You may have heard the buzz about Gold or Silver IRAs, and if you have, you might have a few questions. This article is a brief outline of what makes a Gold IRA. We’ll also discuss why you might want one–or why you might not.
The Basics
If you’re unfamiliar with how IRAs (individual retirement accounts) work, then we recommend reading up on it here.
A Gold IRA, more accurately called a Self-Directed Precious Metals IRA, works the exact same as a traditional IRA, but instead of the cash contributions you make sitting in a savings account, or going toward stock or mutual fund purchases, the funds go toward purchasing gold, silver, platinum, or palladium.
Nuts and Bolts: Bars and Coins
Now, you should be aware that when you have a self-directed IRA, you are in charge of all investments your account makes–but you are not able to physically possess the assets your account holds if you want the protection of an IRA.
That means that when you direct your Gold IRA to purchase a bar of gold, that bar is held in a secure facility–like a bank or depository. You cannot hold that gold bar in your home. If you’re interested in holding physical gold, check out my article here.
Several gold IRA companies have excellent relationships with depositories and can facilitate your storage. But there is a fee for shipping, housing, and securing your gold or silver.
In addition to that, there are only certain types of precious metals that you can hold in your IRA. Here’s a brief list of common IRS-approved metals:
Other gold and silver coins are not authorized for IRA purchase. These include some very common, and very secure, metals. Nonetheless, they are not viable IRA investments.
How It Works
When you have decided to set up a Gold IRA, there are several steps to follow.
Like with any stocks you ever purchase, you realize your greatest benefits when the prices go up and you sell your assets. Unlike stocks, however, gold and other precious metals do not earn dividends.
When you retire, or if you wish to make a withdrawal prior to retirement, you can liquidate, or sell your precious metals at the market price, or you can arrange for it to be shipped directly to you. However, any shipment of your gold counts as a withdrawal on your account; if it is before you are 59 ½, you could be penalized.
Quick Last Word
A Gold IRA isn’t for everyone. It can be a great hedge against inflation, and is a fantastic diversification for your portfolio. But remember that you will not be able to hold your gold physically and it will not earn dividends the way stock does. Happy investing.
