Understanding Precious Metals IRA

Published: March 1, 2022

Many people are becoming financially literate and intentional about achieving financial freedom. Today, there are many ways by which people can go about investing and building wealth throughout their working career to enjoy a stress-free retirement. That said, several people have been able to build wealth in one lifetime that can last for generations and technology seems to be at the helm of many of these achievements.

Most billionaires today made their wealth from founding tech companies that are driving change in the world in different ways. As a matter of fact, the richest man on the planet today made all his wealth from tech. That man is Elon Musk, CEO of two billion-dollar companies, SpaceX, a space exploration company, and Tesla, the most valuable vehicle manufacturing company in the world.

But not everyone understands 0s and 1s and not everyone will come up with billion-dollar ideas. However, this does not mean non-tech gurus cannot amass a significant amount of wealth in their lifetime; Warren Buffett is the perfect example. He made his billions all from making great investments which is something people can actually learn to do. Visit https://finance.yahoo.com/ to learn more about Warren Buffett’s most profitable investments.

So, as we mentioned earlier, there are diverse ways people can go about investing to enjoy their retirement. One such way is through precious metals IRAs.

What is a Precious Metals IRA?

If you are reading this, there is a big chance you have heard about individual retirement accounts (IRAs). These are accounts with tax advantages that individuals can use to save and invest safely for retirement. A precious metals IRA functions just like the traditional IRA, in terms of contribution limits and tax advantages.

It is a special type of self-directed IRA that allows account holders to invest in a wider range of unconventional investment products. Precious metals like gold, real estate, art, and even cryptocurrency are examples of assets that a precious metals IRA allows you to invest in.

Why Precious Metals IRA?

Well, aside from the obvious benefit of having a lot more investment options than a traditional individual retirement account, it allows for portfolio diversification. A diversified portfolio is simply a portfolio that comprises assets from different investment classes. Experts advise that all investment portfolios be diversified to spread risk and protect one’s capital.

The logic behind it is quite simple. It is a lot safer to have different assets, say stocks, ETFs, real estate, and precious metals than to put all your eggs in one basket. Investing in different assets means that if one of those assets is failing, you can still rely on others to bring in returns.

Now, precious metals make for excellent portfolio diversification because they have been found to perform impressively in the long term. Historically, precious metals like gold, silver, platinum, and palladium have grown in value over the long term.

But make no mistake, these assets, like stocks and others, have their share of volatility and do come with their own set of risks. However, investors like them a lot because they tend to do great in times of economic crisis and when the stock market is generally down. That said, we must also mention that these metals tend to fall in price when the stock market is up, so, keep that in mind.

In summary, a precious metals IRA may be a better option if you are looking to save for retirement because it combines all the assets that are typically invested in with a traditional IRA and more.

How Much of My Retirement Fund Should go to Precious Metals?

While precious metals are generally considered safer assets, for several reasons experts say that they shouldn’t take more than 5%-10% of retirement funds. The first reason and we have mentioned this already, a healthy portfolio must be diversified because investing in one asset or one type of asset is too risky. You should stay away from any financial advisor that says anything contrary to this.

Second, although gold and other precious metals have grown in value over the long term, their performance is incomparable to other asset classes, like stocks, for example. What this means is that if you put the chunk of your funds into precious metals, you would be missing out on the relatively quick returns that other asset classes have to offer.

Can I Invest in any Precious Metal with this IRA?

No. The Internal Revenue Service (IRS) only approves of gold, silver, platinum, and palladium. In addition, the IRS has specific standards that the above-mentioned metals must meet to be eligible:

·         Gold must be 99.5% pure

·         Silver must be 99.9% pure

·         Palladium must be 99.95% pure

·         Platinum must be 99.95% pure.

These precious metals can be bought and stored in bars or coins, depending on the account holder’s choice. The Australian Koala bullion coin, Canadian Maple Leaf Coin, and PAMP Suisse bars, all meet the IRS’s gold standards.

What You Should Know Before Opening a Precious Metals IRA

While the benefits of these accounts make them worthy of consideration, you might want to know all there is to this type of individual retirement account before opening an account. For instance, if you purchase gold, silver, palladium, or platinum through this account, you are prohibited from storing the asset yourself. Doing this attracts additional taxes and other possible penalties like account closure.

Also, these accounts cost more than normal IRAs as account holders are required to pay several fees including account set up fees, custodial fees, storage fees, and transaction fees. But then again, compared to its benefits, these fees might be a small price to pay. Check out Goldco to learn more.

Final Thoughts

Opening one of these accounts is not as difficult as one might think. The bulk of the work is done once you find a self-directed IRA custodian with whom you can work. They can be trust companies, banks, or any IRS-approved entity.

Once you have found one, the next step is finding a precious metals dealer which should not be a problem as your custodian will most likely recommend a few. However, you are not legally required to accept their recommendations; you can search for a dealer yourself. After selecting a dealer, the next step is choosing which assets to buy and the depository in which to store them. Once all these steps are complete, your custodian will proceed with making the purchase and all the other necessary transactions.