The Conversation (4)
Investing for retirement generally means cash, stocks and bonds. However, US retirement investors also have the option to invest in a gold IRA.
By Michelle Smith–Exclusive to Gold Investing News
At one time, safe haven would readily bring to mind the US dollar and gold. Now, the USD’s reputation is crumbling, if not already reduced to dust, for many investors. Gold, on the other hand, is earning respect that has it setting and breaking records almost as fast as they are recorded.
Analysts say confidence is currently one of the biggest problems in the US. In the current investment environment, people want growth but many feel desperate for safety, especially when it comes to retirement funds. A growing number feel confident that gold offers both attributes.
A gold IRA can be a means to deviate from traditional stock and bond retirement investing strategies, capitalize on gold’s gains, and enjoy the tax benefits that are associated with retirement accounts.
The history of metals in retirement plans
Having gold and other precious metals as part of one’s retirement account was a right removed. Prior to 1981 a person could possess a wide range of items as retirement assets. Then, the law changed deeming collectibles to be ineligible for inclusion in retirement plans.
Not only did this include items such as wine, gems and artwork, Diane Piret, Industry Affairs Director of the Industry Council of Tangible Assets (ICTA) said “collectible” came to include gold coins and even bullion.
In 1986, the US rolled out its American Eagle program, marketing gold and silver coins. With this program came legislation stating these coins should not be viewed as collectibles, therefore allowing them to be included in retirement portfolios.
The ICTA was at the forefront of the fight to expand the acceptance of precious metals in retirement accounts even further. Victory was seen in the Taxpayer Relief Act of 1997. As a result of that legislation, retirement investors are not limited to investing in gold, or other precious metals, through mining companies or ETFs, they can have precious metal IRAs.
The rules
An IRA possessing a precious metal such as gold is not an arrangement devoid of regulation. For example, the law imposes a fineness rule, requiring that the metal be 99 percent pure. This includes items such as the gold American Eagle, the Canadian Maple Leaf and some bullion.
But, before thinking about what to acquire, an individual must first set up the appropriate type of account, a self-directed IRA. As this is considered a specialized product, these accounts are not as widely available as traditional IRAs, but are instead provided through companies who concentrate on this type of investment such as Sterling Trust and GoldStar Trust, which act as custodians.
Once an account is set up, an investor can deposit money or rollover funds from an existing retirement account to begin buying gold. However, Piret notes that one of the rules prohibits people from putting metal that they already own into these accounts.
Also, an individual is not allowed to possess the coins or bullion that are purchased for the retirement portfolio. Instead, orders are given to the custodian to make purchases on the account holder’s behalf from a seller that the account holder chooses. Funds from the IRA account are used to execute the purchase. Then, the party selling the gold sends it directly to the chosen depository where it is held until it is liquidated or distributed to the account holder.
This arrangement does not obligate investors to possess gold until they retire, however. Buying and selling transactions can be made during the time that the account is held and there is no tax penalty as long as the proceeds remain in the account.
Costs
Having a gold IRA is also not without costs, which can vary depending on an investor’s choices, such as custodian and depository, and which can easily amount to several hundred dollars per year.
There is generally an IRA set-up fee, an annual administration fee, and fees for storage. The custodian may or may not charge transactions fees, but investors can expect broker fees or other costs from the parties selling the gold. There is also generally a minimum amount required to establish an account.
It’s not for everyone, Piret says. But if you want precious metals and the only money that you have available is your retirement funds, this is the best way to go about it.