Preparing for retirement should be a high priority for any working man or woman, regardless of age. In fact, the younger you are, the easier it is to prepare for retirement by making wise investments and beginning to put money into Individual Retirement Accounts (IRAs), 401(k)s, or other types of retirement funds.
Many retirement funds focus solely on what can be termed as “paper investments.” These investments generally include a mix of stocks, bonds, certificates of deposits, mutual funds, and/or money market accounts. Today’s dynamic economy, however, makes it increasingly necessary to make sure that your financial investments are as diverse as possible. One way to do this is to diversify your IRA with gold or other precious metals.
What is a Gold IRA?
“Gold IRA” is an industry term commonly used to refer to any type of precious metals IRA, whether it contains gold bullion or not. When you choose to diversify your IRA with gold or other approved metals, it creates a different type of investment than you may be used to. These special retirement accounts contain approved precious metals — gold, silver, platinum, and palladium — that are held physically by a trustee or provider for the IRA account owner.
The precious metals that are part of your Gold IRA are held by banks, credit unions, savings and loan institutions, or other entities approved by the IRS to act in this capacity. If a company advertises that you can keep the bullion associated with your precious metals IRA in your home, you should be on your guard. You can, of course, choose to buy precious metal products and keep them in your home, but these products can not legally be considered part of a Gold IRA.
It’s also important to note that if you have a traditional Roth IRA, any gold investments contained therein are not in physical bullion. IRS regulations prohibit traditional IRAs from investing in precious metals directly. Instead, these types of accounts will invest in “paper gold” stocks. These gold stocks represent shares in companies that explore for, mine, and/or produce gold ore. Historically, these stocks are more volatile than the price of actual precious metals and can, therefore, represent a riskier investment.
Acceptable Precious Metals for IRAs
Beginning in 1998, specially set up IRAs have been able to invest in physical precious metals as long as those metals came in specific coin or bullion forms. Prior to that time, all coins were deemed collectibles and could not be part of a retirement account. These regulations made it possible to diversify your IRA with gold, silver, platinum, or palladium. Below are two lists specifying the specific types of precious metals that can be included in your precious metals IRA under Title 26 U.S. Code § 408.
Acceptable Precious Metal Coins
- 1-Troy Ounce $50 Gold Coins issued by the US Treasury – Gold American Eagles
- 5-Troy Ounce $25 Gold Coins issued by the US Treasury – Gold American Eagles
- 25-Troy Ounce $10 Gold Coins issued by the US Treasury – Gold American Eagles
- 1-Troy Ounce $5 Gold Coins issued by the US Treasury – Gold American Eagles
- 1-Troy Ounce Silver Coins issued by the US Treasury – Silver American Eagles
- Any Platinum Bullion Coins issued by the US Treasury
- “A Coin Issued Under the Laws of Any State”
Acceptable Precious Metal Bullion
- Gold Bullion that meets or exceeds 99.5% fineness standards
- Silver Bullion that meets or exceeds 99.9% fineness standards
- Platinum Bullion that meets or exceeds 99.95% fineness standards
- Palladium Bullion that meets or exceeds 99.95% fineness standards
Bullion products often come in bar form, but can also take the form of custom-made rounds that closely resemble coins to the uninformed. Keep in mind, however, that while rounds and coins may look similar, they are very different.
While their intrinsic value is far higher than their face value, U.S. Treasury issued coins are sometimes considered legal tender and are always backed by the U.S. Federal Government. This guarantees that you are getting high-quality precious metals that are acceptable for use in Gold IRAs.
Bullion rounds, on the other hand, are minted by private companies and may or may not meet the same quality standards you’ll find in Treasury coins. If you choose to invest in bullion bars or rounds instead of coins, make sure that you buy your bullion from a reputable company that can guarantee that they meet or exceed the precious metal fineness standards necessary for inclusion in a precious metals IRA as set forth by the IRS.
Why You Should Diversify Your IRA With Gold or Other Precious Metals
There are many financial analysts who recommend that their clients strategically diversify their investments by including a Gold IRA. They make this recommendation because the price of precious metals tends to rise whenever the stock market is exceptionally volatile. For example, the Producer Price Index (PPI) of gold surged by 101.1% between 2008 and 2012, a time many refer to as the Great Recession. As you can see, when you diversify your IRA with gold or other precious metals, you can worry less about fluctuations in the stock market affecting your overall retirement savings. Nevertheless, like any investment Gold IRAs have specific risks and are still subject to market fluctuation. You should speak with your accountant or tax advisor to determine if a Gold IRA is right for you.
