This article provides tips and tricks to help you in your process of converting IRA funds into physical gold bullion. Find out how you can use your allocated IRA funds to buy gold, how to take advantage of the tax benefits related to the process, and more.
What are you waiting for? While many people know that they'll need money when they're old, no one knows what their future will look like or if they'll have enough after retirement to last them a lifetime.
Plus, getting a significant amount of money in the bank is not always easy. With several bills to pay, there's not a lot of wiggle room.
What is a Gold IRA?
A gold IRA is an individual retirement plan (IRA) that allows you to buy gold and other precious metals. And some may look at it as a way to make a quick buck, it's also a good vehicle for long-term investments.
You're able to invest in precious metals, which are unique in that they have the dual benefits of being a store of value and both material and investment assets.
What Is a Gold IRA Rollover?
In a gold IRA rollover, you take money from a retirement account and invest it in a precious metals IRA that contains gold, silver, platinum, or palladium.
When it's time to use the funds in the future — whether for retirement or because you need money to pay bills — you can sell the metals and get cash.
Opening Your IRA to Gold Account
Opening an IRA to a Gold account can be done in a few different ways. Some businesses will allow you to open your IRA online, others use a mail-in application, and still, other businesses will require you to visit the business office in person. Each business has its own set of rules and regulations, so you should read the fine print before opening an account.
You will also have to decide which precious metals you want your account denominated in. This is essential because it helps determine how much physical metal your investment can buy. For example, gold accounts are valued using the price of gold on a given day or month because it's stored physically in the vault until you make a withdrawal request with your trustee.
On the other hand, silver accounts are valued using a set price for silver that day. Different precious metals have different levels of liquidity and storage cost. Gold has the highest liquidity and lowest storage cost, while silver has the lowest level of liquidity and high storage cost.
This combination helps explain why gold accounts tend to be more expensive than silver accounts. However, because your IRA is in an FDIC-insured account, you can request to withdraw your cash at any time as long as it's during regular business hours for free. However, if you use the banking link, there will be a small fee.
Checkbook IRAs can be opened at different banks and credit unions. You'll need a government-issued ID, and the IRA will be deposited into your account the same day. You can then use this money for everyday expenses, such as buying a car or fixing your house.
You'll also have the option to invest in precious metals, but there will be limitations that prevent you from doing so until you reach a certain age or retirement age. The IRS has stricter rules for opening checkbook IRAs than other types of IRAs because they are not only for retirement but also for emergency funds. As such, the IRS requires that all metals be held in physical form.
Physical Gold IRA Rollover vs. "Paper Gold" Rollover
There are two primary IRA withdrawals: physical gold and paper gold rollovers. Paper gold refers to investing in precious metals using a paper certificate, which is essentially a piece of paper with your account number on it.
Physical gold is different from "paper gold" because, in the event of an emergency, you can liquidate your holdings without having to go through a trustee or trustee-authorized representative. With physical gold, you have the option to store it in a vault, which protects against loss due to fire or theft.
The process for investing in precious metals depends on what type of account you have and what options you choose. This process involves opening an account and selecting a precious metal.
Eligible Account Types for a Gold IRA Rollover
There are three primary types of IRA accounts: traditional IRAs, Roth IRAs, and SEP-IRAs. Each type has its terms and restrictions.
If you have a traditional IRA account, the process for rolling over gold bullion differs slightly from gold IRA rollover. Whereas most other accounts have a requirement that requires a minimum initial investment with no redemptions in the first five years, there's no such restriction for traditional IRA accounts, which means you can open an IRA with just $3 and make it grow indefinitely.
With Roth IRAs, you can pay in at any time and start withdrawing funds, but you cannot add new contributions. Both traditional and Roth IRAs are participant-directed accounts, which means your investments are managed by a trustee instead of yourself. Still, they both allow you to invest in precious metals — though the amount is limited to $1,000 per type per year.
There's no gold IRA rollover restriction for SEP-IRAs because all contributions are made using pre-tax dollars. Since the amount of contributions is unlimited, you can deposit as much as you want into your account — though you must wait for a minimum of five years before starting to withdraw funds.
Gold IRA Rollover vs. Transfer
Rollovers and transfers are similar because they involve moving assets from one account to another. However, there are some notable differences.
A gold IRA rollover refers to when you move your physical gold assets from one precious metals IRA account to another — but you can also do this with paper assets if the company you're investing in supports the option. For example, suppose you had a gold IRA at a company that eschewed physical gold storage and only allowed paper certificates.
In that case, you could still transfer your holdings over to a different company that stored its holdings physically through a gold IRA rollover. This can be done either directly or indirectly depending on the regulations of both companies.
Another difference between rollovers and transfers is that you can leverage a gold IRA transfer to have more exposure than you did before.
For example, if you invest in a gold IRA account at a company that allows 5% exposure but then decide to move your holdings to an institution that offers 20% exposure, your new account would be 20% leveraged. However, funds must remain on deposit for at least 30 days before they can be withdrawn or transferred.
Why invest in Gold-based IRAs?
Many people choose to invest in gold-based IRAs because they want to mitigate the wear and tear of market fluctuations. For instance, if you happen to lose your job, you have the option of liquidating your assets for a small fee and sending your funds to a cash-only or checking account that's FDIC insured.
