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A precious metals IRA is a self-directed individual retirement account that specializes in certain valuable metals. Unlike conventional IRAs, self-directed accounts allow you to invest in a broader range of options like real estate, art and precious metals.
As the name implies, it also means you are responsible for making the investment decisions. Because of this, it is important to understand how this type of IRA works and what metals you can choose as investments before you set up an account.
How Do Precious Metals IRAs Work?
Aside from featuring more investment options, precious metals IRAs work similar to most conventional IRAs. They have the same contribution limits. Also, they allow you to save money in a tax-advantaged structure.
With a precious metals IRA, there are four other parties involved. The Internal Revenue Service, the IRA custodian, a precious metals dealer and a depository are the other parties.
The IRS is responsible for establishing rules and guidelines related to specific types of IRAs. For example, the federal agency specifies the types of metals that qualify for this type of retirement savings account and the level of purity required for each one.
An IRA custodian facilitates your investments for the account. Custodians can be trust companies, banks or other IRS-approved entities.
Dealers sell investment metals, and they send purchases to approved holding places. Since you cannot hold the tangible metals you invest in using your own safety deposit box, you must work with a depository.
Although you can choose a depository on your own, it must meet IRS requirements. IRA custodians usually provide recommendations of approved precious metals holding facilities for your convenience.
What Types of Metals Qualify?
Precious metals are those that have a higher economic value due to their rarity and composition. These substances occur naturally, are less susceptible to corrosion and have a high luster. In comparison with most elements, they tend to be less reactive.
Today, their uses reach beyond jewelry or currency. For example, gold has important uses in electronics and medical applications. Because of this and other reasons, some experts predict that the demand for gold will soon outweigh the supply.
In 2022, the highest demand for gold was in the jewelry market. However, investments, technology and central banks also constituted notable portions of the overall demand.
Because of their durability, usefulness and rarity, precious metals tend to hold value. Historically, they have proven to be good long-term investments.
There are four key elements that qualify as precious metals when it comes to self-directed IRAs. They are platinum, gold, silver and palladium. According to the IRS, these are the purity levels required for each metal to be a qualifying investment:
Do Coins Made of Precious Metals Qualify?
While some collectible coins qualify as self-directed IRA investments, many do not. These are the permitted collectible coins:
Australian Koala bullion coins, Canadian Maple Leaf coins and American Eagle coins are a few popular examples of permitted investments under the above rules. There are a few others as well, and an investment professional can provide a current list of specific options.
Some people get confused about gold purity rules and American Eagle coins. While IRS gold purity standards seem to suggest that grading is essential for this purpose, ungraded American Eagle coins that meet IRC requirements can still qualify as self-directed IRA investments.
Are There Restrictions on Dealers?
The IRS sets restrictions for who can sell precious metals to you for IRA accounts by outlining disqualified persons. According to IRS Publication 590-A, disqualified persons include:
Ways To Fund a Precious Metals IRA
If you have an existing IRA or retirement account, you may be able to do a rollover or a transfer. If not, you can set up a new account and directly fund it.
A rollover is one of the most common ways to fund a self-directed IRA. Rollovers are not subject to tax until you withdraw funds from the new account. Direct and 60-day rollovers are common approaches.
With a 60-day rollover, you can deposit all or some of a retirement plan distribution into a self-directed IRA within 60 days. The money is paid directly to you, and you are responsible for depositing it within the time limit.
A direct rollover is an option that involves moving assets between two different account custodians. For this type of rollover, you can ask the retirement plan administrator to make the distribution payable to your new self-directed IRA.
If you are moving money between different account types and want more control over how and when funds move, a rollover may be a favorable option. It may also be a good choice if you only want to move a specific portion of funds and have not used a rollover within the past year.
A transfer involves moving retirement funds from one custodian to another. Like a rollover, a transfer is not taxable. It is not reported to the IRS.
The difference between a transfer and a rollover is a transfer is usually made to the same type of account. For example, you can transfer funds from a conventional IRA to a self-directed IRA. A rollover is typically made between two different types of investment accounts.
If you cannot deposit your accumulated funds within 60 days and are moving money from another IRA, this is a good option. Since you can only complete one rollover during a 12-month period, a transfer may also be an option if you recently rolled over funds. You can make as many transfers as you need.
