The term “gold standard” exists for a reason.
Precious metals investments have seen a comeback over the last decade or so since the financial crisis, when the stock market crashed but gold and silver continued to show strong returns and balance against future market losses. Precious metals have also shown to provide solid protection against inflation, a common concern for many investors.
For those looking to expand their retirement investments to gold, silver and other precious metals, there are several options. But these investments are not as straightforward as other, more traditional, investment assets like stocks and bonds.
Read on for a few important rules to keep in mind when investing your retirement plan in precious metals.
Types of Retirement Plans
Your ability to invest in precious metals depends on the type of retirement plan that you have. Self-directed IRAs work best in this case. These accounts allow for the widest range of investment options, including investments in physical gold, silver, platinum, and other precious metals.
Traditional IRAs, on the other hand, do not allow for precious metal investments. However, you can still try to simulate the security and returns of precious metal investments with a Traditional IRA. Stock in a silver mining company or a gold ETF (a fund that tracks the price of gold) can be good surrogates for precious metal investments.
Work-retirement plans, like 401(k)s, typically offer the fewest ways to invest in precious metals. These type of accounts only allow investments in a list of assets pre-chosen by employers, who rarely include precious metal assets. If your plan does not allow precious metal investments, speak with the benefits department of your office about the possibility of adding these options.
If that doesn’t work, you will have to wait until after you are employed to buy silver and gold assets with your 401(k). Once you leave the company, you can roll over your old work plan into a self-directed IRA, at which point you would be free to invest in physical precious metals.
The IRS has certain rules around which type of precious metals are eligible for self-directed IRA investment. For example, the metals must be over a certain level of physical purity, a regulation that is meant to prevent investors from buying collectible items that usually lack long-term investment value. The acceptable level of purity varies depending on the type of precious metal. Gold bars, for instance, must have at least a 99.5% level of purity.
There are also regulations around precious metal coins. Only certain coins are acceptable, such as the American Eagle gold and silver coins, Canadian Gold Maples, and American Buffalo gold coins. Other coins, like the South African Krugerrand, are not allowed.
If you fall afoul of these IRS regulations, the agency could force you to take the ineligible asset out of your account, leading to extra withdrawal costs and taxes.
Managing Your Investments
There are certain procedures to keep in mind when making precious metal investments. First, you must make any purchases for your self-directed IRA through your designated IRA custodian, usually the company managing your account. Futhermore, you are not allowed to add precious metals that you already own into an IRA. Instead, you must use cash in your IRA to buy precious metals through the custodian. This IRS rule is meant to prevent any unfair dealings that take advantage of tax deduction benefits.
In addition, any physical precious metal assets you purchase for your IRA must be stored outside your home, with your IRA custodian. Custodians that sell IRA precious metal investments usually provide storage services for a fee.
Finally, when you sell your precious metals, you will not owe taxes on the proceeds, as long as you keep that money in your IRA. By reinvesting those earnings in other investments, you can delay taxes further.
Alternative investments can offer a valuable balance against more traditional investments in uncertain times. To read more about how to maximize retirement benefits through precious metals and other alternative assets, read our article about opening multiple IRAs.