How Does A Precious Metals IRA Work?

What is a Precious Metals IRA?

A precious metals IRA has no different from regular IRAs in terms of taxation, deposit, and withdrawal limits. However, a precious metals IRA is a self-directed retirement account that allows you to invest in physical metals such as gold, silver, platinum, and palladium.

Just like regular IRs, there are two types of precious metals IRAs, traditional and Roth. These accounts are defined by your tax preference and offer multiple tax benefits.

Roth IRAs

These accounts are funded with already taxed contributions. This means you will be able to receive tax-free bullion, coins, and bars when you withdraw. Roth IRAs don't have RMDs but are susceptible to a 10% penalty when you withdraw early, specifically before the age of 59.5. However, once your account matures, you can withdraw your contributions without any charges.

Traditional IRAs

In this case, your contributions are eligible for tax deductions and grow tax-deferred. This means your contributions will be taxed when you withdraw at maturity. Withdrawals before the age of 59.5 expose you to a 10% penalty. Once you reach 72 years, you are required to take RMDs (required minimum distributions), which are taxed as regular income.

Precious metals such as gold and silver are categorized as alternative investments by the IRS and can only be held by self-directed IRAs. The IRS doesn't allow you to purchase or hold physical assets such as rare coins and popular currencies with your regular IRA, hence the need to set up a precious metals IRA.

How Do I Open a Precious Metals IRA?

Precious metals are considered alternative investments and can only be purchased through self-directed IRAs. However, due to the sensitive and complex nature of buying precious metals, you may have to follow a slightly longer process when setting up a precious metals IRA.

Opening a precious metals IRA is one of the factors that differentiates brokerages since most are not equipped to handle the entire process to ensure compliance. You need to conduct adequate research on reputable companies to find a qualified partner. To set up a self-directed IRA, follow these steps.

Open a Self-Directed IRA

A self-directed IRA allows you to invest in physical assets such as gold bullion and real estate, unlike regular IRAS that restrict you to conventional investment opportunities such as stocks and treasury bonds.

When setting up a self-directed IRA, focus on reputable companies specializing in precious metals; this way, you get a one-stop shop for all your precious metal’s needs.

Fund Your Account

The next step is to fund your IRA account. There are multiple ways to fund your IRA account, including rollovers, cash deposits, and checks. Keep in mind that IRAs have a contribution limit of $6000 for people under 50, but contributions increase to $7000 when you are above fifty years of age.

The minimum deposit for a self-directed account varies depending on the firm or custodian you choose. Some custodians may require you to contribute a higher minimum balance, mostly achieved by rolling over existing retirement accounts.

Choose a Precious Metals Dealer

Finding a dealer is one of the trickiest parts of setting up your precious metal IRA since there are several scammers who prey on innocent investors. This is where a reliable gold IR company comes in; they will handle the entire process, including procuring the precious metals you want.

I would suggest working with reputable firms such as Goldco and Augusta, with long-standing reputations in the market. They are well-knowledgeable of the precious metals market as well as government regulations to ensure you remain compliant.

Choosing Precious Metals to Buy

Choosing precious metals may seem like the easiest part, but it needs careful consideration and market knowledge. It goes beyond choosing coins, bars, and bullion of a specific metal. A reliable gold IRA company will help advise you on the best options to ensure you get maximum returns on investment.

However, keep in mind that not all precious metals can be bought using an IRA account. Ensure the metals you settle on are approved by your custodian to ensure you remain compliant and avoid penalties from the IRS.

Choose a Depository

The IRS doesn't allow you to hold precious metals bought through an IRA at home or privately. All precious metals are held by the national depository, bank, or IRS-approved depository. Some gold IRA companies claim to provide storage for precious metals.be sure to check if they are government approved to avoid any penalties.

Complete the Transaction

Once you settle on the specific metals and storage, the last step is to authorize payment. Your account's custodian can make the payment in your stead and purchase the metals and find suitable storage. A reliable IRA provider will streamline the entire process to ensure owning precious metals is as simple as possible.

How Do I Withdraw from a Precious Metals IRA?

Precious metals IRAs, like any other IRA, are intended for long-term investments using your retirement savings. You can choose to sell all the metals in your IRA before maturity and retain all the proceeds in the account without facing any penalties.