You can use a check or bank transfer to self-fund a new IRA. If you set up a new account, decide how much you should invest first.
While precious metals are good long-term investments, diversification is still important to consider. Some experts tell people to limit precious metals to between 5% and 10% of IRA investments. However, this can vary based on individual financial needs and investment goals.
How To Set Up a Precious Metals IRA
Now that you understand this type of retirement savings vehicle, setting up an account is easier. There are five main steps.
Step 1: Choose a Custodian
Select the custodian you trust to handle your self-directed IRA and meet your investment goals. Although a custodian who specializes in alternative assets is great, it is important to find one that is especially knowledgeable about precious metals.
A custodian will help you through the process of establishing a new account. The IRA provider asks for details like employment information, your social security number, payment information and a government-issued ID. You can usually find the required information on a provider's website or by calling the entity.
Step 2: Select a Precious Metals Dealer
Remember that you have a greater responsibility for due diligence with a self-directed IRA. Be sure to familiarize yourself with the different types of precious metals and how to select qualified dealers if you do not use recommendations from your custodian. After you choose one, your custodian will work with that dealer to buy precious metals.
Reputable dealers typically belong to industry trade groups. Some examples of such groups include PNG, ANA and ICTA.
Step 3: Pick Your Investments
Remember that you can select certain approved coins. Also, you can purchase gold, platinum, palladium or silver bullion that meets the purity requirements discussed earlier. You and your custodian work with a dealer to choose approved investments.
Step 4: Select a Depository
As you learned earlier, a depository must meet specific requirements. Be sure to follow those and research options thoroughly if you decide to pick your own instead of working with a custodian-recommended provider.
Step 5: Complete Your Payment
The final step is making the transaction to purchase your precious metals for your self-directed IRA. The custodian facilitates the payment process and walks you through it. Once this step is done, the dealer ships your purchased metal investments to the depository you chose.
Top Companies for Precious Metals IRAs
Working with a reputable company can make the process of setting up an account and funding it much easier. Since these IRAs are more complicated, having an advocate is important.
A reputable company is also the key to finding better dealers and depositories. The entity should have plenty of experience and should offer dedicated assistance throughout the process. These are three leading companies to consider.
Goldco has over 10 years of industry experience. Located in Los Angeles, the company has grown since its launch and has been featured on several trusted and well-known news outlets.
In addition to selling precious metals for direct investments, Goldco offers silver and gold IRAs. One reason customers like working with this company is having a specialist guide them from start to finish. Specialists can answer simple or complex questions.
Part of Goldco's mission is to help people realize the importance of precious metals as part of a retirement investment strategy. One of its goals is to make investing in those elements easier for everyone. These are a few top benefits of working with Goldco:
2. Augusta Precious Metals
Augusta is committed to helping people who want to diversify their retirement savings. The company was incorporated in early 2012 in Beverly Hills and has won several awards since then. Based on reviews collected from multiple third-party sites, most customers are satisfied with the value of service they receive from this company.
The company emphasizes that it focuses on three priorities. They are transparency, simplicity and service. Augusta streamlines processes and provides assistance during each step.
Two factors customers like about Augusta are the depth of knowledge of the precious metals agents and their ability to convey that knowledge in simple-to-understand terms. These are a few other benefits of working with Augusta:
3. American Hartford Gold
American Hartford Gold is a Los Angeles company that is owned and operated by a family. Sanford Mann founded the entity in 2015. The company sells and delivers metal investments directly to depositories for its IRA customers, and it offers platinum in addition to gold and silver.
One feature that sets American Hartford Gold apart from many competitors is its focus on educating customers using a historical perspective for a clearer overall understanding. Advisors with the company mix that information with current market data to ensure customers can be more confident about their decisions.
The company's standards ensure that investors only receive the highest quality of precious metals. These are a few main benefits of working with American Hartford Gold:
Set Up Your Own Precious Metals IRA
Is a precious metals IRA right for you? The key idea to remember is that while this type of IRA is considered a safe haven or a hedge against inflation, advisors do not usually recommend placing all investment funds in precious metals. However, this special type of retirement savings account can be a good addition to your overall long-term investment strategy.
Working with an established, education-focused company like one of the three discussed previously is the optimal approach to setting up and investing in a precious metals IRA. Reputable and honest specialists can recommend investments for you based on your specific needs.