How Does a Precious Metal IRA Work?
In the following article, we’ll look at how Precious Metal IRAs work, their key advantages and disadvantages, and the rules you should be aware of if you’re thinking of opening one.
What is a Precious Metal IRA?
A Precious Metal IRA is a kind of retirement account that gives investors the ability to hold certain precious metals in their investment portfolio. Precious Metal IRAs are a kind of self-directed IRA, which differ from regular IRAs in some important respects. Unlike a regular IRA, which tends to be offered by brokerage firms, SDIRAs allow investors the opportunity to hold alternative assets. Meanwhile, SDIRA custodians (such as Forge Trust) are not permitted to offer any sort of guidance when it comes to the suitability of an investment. The custodian’s role is simply to administer the account and hold the assets on behalf of the account owner.
- Precious Metal IRAs involve a custodian and a precious metals depository (although sometimes one firm plays both roles). You need a depository to physically store the precious metals, and you also need a custodian to administer the IRA account. You cannot store the metal (whether it’s gold, silver, or platinum) on your own. As with other IRAs/SDIRAs, Precious Metal IRAs are available in traditional and Roth forms.
What are the Rules Regarding a Precious Metal IRA?
The two most important rules regarding Precious Metal IRAs concern storage and purity. With regards to storage, you must keep the metal you purchase in a bank or IRS-approved depository. Forge Trust offers two depository institutions to choose from.
Purity of the metal is also important. To be eligible for inclusion in an IRA, metal must generally be of 0.995 purity.
What Precious Metals Can You Invest In?
You can invest SDIRA funds in gold, silver, platinum and palladium. These may be in bar or coin form.
Benefits of Precious Metals IRAs
Precious Metals IRA offer important potential benefits:
- As ‘hard assets’ precious metals may protect your purchasing power in times of inflation. In the 1970s, for example, gold soared amid double-digit inflation.
- Investors may gravitate to precious metals during times of economic and geopolitical uncertainty.
Risks and Other Considerations
There are risks associated with Precious Metals IRAs. The principal risk is that you purchase coins or bars, and the price of the metal in question falls in value. Precious metals can exhibit significant volatility, so this is something to be aware of.
Another consideration is that Precious Metals IRA fees tend to be higher due to the cost of shipping, storing, and insuring the metal. For an investment to pay off, your eventual return will need to exceed these fees.
As with any investment, there can be a so-called “opportunity cost” to investing in precious metals. If you put money in gold and its price languishes while the stock market booms, you can miss out on those gains.
Conclusion
A Precious Metal IRA may be an attractive way to gain exposure to hard assets in a tax-advantaged way. Timed correctly, you could benefit from an increase in the value of gold, silver, and other precious metals. It’s crucial to be aware of the risks, however, in addition to pertinent IRS rules.
Frequently Asked Questions About Precious Metal IRAs
What is a Precious Metal IRA?
A Precious Metal IRA is a kind of retirement account that gives investors the ability to hold certain precious metals in their investment portfolio. Precious Metal IRA are a kind of self-directed IRA.
What are the IRS rules for precious metals IRA?
Two important rules regarding Precious Metal IRAs concern storage and purity. With regards to storage, you must keep the metal you purchase in a bank or IRS-approved bullio depository. Forge Trust offers two depository institutions to choose from.
Purity of the metal is also important. To be eligible for inclusion in an IRA, metal must generally be of 0.995 purity.
What precious metals are approved for an IRA?
You can invest SDIRA funds in gold, silver, platinum and palladium. These may be in bar or coin form.
What are the Potential Benefits of Precious Metal IRAs?
Precious Metals IRA offer important potential benefits:
- As ‘hard assets’ precious metals may protect your purchasing power in times of inflation. In the 1970s, for example, gold soared amid double-digit inflation.
- Investors may gravitate to precious metals during times of economic and geopolitical uncertainty.
Are There Risks to Be Aware of Before Opening a Precious Metal IRA?
There are risks associated with Precious Metals IRAs. The principal risk is that you purchase coins or bars, and the price of the metal in question falls in value. Precious metals can exhibit significant volatility, so this is something to be aware of.
Another consideration is that Precious Metals IRA fees tend to be higher due to the cost of shipping, storing, and insuring the metal.
- Individuals should consult their personal tax advisor to ensure they have the correct and most up-to-date information regarding their own situation with regards to a SDIRA and the tax implications of any contemplated transaction.
Zander is a seasoned product leader with a 12-year history in financial technology, specializing in private market investments. His tenure includes roles at LTSE, Alto, and IHS Markit, where he focused on product management and strategy. Zander holds an MBA from Vanderbilt University, focusing on International Business, and a B.A. in Economics from Colby College.