Is a Precious metal IRA a good idea
Because of Inflation and the current state of the Financial markets, many investors just like you are asking this question:
"Is a Precious metal IRA a good idea?"
If you want to use your tax-advantaged savings to purchase Gold and Silver, then a Precious metal IRA is definitely a good idea. In fact, a Precious metal IRA is the only way you can move your tax-deferred or tax-exempt retirement savings into the safety of physical Gold and Silver.
What is a Gold IRA
Self-directed Gold IRAs are a type of tax-advantaged Investment that allows the investor to hold Precious metals in their Retirement accounts. The goal of this short article is to understand the workings of Gold IRAs and how they can help diversify an Investment Portfolio.
Gold IRAs got their start in 1974 when Congress passed the Employee Retirement Income Security Act (ERISA). This sweeping tax legislation established both regular and self-directed IRA accounts. At the time it was unclear which asset types could be held in the newly created self-directed IRAs – the IRS only specified that insurance contracts and collectible items were not allowed. This point of confusion was resolved in 1997 with the Taxpayer Reduction Act which clearly stated that Gold and Silver could be held in self-directed IRA accounts.
Gold IRAs are only allowed to hold specific types of Precious metal bars and Coins produced by approved government mints and third-party refiners. The metals held in an IRA must be at least 99.95% pure (Bullion quality), although an exception is made for American Gold Eagle Coins which are only 91.67% pure.
Silver, Gold, Platinum, and Palladium are the IRS-approved metals for Gold IRAs. In each of these metals you can choose to purchase Coins or Bullion bars. For most investors, the purchase of one-ounce Coins or smaller weight bars is most common since they are easy to buy and sell. Large bars like 1000-ounce Silver and 10-ounce or larger Gold bars are allowed in IRAs but there is less demand for these products.
The IRS requires that the Precious metals in an IRA must be purchased through a qualified Broker-Dealer. Metal that the investor already owns cannot be transferred into the IRA. Another IRS rule is that the metal in an IRA must be stored in a secured vault at an approved Depository – home storage is not allowed.
Navigating the Gold IRA rules is not difficult but it is something to be mindful of when investing.
Gold IRA vs physical Gold
Self-directed Gold IRAs are a type of tax-advantaged Investment that allows the investor to hold Precious metals in their Retirement accounts. The goal of this short article is to understand the workings of Gold IRAs and how they can help diversify an Investment Portfolio.
Gold IRAs got their start in 1974 when Congress passed the Employee Retirement Income Security Act (ERISA). This sweeping tax legislation established both regular and self-directed IRA accounts. At the time it was unclear which asset types could be held in the newly created self-directed IRAs – the IRS only specified that insurance contracts and collectible items were not allowed. This point of confusion was resolved in 1997 with the Taxpayer Reduction Act which clearly stated that Gold and Silver could be held in self-directed IRA accounts.
Gold IRAs are only allowed to hold specific types of Precious metal bars and Coins produced by approved government mints and third-party refiners. The metals held in an IRA must be at least 99.95% pure (Bullion quality), although an exception is made for American Gold Eagle Coins which are only 91.67% pure.
Silver, Gold, Platinum, and Palladium are the IRS-approved metals for Gold IRAs. In each of these metals you can choose to purchase Coins or Bullion bars. For most investors, the purchase of one-ounce Coins or smaller weight bars is most common since they are easy to buy and sell. Large bars like 1000-ounce Silver and 10-ounce or larger Gold bars are allowed in IRAs but there is less demand for these products.
The IRS requires that the Precious metals in an IRA must be purchased through a qualified Broker-Dealer. Metal that the investor already owns cannot be transferred into the IRA. Another IRS rule is that the metal in an IRA must be stored in a secured vault at an approved Depository – home storage is not allowed.
Navigating the Gold IRA rules is not difficult but it is something to be mindful of when investing.
What is a Gold IRA rollover
A Gold IRA rollover is the process for moving funds out of an existing Retirement account and into a self-directed Precious metals IRA. The term is used generically to describe both rollovers and transfers.
In a Gold IRA rollover you request a distribution from your existing Retirement account and the funds are wired directly to the Custodian of your Gold IRA account. You never touch the funds so there is no risk of any penalties or taxes.
In a transfer you request a distribution and the funds are sent to you. Once you have the funds you can send some or all of them to your Gold IRA Custodian. When you transfer funds you have a 60-day window to complete the process. After 60 days the IRS will assess taxes and a 10% early withdrawal penalty on any of the distributed funds that have not been deposited into an IRS-approved Retirement account.
A rollover is the quickest way to move funds into a Gold IRA account and there is zero risk of taxes or penalties. The only reason to do a transfer is if you want to open a Gold IRA and also take some cash out of your retirement savings for another purpose.
Benefits of Gold IRA
One of the key benefits of a Gold IRA is that it allows you to diversify the tax-advantaged part of your Investment Portfolio. In fact, a Gold IRA is the only way you can move your tax-deferred and tax-exempt retirement savings into physical Precious metals.