As stated in the IRA Diversification Kit available from First Fidelity Reserve, mint condition gold coins tend to be a particularly good investment because these coins “have, over time, outperformed many other asset classes.” This outperformance has traditionally been regardless of precious metal prices rising, falling, or remaining flat, making these coins a great way to diversify your IRA with gold. That’s because rare gold, silver, and platinum coins often appreciate in value beyond their inherent worth as precious metals. Specifically, some $25 Gold American Eagle coins are rare enough that they have the potential to develop significant numismatic value above and beyond the value of the precious metal from which they were minted.
When First Fidelity Reserve asked Mike Fuljenz — known as America’s Gold Expert® — if he recommends Gold American Eagles for investments, he said, “Yes I do. An important measure of any investment is its liquidity: How easy is it to resell? United States Government backing means that like the dollar, American Eagle Gold Bullion Coins are accepted in major investment markets worldwide. American Eagle Bullion Coins are also one of the most widely traded bullion coins in America, typically affording investors narrow spreads between buy and sell prices.”
How to Set up a Gold IRA
Setting up a Gold IRA can seem complicated and daunting for those who don’t have any experience in the process, but it’s actually pretty simple when you work with a company that has experience in this investment type. Let’s take a look at the process necessary for setting up a Gold IRA.
- Determine If You Are Setting up a New IRA Account or Rolling Funds From an Existing Retirement Account – This determination should be the first step in your journey to diversify your IRA with gold or other precious metals. If you don’t have an existing IRA, this is an easy determination. For those of you with an existing retirement account, you’ll need to discuss your options with an accountant or tax advisor because some types of retirement accounts can be rolled into a new investment type and others can’t.
- Choose Your Precious Metals IRA Account Custodian – An IRA custodian or trust company holds the accounts that are part of a self-directed IRA, and acts in a fiduciary capacity on behalf of the accounts. Many precious metals dealers have particular custodians they work with or recommend, but you may choose to do your own research in order to find a custodian that fits your needs.
- Carefully Choose Your Precious Metals Dealer – There are many different precious metals dealers in the market, and many of them offer a wide range of bullion coins, bars, and rounds for you to choose from. Make sure you work with a reputable dealer who offers a range of products that fit IRS regulations for Gold IRAs.
- Select What Coins and/or Bullion Products You Want to Purchase – Use the lists of acceptable coins and bullion above to help guide your choice of bullion products and/or coins you want to invest in.
- Choose a Depository for Your Chosen Coins and/or Bullion – As already mentioned, you should be wary of any company that advertises that you can keep Gold IRA metals in your home. The IRS requires that precious metals that are part of an IRA must be stored in an approved depository. Your chosen IRA custodian will likely recommend a specific depository, but you are able to choose where you want your metal products to be held.
- Purchase Your Selected Coins and/or Bullion Products – Once you have made the above decisions, you can begin purchasing precious metals through your chosen IRA custodian. They will handle the payments and the dealers will ship the precious metals you buy to your chosen repository.
- Read Your Account Statements – Your IRA custodian should provide you with regular account statements regarding your holdings and the wholesale or bid value of those holdings.
One additional benefit you receive when you choose to diversify your IRA with gold or other precious metals is that the metals can typically be liquidated fairly easily at any time. However, you should always make sure that you understand the liquidation process associated with your specific Gold IRA.
Resources for Gold IRA Setup
If you feel like you’re ready to diversify your IRA with gold or other precious metals, it’s time to talk to professionals. A good place to start is the IRA Diversification Kit available from First Fidelity Reserve.
At First Fidelity Reserve they specialize in United States rare coins and precious metals, which gives them the knowledge necessary to help you determine what kind of Gold IRA portfolio is right for you. It is their stated goal to equip you with the information you need to create a precious metals IRA portfolio that will help you meet your retirement plans and goals. The experts at First Fidelity Reserve can help you understand everything you need to know about Gold IRAs so that you can make the right decision for your circumstances.