Updated on 02/07/17
Will the next recession spell doom for your retirement?
It did for many in 2008, when the average loss for workers on the job for 20 years was, according to one source, about 25%.
If your retirement savings are tied only to unstable financial markets, it’s time to put protections in place.
One of the best ways to do that is to own physical gold in your IRA.
This gold IRA guide explains everything you need to know about holding precious metals in a retirement account.
You’ll learn why gold belongs in your IRA, how precious metals IRAs work, what kind of gold to buy, how much to buy, and gold IRA rollover and transfer basics.
Why Have an IRA?
An IRA is a type of tax-advantaged retirement savings account for US taxpayers.
Depending on your circumstances, you may be able to deduct money you put in the IRA from your taxable income, or take it out tax-free when you reach retirement age.
There are two kinds of IRAs:
- In a Traditional IRA, you can make tax-deductible contributions if your income is below a certain limit. Your money can grow tax-free until you reach retirement age. By then, you’ll likely be in a lower tax bracket.
- A Roth IRA is almost the opposite. You don’t get a deduction when you put money into the account, but you won’t owe any tax at all when you reach retirement age and begin withdrawals.
There are two ways to manage an IRA:
many low-cost traditional investment options
e.g. stocks, ETFs, and mutual funds
ability to own different asset classes in one account
no risk of tax penalties for purchasing a “non-approved” asset
savings tied entirely to paper assets
e.g. oil & gas, real estate, precious metals
access to different investment strategies and assets
exposure to hard assets like precious metals
no counterparty risk
|more IRS rules for alternative investments|
The Investment Value of Gold
When economic growth slows, nearly all investments lose value.
To protect your portfolio from a huge loss during a recession, you want to own some assets that tend to move opposite of most others.
Gold is a good example of an uncorrelated asset. Its inverse relationship with stocks makes it one of the best financial safe havens known to man.
But avoiding risk isn’t the only reason to own gold. It can also deliver significant capital gains, especially during periods of greater market volatility.
In five of the last seven recessions, gold moved higher. And three of those times, it rose double digits.
As history has made clear, anyone with a significant amount of gold doesn’t just stand to weather the next recession—they can prosper from it.
Of course, the type of gold you buy can impact your outcome for better or worse.
Precious metal ETFs and physical bullion are very different investments. Bullion is a tangible asset; an ETF is an instrument created and marketed by financial companies.
When you purchase a gold ETF, your investment may increase or decrease at roughly the same rate as gold bullion, but at the end of the day, you don’t own gold.
And if your counterparty can’t or won’t make good on its financial obligations, you might wind up owning nothing at all.
For this reason, we believe owning physical gold is one of the best ways to secure your IRA savings.
How Bullion Can Benefit Your Retirement
If every investor portfolio should contain physical gold, this is doubly true for retirement accounts. There are few scenarios worse than losing 50% of your life savings due to a stock market crash.
But even if a recession doesn’t destroy the value of your paper assets, the purchasing power of your nest egg can still be weakened by inflation.
When your savings should last through retirement and expenses like health insurance and medical care are increasing, knowing how far your money will go in 30 years can become a life or death issue.
Think about this: something that costs $10,000 in 1976 would cost $22,028.10 in 2016.
What will it cost in 2046?
It is essential to consider inflation in your retirement planning… and dedicating a portion of your savings to physical gold is a great start.
How Much Gold to Buy for Retirement
It’s never wise to put all your money into one asset class or investment, but you do have to buy a meaningful amount of gold to truly reap its benefits.
Experts suggest that 5% to 15% of an investment portfolio should be in gold. This will vary based on the investor’s age, risk tolerance, and portfolio expectation.
For retirees, it pays to consider how many investments in your portfolio can be counted on as a long-term store of value. Some of the companies you own now probably won’t be around in 20 years, let alone 40.
Given the likelihood of another recession, terrorist attack, or bank collapse, how prepared is your retirement portfolio? Can your current investments protect you from the fallout?
How much precious metal belongs in your IRA is a personal decision, but the amount can and will make all the difference in the next crisis.
Getting Started With a Gold IRA
A gold IRA is simply an IRA that allows you to invest in precious metals.
Because it is a self-directed IRA, you’re able to acquire physical bullion in the denominations you choose (unlike a paper gold investment, which is associated with conventional IRAs).
The buying process involves four parties: you, the IRA custodian, the gold dealer, and the storage facility.
Here’s how it works:
- You find a custodian and transfer your funds to it via IRA to IRA transfer, annual contribution, or by rolling over cash from another retirement account such as 401k or 403b.
- You choose a precious metals dealer and place your order. The dealer contacts your custodian to verify funds; the custodian contacts you to confirm your order; then your dealer places the order on your behalf and notifies the custodian.
- You choose the storage facility you will use to hold your gold. Your dealer ships your order to the facility, and the facility verifies receipt of your metal.
- Once your gold is safely in storage, your custodian releases funds to your dealer and credits your metal to your IRA account.
This process requires a lot of paperwork, coordination among participants, and takes up to 4–6 weeks. Anytime you want to make a transaction, you have to do it all over again.
As you can see, it’s far from convenient and can be daunting to even the most seasoned investors.
The Ideal Gold IRA
If you wish to avoid the paperwork, time, and hassle of coordinating each part of the process, it’s worth it to find a fully integrated precious metals IRA program combining:
- an online custodial account
- access to a robust dealer network to buy and sell bullion 24 hours per day
- a secure purchasing and management platform
- domestic and international storage options
- ability to take a physical distribution of metal any time without added fees
- dedicated customer support
With everything under one roof, you can easily add physical precious metals to your IRA and manage the entire process online, anytime.
