As the volatility of the economy continues to challenge the stability of retirement accounts, more and more investors are turning to gold to fortify and secure their future. Although the process of diversifying retirement accounts with precious metals like gold may seem complicated on first glance, it is actually quite manageable if provided with the right information. Below are some of the most common questions in regards to investing in gold IRAs.
What is an IRA?
Individual Retirement Accounts (IRAs) are retirement savings plans that have been specifically designed to provide tax advantages, such as tax-deferred or even tax-free growth of earnings. Different plans have different rules and regulations, so it is important to understand a specific plan before investing.
Can I Have More Than One IRA?
There is no limit on the number of IRAs an investor can have, but there is a limit to the amount that can be invested per year. For those under the age of 50 as of December of 2011, the maximum contribution across all IRAs is $5,000. Those above 50 can invest $6,000.
Can I Use my Existing IRA to Invest in Precious Metals?
Usually, you can use the funds in your existing IRA to invest in precious metals like gold. The final decision to invest, however, is left up to your current trustee or custodian. If you have a self-directed IRA, you can invest in precious metals at your own discretion.
What is a Self-Directed IRA?
A self-directed IRA allows the investor to choose where his/her funds go. Without this ability to self-direct, investors are forced to accept the decisions of the IRA trustee or custodian.
What is the Difference Between a Traditional IRA and a Roth IRA?
Contributions to a traditional IRA may be tax-deductible depending on factors like marital status, income, or membership to certain employee groups. Any contribution to a traditional IRA is deducted from total income, so you are not being taxed on it. If you decided to withdraw traditional IRA funds before the age of 59.5 years, however, you will be liable to pay taxes and penalties. Exceptions to this regulation can be granted if you are using the money to purchase a house or pay back higher education fees. Under these circumstances, you will not be penalized for early withdrawal but you will be liable for taxes.
Contributions to a Roth IRA are not taxed and can be withdrawn completely at retirement without penalty or tax. In the case of a Roth IRA, a person is considered retired after age 70.5. Not everyone can qualify for a Roth, however. For a single person, the Adjusted Gross Income must be below $107,000. This figure increases to $169,000 for joint taxpayers.
Can I Rollover an Existing IRA?
Existing IRAs can be rolled over to Precious Metal IRAs as many times as the investor desires without penalty or tax. The process simply involves setting up a new IRA and then authorizing the transfer of funds. Your new custodian will work with your existing custodian to manage the transfer. Rollovers are subject to time limits and other restrictions, so it is important to research and understand the process before beginning.
Can I Hold Anything Other than Gold in an IRA?
Self-directed IRAs can hold any assets, including mutual funds, stocks, bonds, and cash accounts.
How do I Choose an IRA Custodian?
Research is the key to choosing a qualified custodian. Look for someone with extensive experience with investing in precious metals and establishing Precious Metal IRAs. The ideal custodian will also be familiar with the latest rules and regulations.
What Happens to the Gold After Purchase?
When purchasing actual physical gold, you are able to store it in an IRS approved secure depository specifically designed to hold precious metals. If you then take possession of the gold, you will be liable for all penalties and taxes associated with an early withdrawal. It is possible to store your own gold, but you can only avoid taxes and penalties if it is stored by a third party.
What is the Difference Between a Custodian and a Trustee?
Although often used interchangeably, there is a significant difference between a custodian and a trustee. A trustee is a separate legal entity that can hold assets actually owned and administered on behalf of a beneficiary. A trustee typically has a level of discretionary control and authority over the assets held in the trust.
A custodian, on the other hand, is only obligated to safely and securely hold the assets on behalf of the owner. They have no authority or control over the assets. The exact nature of obligations for both a trustee and a custodian are usually defined under state law.
What Types of Precious Metals Can I Invest In?
There are strict rules and regulations governing the types of precious metals that can be held in a Precious Metals IRA. The degree of purity is the deciding factor. Gold must be .9950 pure, silver .9990 pure, and platinum and palladium .9995 pure in order to qualify as an asset. In terms of bullion bars, only those manufactured by COMEX, NYMEX, or ISO9000 can qualify. Gold coins must be in the original, mint packaging with a certificate of authenticity from the manufacturer. Examples of coins that qualify include American Gold Eagle, Canadian Maple Leafs, and Austrian Philharmonics.