you will not be able to begin purchasing precious metals for your IRA until the funds have been received by the precious metals company.
Only then will the company begin the process of purchasing your metals.
Once your funds have been received, you can direct the company to purchase the metals of your choice and have them shipped directly to the custodian.
You should be aware that once your metals have been received by the custodian, they will be held in either a segregated or a non-segregated depository.
If they are segregated, they will be held separately from other investors’ metals, but there is a higher annual fee for that service.
With non-segregated storage, your metals are held collectively with other investors.
Best Precious Metals IRA Companies
One of the most important decisions involved with a precious metals IRA is choosing the right company.
Below are three we believe to be worthy of your consideration.
Goldco
Goldco has an A+ rating from the Better Business Bureau, and offers its highest buy back guarantee. They also provide a silver bonus of up to 10% of the amount of limited mintage coins purchased for a precious metals IRA.
Still another advantage with Goldco is that they work with multiple custodians – in fact, you can choose the custodian yourself. Goldco requires a $25,000 minimum initial investment for a precious metals IRA.
Request Goldco’s free investors kit
Noble Gold Investments
Noble Gold Investments offers platinum and palladium bullion for your precious metals IRA, in addition to gold and silver. Not all precious metals IRA trustees offer these metals.
The company has an A+ rating from the Better Business Bureau but has more limited gold and silver options than its major competitors.
They also limit custodial options to a single provider, IDS. The minimum required to open an IRA account is $20,000.
Request Noble’s free gold and silver guide
Birch Gold Group
Birch Gold Group works very similar to Goldco, but it also offers numismatic coins, if you wish to open a non-retirement account and hold such assets.
Birch Gold Group also has an A+ rating from the Better Business Bureau and has been in business since 2003. Not to be outdone, it offers a precious metals bonus of up to $10,000.
Birch Gold Group has one of the smallest minimum initial IRA investments, at $10,000.
Should you open a precious metals IRA?
This is a deeply personal decision, since precious metals don’t work the way paper financial assets, like stocks and bonds do.
But they have the advantage of being an alternative asset class that often moves in the opposite direction of financial assets – especially during times of high volatility.
Precious metals IRA can enable you to hold bullion, which is an asset that cannot be defaulted on in a time of crisis.
If you have decided that a precious metals IRA is right for you, contact one of the precious metals’ trustees listed above to begin the process.
FAQs
Is a precious metals IRA a good idea?
A precious metals IRA will give you the opportunity to add a physical asset – gold and silver – to your overall retirement strategy.
The fact that they are physical assets is critical, because a typical retirement plan is stocked entirely with paper assets, like stocks, bonds, and funds.
What percentage of your IRA should include precious metals?
There’s no hard and fast answer here, but most financial advisors recommend limiting precious metals to not more than 5% to 10% of your total portfolio.
How do I make a withdrawal from a precious metals IRA?
In a typical precious metals IRA, you can either make withdrawals in the form of the metals themselves, or in cash.
If you prefer cash, the trustee will sell enough precious metals to meet the amount of cash you want for your withdrawal.
What are the different fees associated with having a precious metals IRA?
A precious metals IRA will usually have a one-time setup fee of approximately $50. There will also be an annual administrative fee, which should be in the $100 – $150 range.
Expect to pay storage fees to the custodian taking physical custody of your metals. This fee will vary by depository, but could be $100 for a nonsegregated account, and slightly more for a segregated account.
Finally, at purchase you should expect to pay a markup charge over the bullion value of your coins and bars.
This varies by trustee, but should be in the 4% – 8% range, depending upon the volume of metals you are purchasing and the type (coins or bars).