Your IRA to Invest in Gold: The year 2022 has not been a good year so far for many with regard to inflation. In fact, the danger signs began as far as October of 2021 when Treasury secretary Janet Yellen predicted the inflation rate for 2022 would rise as high as 7.5 percent, then level off in mid-2022.
Then the supply chain crisis occurred, which is still not under control, followed by the current Russian/Ukrainian war, and you have many predicting inflation could go up 10 percent during most of 2022. So it’s no wonder that many people are rethinking their
traditional IRAs with investments in stocks, and considering gold and other precious metals as at least a substantial part of their individual retirement plan.
Gold, in particular, has always been considered a good hedge against inflation, so it’s no wonder that many people are rushing to establish at least part of their hard-earned money into a Gold IRA.
So how does a gold IRA work?
A gold IRA is a self-directed IRA where you can invest in gold, rather than stocks or bonds as the principal form of investment.
Gold, and other precious metals in the form of both bullion, and coins can become the foundations of an IRA but there are significant rules established by the government as to how a gold IRA works.
The main difference between having a precious metal IRA and a traditional IRA is that you cannot physically hold your precious metal whether it be gold, palladium, or silver.
When investing in a precious metals IRA there are actually three things required:
- A custodian
Although your IRA is self-directed, you must have a custodian to buy your gold or other precious metals for you.
A custodian can be a bank or trust company or other entity. The pocket-lint has a list of officially approved custodians, so to answer a common question, no you cannot designate your wife, your brother-in-law, or your best friend as an IRA custodian. Check out the list of best custodians in 2022.
Also, not all custodians deal with precious metal IRAs so you should shop around.
- Next you’ll need a precious metals dealer
Chances are your custodian already has a relationship with one or two precious metals dealers, but it is important to understand that you should do your own research as well to choose the best one.
Also, it’s important to know that the metals you invest in must have a certain degree of purity.
- Gold must be 99.5 percent pure
- Silver must be 99.9 percent pure
- Platinum must be 99.5 percent pure
- Palladium must be
It is possible to own coins such as the Canadian Maple Leaf Coins or the American Eagle coins, but they can’t be collectible, although American Eagles sort of cross the line here.
Because coins often go for a premium, for most it is probably better to invest in bullion, or American Eagle Bullion Coins issued by the mint.
- Next, you will need a depository to hold your gold or precious metal.
We’ve already covered that your precious metal must be stored in an IRS approved depository, but know that different depositories charge different rates.
Some charge as low as .33 percent up to around 1.25 percent.
In general depositories have a formula:
Firms calculate a daily fee daily based on the price of gold multiplied by the number of ounces in an account, multiplied by the percentage fee, and divided by 365
- Complete the transaction
Once you have the custodian, the dealer in place and the depository lined up, you have all the elements in place to complete a transaction.
The one place where you have complete control is negotiations with the dealer. Feel free to do your best to negotiate, although honestly there is very little difference in price between one dealer and the next.
But once you have selected an appropriate vehicle such as bullion or coins, you would then contact your custodian, send them the money, and they will purchase the gold, silver, or whatnot on your behalf.
Then the dealer, upon receiving payment, will transfer the coins or the bullion to your depository.
First, do your research because there is quite a lot of hype surrounding any type of investment including gold.
Also realize that in general, there will be higher fees involved with a gold or precious metal IRA, as after all, although there is ultimately a certificate involved in investing in stocks, for the most part, it’s nothing more than electronic transactions.
But gold and other precious metal IRA involve a physical property such as gold coins or gold bullion that must be stored.
Also, realize that since an IRA is a retirement scheme, the IRS has limits on the amount of money you can invest. In 2022, this amount is $6,000 for the year or $7,000 if you are over age 50.
So while a gold IRA does defer taxes until it’s time for a disbursement (although it is possible to establish a gold IRA with post-tax money, you’ll eventually have to pay taxes on it, although ideally, at a lower rate than you would pay now.
But it is important to realize that if you sell your gold before retirement age, you’ll be heavily taxed.
Also, realize that your gold IRA is a totally separate thing from a traditional IRA. You can own gold, silver, palladium, and the like in an IRA, but you can’t add stocks to it. Only metals are allowed.
And when it comes to disbursements, your depository can actually ship the gold to you to physically keep, or they can sell it and give you the proceeds in a check.
Choose your account custodian wisely, and understand completely what the fee structure is.
Like any IRA, they will send you paperwork to complete, or if the custodian is your bank, then physically at the bank.
After that, you are ready to roll, and the custodian will guide you through all the rules.
If you have an IRA that is a rollover, then contact the administrator for your previous IRA to transfer funds into an IRA gold or precious metals account.