However, if you make a withdrawal, you have to pay income tax for a traditional IRA. Nevertheless, there are two ways to withdraw from gold or precious metals IRA:

Top Precious Metals IRAs to Get 

Gold IRA

A gold IRA is one of the most popular precious metals IRAs that allow you to own physical gold using your retirement savings. Unlike most IRAs, a gold IRA is comprehensive and allows you to own more than gold; you can also hold silver and platinum bullion and coins using this IRA.

Gold IRAs come in two forms, traditional and Roth, both of which we handled at the start of this review. You should note that god bought using a self-directed IRA needs to conform to specific government regulations in terms of purity, design, size, and weight. For example, the metal needs to be 99.95% pure for it to be accepted.

Aside from the traditional and Roth gold IRAS, you can also get the SEP gold IRA which is set aside for small business owners and self-employed individuals. Here, your account is funded with pre-taxed contributions with varying limits.

Silver IRA

A Silver IRA is a self-directed IRA that allows you to own silver coins, bars, and bullion in physical form. Silver, like gold, hedges your portfolio against inflation/deflation and other market fluctuations.

This IRA is an ideal choice for customers with a fixed income and investments in the stock market. It's characterized as an alternative investment and helps spread the risk to lower your chances of suffering huge losses.

Investing in a silver IRA comes with the potential of counterparty risk and risk of theft and loss. To secure your investment, you need to work with a reliable IRS-approved precious metals company; this way, you can access trusted custodians and a secure depository for your silver coins, bars, and bullion.

Platinum IRA

Platinum is one of the rarest metals with an ever-increasing value making it an ideal choice if you want to diversify your portfolio. A platinum IRA can be held in either a traditional or Roth IRA, depending on your tax preference.

When purchasing platinum coins and bars for your IRA, you need to ensure they adhere to strict government regulations, which include a purity of 99.95%. The bars should also be manufactured by a COMEX- or NYMEX-approved refiner or from the government mint.

A platinum IRA promises account holders high returns since its value tends to rise exponentially when there is economic growth fostered by monetary stability. However, due to its industrial use, its value will likely drop when there is low demand.

Benefits of Opening a Precious Metals IRA 

Control

Control is one of the main advantages of getting a self-direct precious metals IRA. These IRAs allow you to control the level of investment as well as the assets to include. Here, you can explore other investment opportunities outside treasury bonds and stocks.

A precious metals IRA also gives you freedom from the predetermined asset group set by a fund custodian. Since you have control over the fids, you can effectively manage the degree of risks, losses, and profits.

Diversification

Investing in precious metals is categorized as an alternative investment by the IRS and offers a hedge against market and currency flatters. Research also shows that holding your savings in physical gold and silver helps protect your investment by ensuring a strategically balanced portfolio.

A diverse portfolio protects your investment since gold and other precious metals often don't move in the same direction as stock prices. This means your precious metals IRA can cushion your investments against volatile markets and unstable times.

Growth Potential

Gold and other precious metals have been used to store wealth and, in time, have increased in value. On the other hand, conventional investment opportunities such as stocks and treasury notes are dependent on prevailing conditions making them uncertain.

In contrast, economic factors that often caused the downfall of stocks and bonds provide an opportunity for precious metals to increase in profit. Financial advisors have also stated that precious metals are able to maintain and grow their purchasing power over time.

Tax Advantages

Precious metals IRA holders enjoy equal tax benefits as regular IRA. These benefits are pegged on your tax bracket, which qualifies your self-directed IRA contributions or tax deductions. You should also note that gold and precious metals purchased through an IRA are not subject to taxes until they are distributed to you; this is if you choose a traditional IRA. For Roth IRA holders, you won't have to pay any taxes when you withdraw since your contributions were already taxed.

Insurance

Setting up a precious metals RA is equivalent to taking out insurance on your retirement savings. As the years' progress, most currencies lose their purchasing power, which can affect the value of your savings if you hold it in stocks or mutual funds.

However, precious metals enjoy immunity against currency fluctuations, helping you retain the value of your savings.

Investing in precious metals requires considerable research to ensure you get them right. However, it also boils down to your investment goals, what you want to do with your returns, and your interests. You should conduct adequate research on the various precious metals IRAs and the companies offering these IRAs.

Armed with reviews and client history, you can make an informed decision as to the best metals to invest in and which companies to work with.