However, by investing in precious metals, you can rely on them for any future financial needs. In other words, if you exhausted money while shopping at the grocery store or make a mistake while paying the bills with paper dollars, you don't have to worry about an overdraft fee or late fees because instead of worrying about money, you're focused on how much money you have.
Furthermore, gold-based IRAs offer significant tax advantages. There are no taxes on capital benefits or ordinary income at the federal level, which means you can get tax-free first-time withdrawals.
Also, when you invest in stocks or mutual funds, the IRS will tax your holdings at a higher rate than in gold-based IRAs. Finally, your heirs won't have to pay estate taxes on your gold holdings — especially if you die during the accumulation phase.
Gold IRA Benefits
Gold-based IRAs offer several benefits, including:
There are no taxes on capital gains, interest, or dividends. Furthermore, there is no income limit for contributions — and your heirs will not have to pay any estate tax on your gold holdings. Thus, the proceeds of your IRA can stay within the family instead of being claimed by the government.
Easy to invest in — contact a dealer or broker specializing in gold IRAs and buy precious metals. The only requirement is to keep them in an approved depository for at least five years before withdrawing them. Also, you can use the funds for a down payment on a home if you'd like.
Virtually a no-risk investment since the gold you buy is protected by the Federal Government and is not subject to market fluctuations. Furthermore, it's a good place for long-term investment since you can use the proceeds for retirement or pay for your future tuition payments or medical bills.
As one of the few precious metals investments backed by the government, gold-based IRAs are considered low risk. Unlike other investments, they won't be affected by inflation — though inflation could affect their value if it rises above 3% annually.
Gold IRA tax rules
Here are some key points regarding the tax rules of gold-based IRAs:
The IRS views gold as a type of property, which means it's subject to capital gains taxes. However, if it's for investment purposes and not for personal consumption, your initial investment will not be taxed — and neither will any gains or dividends. Furthermore, if you use your gold as collateral for a loan or purchase stock, the IRS will not tax its value.
There are no taxes on early withdrawals for funds withdrawn during the accumulation phase (first five years), but you still have to pay a 10% penalty on earnings.
If you need to withdraw your funds, you can usually do so without penalty within the first 60 days after opening the account. However, if it's longer than that, it still depends on the type of account — for example, some accounts will have a 10% penalty, and some will have a 6% early withdrawal fee. Still, others require that you wait for five years before making withdrawals.
Deciding On a Gold IRA Rollover Strategy
Here are some important factors to consider when it's time to finally decide on an investment strategy for your gold IRA rollover.
One of the primary purposes of investing in gold is to minimize risk. Therefore, the good idea is to diversify your holdings across multiple types of gold accounts and not just put all your eggs in one basket. For example, you might divide your IRA into thirds and keep one-third in coins, another third in deposits, and the last third in bullion.
This strategy allows you to have a liquid or safe portion that you can sell for cash if you need it, an income-producing portion for dividends or interest, and a long-term portion that will remain stable over time — which means you'll be well-prepared even during times of financial turmoil.
Another way you can mitigate risk is by purchasing physical products that have never been available on the market. For example, if the world economy falls apart and people are no longer able to purchase items using cash, gold would fall in price — so in this case, you'd have a haven from hyperinflation. (For more information, read our article on Gold IRA Rollovers.)
Inflation and Debasement
There are very few investments in today's market that can guarantee stability over time. However, gold is one of them. It will never change in value, and the only way it'll decline is if people don't want to use it as a currency or commodity — which means confidence in the U.S. dollar is on the decline.
Choose Your Gold IRA Allocation
Gold is a good choice for investors who want to diversify their investments across a wide variety of assets. For example, you can invest in different types of gold accounts and gold coins, so depending on your goals, you can choose the amount of gold-based IRAs that's right for you.
Find the Best Gold IRA Company
If you're planning to open an IRA account, there are several factors you should consider when choosing a gold IRA custodian.
Reputation and Reviews
A good gold IRA custodian will have a solid reputation for customer service and satisfaction. Furthermore, an excellent way to evaluate one is by checking the reviews of customers who've used them — you'll be able to see what their experiences were like, which means you can choose the custodian that's right for you.
You should be in the capacity to set up your account within a few days — not weeks. Thus, you should choose a custodian who can complete the process quickly, so you don't have to wait long to get started.
A good gold IRA custodian will offer the possibility of buybacks. This means that they'll buy back your gold after a certain amount of time — though some providers will only purchase gold at certain times, while others will buy it any time.
Gold prices may have some effect on how and when these custodians offer buybacks. If a firm offers this service, you should look for a firm that allows you to keep your gold even if they take back the shares and coins you've purchased.
Selection of Gold and Silver Products
You should be able to choose from a wide variety of products, which means your custodian should carry gold bullion, bars, coins, and several types of gold IRAs. And remember to confirm which of these custodians also offer physical precious metals as well as "paper" assets.
Costs and Fees
You should compare the fees and costs of gold IRA accounts with different custodians to find out the lowest one...
There are various great reasons to choose a gold IRA. In addition to the fact that it has historically outperformed other types of IRAs, it's less likely to be affected by inflation — and when people do want to sell, they do so at times when prices are lower.
Finally, while there are various benefits of investing in this type of IRA, one of the best ways to make sure you get the most from your funds is by opening an account with a reputable custodian who will allow for buybacks.