Selecting the right form of investment in gold depends on your overall financial strategy. Individual retirement arrangements, more commonly known as individual retirement accounts (IRAs), are familiar investment vehicles. Not having to pay taxes on assets held within an IRA can significantly increase growth. Investing in gold through an IRA offers a hedge against inflation.
For the investor beginning to invest in precious metals, an obvious question is “Can I buy gold for retirement for an IRA?” And the answer is simple: yes. You can not only create a new IRA, you can also transfer contributions from another IRA or rollover a 401(k) to your new IRA.
New IRAs can only be funded with cash or cash equivalents, for example money market funds or treasury bills. The IRA then acquires the investment. Transfers and rollovers between existing IRAs and other retirement accounts can be of any asset class.
Generally, you can only rollover funds from your 401(k) after you’ve left the employer funding your 401(k). To be sure of the requirements, just contact your fund manager.
For the purposes of protecting individual wealth, the most relevant IRAs are the Traditional, the Roth and perhaps the SEP. All have rules for eligibility which include age, other pension plans and AGI (adjusted gross earnings on income tax).
Most people are familiar with the Traditional IRA established in 1974, and the Roth IRA, established in 1997. For these IRAs, as for all types, earnings on the investment are not taxed. Traditional IRA
may be tax deductible in the year of contribution; taxes are paid at the time of distribution. Roth IRAs are funded with after-tax contributions; no taxes are paid at the time of distribution.
The SEP IRA allows a small business or self-employed individual to set up a Traditional IRA instead of a pension fund. Ease of administration is one of the advantages.
The administration of all IRAs are handled by a custodian, whether bank, credit union, brokerage firm or any other financial services provider. Keep in mind a financial firm may service only certain kinds of investments.
Self-Directed IRAs (SDIRAs) are designed for more complicated investments requiring increased attention and expertise on the part of the investor. Not every financial service provider handles these. Custodial responsibilities include keeping your IRA on the right side of IRS law. For this expertise and added attention, you will pay more.
Gold investments come in a large range of choices. Each choice has a specific advantage and disadvantage. All paper investments, i.e., paper representation of gold, such as mutual fund shares, ETFs, mining stocks, annuities, or futures can be used.
What is surprising is that even physical bullion can be used in an IRA. Not unexpectedly only a few companies actually provide this service. Only recently has the gold price climbed to historic highs generating a new wave of broad interest.
The IRS has rules regulating the form and purity of gold and other precious metals to be placed in an IRA. In addition, each financial service itself may have different requirements on the type of gold and the cash equivalent amount. Setting up a gold bullion IRA involves more work than a typical paper transaction. Typically, fees charged will be higher.