This type of program can provide these additional benefits:
|Access to more dealers||an online purchasing platform with a large dealer network will ensure you get the best prices when buying and selling metal|
|Ease of use||you can buy or sell quickly, 24 hours a day, from your secure online account|
|IRS compliance||a platform that displays only approved bullion products, so there’s no chance of being penalized for buying the wrong asset|
|Control over your metals allocations||a wide selection of approved bullion products, so you can diversify your holdings for even more protection|
|Domestic and International storage options||non-bank storage locations both at home and abroad|
IRS Rules & Regulations
With tax benefits come rules. And violations can result in stiff penalties.
To make the best physical bullion investment with your retirement dollars, it’s important to know the basic dos and don’ts of gold IRAs.
An IRA’s tax advantages sound great to you, but the government is deferring income it would normally be earning on your dollars. Because of this, the IRS limits how much money you can contribute in a year.
Individuals are allowed contributions of up to $5,500 (if you are 50 or older, it’s $6,500).
You can also do a gold IRA rollover or transfer funds from another retirement account, but you must move them to your new IRA within 60 days.
If you don’t, the IRS considers it a withdrawal and taxes it like income.
Precious Metals Storage
Despite a few false claims, IRA holders are not allowed to store their gold at home (if you take delivery, it is considered a distribution and subject to tax).
The role of the IRA custodian is to make sure you buy the right type of metal and store it in an IRS-approved vault.
This third party facility will charge annual storage and insurance fees. Self-directed IRA fees can be paid for outside of IRA contributions.
Selling vs. Withdrawing
The whole point of an IRA is to save for retirement.
To discourage people from tapping into their savings early, there’s a 10% penalty on moneys withdrawn before age 59½ (there are some exceptions, like using funds to cover medical expenses).
But selling your gold and taking it out of the IRA are two different things.
You can buy and sell gold as often as you like while it is still inside the IRA. Those transactions won’t be taxed, whether you make or lose money on them.
However, except for a Roth IRA, withdrawing cash and bullion from the account will be taxed as ordinary income.
If you sell your gold at a profit, you won’t owe any tax on the gain until you retire and begin withdrawals (or possibly never if you have a Roth IRA).
Age Limits & Required Mandatory Distribution
You’re never too old to contribute to a Roth IRA as long as you’re still earning income. For a Traditional IRA, once you hit 70 ½, you can no longer make contributions.
The penalties for withdrawals from an IRA go away starting at age 59½, but you don’t have to take a required mandatory distribution (RMD) each year until age 70½.
Failure to use your savings after that will result in penalties.
The Important Role of the Custodian
The IRS doesn’t give any free lunches. When they give a tax benefit, they have to make sure people follow the rules.
The custodian ensures you invest only in assets the IRS allows and files reports with the IRS each year. It also checks what you report on your own tax filings and makes sure you are paying the right amounts.
Your IRA custodian can be a bank, a brokerage firm, a trust company, or a private company approved by the IRS.
Keep in mind, the custodian doesn’t give you investment advice and doesn’t control your results. Its role is purely administrative.
The custodian will follow your instructions and file the appropriate reports with the IRS. How you invest your IRA—and whether it works—is your responsibility.
Gold IRA Rollovers and Transfers
There are two main reasons investors rollover one account into another.
One is to combine previous retirement accounts like a 401(k), 403(b), or TSP into one IRA. The other is to gain more investment options than an existing IRA offers.
People often use the term “rollover” to refer to both a rollover and a transfer, but that’s not correct. There are important differences between them:
|IRA Rollover||Direct Transfer|
What Kind of Metal Belongs in Your Gold IRA
Once you’ve done a gold IRA rollover or transfer, you can start adding precious metals to your savings. But if you don’t know the right kind of gold to buy, you run the risk of disqualifying the IRA.
The IRS requires that IRA funds can only be invested in highly refined bullion (not collectible coins). The minimum purity requirements are .995 for gold and .999 for silver.
The approved products in each category are as follows:
As you can see, gold isn’t the only precious metal that can secure your retirement savings. In fact, owning other types of metal will further protect your assets.
In certain situations, increasing exposure to one metal or another can offer even greater returns.
Silver has unique attributes that help it perform well even when gold is in a slump. Its industrial uses are growing at a staggering rate and show no signs of slowing.
As demand grows and supply is squeezed, investors holding a meaningful amount of silver stand to make substantial profits.
Platinum is more expensive than silver but can also help diversify your precious metals portfolio. Its price movements can be quite different from gold or silver because it has different industrial uses and supply/demand dynamics.
Holding more than one type of metal in your IRA will limit your risk and reduce volatility specific to one market.
The Problem with ETFs
Exchange Traded Funds, or ETFs, are a form of paper gold. They trade on an exchange just like shares of stock.
For example, when you buy the gold ETF GLD, you are buying ownership in a trust. The trust in turn purchases contracts on the futures market with a claim on large, physical gold bars.
Gold ETFs are convenient and cost-effective when you want to trade actively and capture quick movements on the price of gold or silver. But the gold in your IRA should be a hedge—and paper gold doesn’t offer the same protection as fully allocated physical bullion
It’s all but impossible for an individual investor to convert a GLD position into physical metal, and even if you own enough, the custodian (HSBC Bank) reserves the right to settle requests for physical delivery in cash.
It’s hard to have peace of mind about retirement if your savings are tied up entirely in traditional paper investments.
A gold IRA makes it easy to diversify your nest egg with the security of physical precious metals, while still reaping the tax benefits associated with IRAs.
With the uncertainty that investors face in today's global economy, it has never been more important to diversify and add security to your retirement plans.