Historical trends indicate that Gold moves inversely to (opposite of) the Stock and Bond markets. In times of political uncertainty, Inflation, and bear market conditions, Gold and the other Precious metals tend to act as safe havens. Computer models of the traditional 60/40 Investment Portfolio (60% Stocks, 40% Bonds) show that overall performance is improved when the Portfolio has a 3 to 10% allocation towards Gold. This improved performance carries through all stages of the market cycle, both up and down.
Another benefit of a Gold IRA account is that you can save for retirement in a tangible asset that has zero counter-party risk. Stocks and Bonds can go to zero value if a company fails or defaults on its obligations, but that can’t happen with physical Gold - Gold always has value, regardless of what is happening in the Stock and Bond markets.
Historically, the primary benefit of Gold and Silver is that they tend to hedge against Inflation. In the stagflation (stagnant economy, high Inflation) of the 1970s, both of these Precious metals increased in price by over 24 times. Gold rose from $35 to $850 an ounce and Silver climbed from less than $2 to almost $50 per ounce. The current economic environment is very similar to the 1970s and, perhaps, even worse.
Gold IRA pros and cons
Like all Investment options, there are Gold IRA pros and cons. When you want to purchase physical Precious metals using your tax-advantaged savings the pros outweigh the cons.
Pros
- Protect your tax-advantaged retirement savings with physical Precious metals.
- Diversify your Investment Portfolio outside of Stocks, Bonds, and Mutual funds. (ETFs and REITs are just derivatives of Stocks)
- Invest in an asset with zero counter-party risk.
- Hedge your Portfolio against Inflation.
Cons
- The IRS requires that the metal in a Gold IRA is stored in an approved Depository. It is not possible to store your IRA metals at home.
- You are not allowed to transfer metal that you already own into your Gold IRA account. All metal has to be purchased from an IRS-approved Broker-Dealer.
- Because the Gold IRA holds valuable goods, there are fees for storage and insurance that don’t occur when you are holding Stocks, Bonds, and Mutual funds.
Which Precious metal is best
While demand for Gold is primarily from central banks and investors, the other metals have both Investment and commercial demand. Silver for instance is widely used in technology and many industrial applications. One of the big industrial uses for Silver is in solar energy generation where every solar panel contains about two ounces of Silver. As governments push for clean energy, demand for solar panels will cause an increase in the value of Silver. Platinum and Palladium are widely used for catalytic converters in the auto industry.
Because Silver has both Investment and commercial demand, it is likely to outperform Gold in coming years. While the same can be said for Platinum and Palladium today, we don’t know how long commercial demand for these metals will continue. As governments continue their push for electric vehicles, the demand for catalytic converters will decline and that may affect the value of Platinum and Palladium.
Gold is the best Precious metal for long-term preservation of value. Since the first Gold currency was issued in 600 BC (2600 years ago), Gold has demonstrated that it is the ultimate form of money.
Silver is the best Precious metal if you are seeking both a store of value and capital growth. Because of its dual demand sources, Silver is likely to outperform Gold in our high-tech society.
At Satori Traders we recommend that investors hold both Gold and Silver. In our own Portfolios we are heavily over-weighted towards Silver because of its potential for capital growth. The ideal mix of the two metals will be different for each investor depending on their unique circumstances and tolerance for risk.
How to open a Precious metals IRA
The ‘how to’ for opening a Precious metals IRA involves four simple steps:
Step 1
Pick a Gold IRA company and open an account.
Step 2
Initiate a rollover or transfer distribution from your existing Retirement account. You can also use money that you have on hand but you will be limited to the $6,000 maximum contribution limit set by the IRS ($7,000 per year if you are 50 or over).
Step 3
Fund the Gold IRA account.
Step 4
Choose the bars and Coins that you want to hold in your Precious metals IRA.
Best Precious metals IRA
When you are picking a Gold IRA company there are several factors that you will want the company to have:
- An A+ rating with the BBB (Better Business Bureau)
- 10 or more years in business
- Segregated storage for metals
- Mostly positive customer reviews on BBB, TrustLink, Trustpilot, and Business Consumer Alliance
At Satori Traders we consider these factors as requirements. If a company meets these minimum standards we then evaluate their focus on customer education. The best Precious metals IRA companies demonstrate their commitment to customer education by providing informative videos and articles on their websites. If a company really shines in this area it will be obvious by reading customer reviews – the customers will be talking about how the company educated them and answered all their questions.
Conclusions
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About Satori Traders
Satori Traders LLC is a California-registered Investment Advisor specializing in the Precious metals.
Bryan V Post is a California-registered Investment Advisor Representative and the founder of Satori Traders.
Bryan has worn numerous hats during his life: Engineer, Portfolio manager, Precious metals Investor, Technical analyst, Proprietary trader, Swing trader.
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