Understanding Gold IRA’s
Not every IRA holder is comfortable with investing in their retirement years by placing hard earned money into the stock market. Stock markets seemingly offer only two options. Investments are typically made in high risk stocks, or are placed in relatively low or no risk stocks that yield little to no return.
Investing in gold and precious metals is a little known option that is gaining in both awareness and popularity. The IRS (Internal Revenue Service) has a little known code, which allows IRA owners to own specific gold, silver, and platinum coins and bars.
More on Coins and Bars
American Gold Eagle Coins, Canadian Gold Maple Leaf Coins, American Silver Eagle coins, and American Platinum coins are all within the IRS allowance. Other better known gold coins, such as the South African ‘Krugerrand’ are not allowed.
Gold and silver bars (sometimes referred to as bullion) are allowed by the IRS, if they are 99.9% pure. Because many are not at least 99.9% pure, the IRS does not allow the bars.
You Can Own, But Cannot Hold
The IRS allows a person to own the gold IRA, but does not allow the person to have possession of them. Rather, an IRA trustee must be appointed. Done correctly, the IRS allows a person to own the Gold IRA in accordance with the same tax rules as a Traditional or Roth IRA.
It sounds simple, to find a person to appoint trustee over the gold. However, not all brokerage firms are willing or able to act as trustees. The process of appointing a trustee involves the firm setting up the self-directed IRA, and then working to find a precious metals dealer to whom the transfer of funds can be made. After the transfer, the physical transfer and storage of coins or bars needs to be supervised. The entire process is time consuming and tedious, and not all firms are willing to invest their staff resources to facilitating Gold IRA accounts. There are some, however, and a person wanting to invest in Gold IRA’s is wise to search and find a brokerage firm who is willing and qualified to handle the account.
Fees Associated with Gold IRA’s
Once a trustworthy firm has been located and agreed to handle the Gold IRA account, the owner can expect to pay a one-time fee at the time of the account being set up. This is a nominal fee, usually less than $50. As with other IRA accounts, Gold IRA accounts are charged annual fees by the firm who is managing the account. The annual fee of (up to) $250 allows the firm to pay staff to do the bookkeeping and paperwork associated with handling the account. An addition fee of (up to) $250 is paid to the storage facility, and includes the insurance of the gold coins or bars. If there are distributions, purchases or sales during the year, additional fees may be charged to the owner.
Buying the Gold
Not all gold is the real thing. Some of it is, yes, fools gold. To avoid being fooled, you should purchase gold from wholesalers who are directly linked to the U.S. Mint.
Congress has authorized the sale of American Eagle Gold Coins, which allows a person to invest in Gold and subsequently open a Gold IRA account. The IRS approved, government sanctioned Gold Coin program was created in 1986. These are not commemorative coins. They are pure gold, silver, and platinum. The Gold Coins are available in 1/10, ¼, ½, and 1 ounce denominations. The Silver and Platinum Coins are available in one ounce size only.
Coins or Bars?
Practically speaking, coins are a better choice for purchasing. There are three primary reasons for choosing coins over gold bars. First, it is much easier to transport gold coins than bars. Second, it is much more difficult to produce counterfeit coins than it is to produce counterfeit or impure gold (remember the 99.9% purity rule for authentic). Third, Gold IRA owners can purchase gold coins with lesser investment dollars than purchasing a bar of gold.
Is the Gold Safe?
Yes. If an owner is using a trusted, approved custodian. The IRS is very specific (see publication 590) about the type of custodian that is approved. Approved trustees and custodians must be a bank, federally insured credit union, a savings and loan institution, or another IRS approved entity. Storage facilities are required to provide several security features including timed locks, automatic relocking, 24-7 monitoring, and detectors for sound, motion, and vibration. Trustworthy custodians are insured for as much as a billion dollars. Some storage facilities offer segregated asset holding (meaning each is kept separate from other owner’s assets. Other facilities offer mixed asset holding, meaning that a person’s assets are mixed in the same holding area as other people’s.
Gold is a Better Value
The value of the dollar continues to depreciate at an alarming rate. As the dollar value drops, so does the value of investments that are traditional in nature and include mutual funds, stocks and bonds. If the stock market crashes, as it did in 2008, the value of the IRA plummets. Even without a crash, the continued decline in the dollar is evident. A gallon of milk that cost $1.00 in 1971 cost $5.31 in 2008. In other words, the dollar is worth less than 20 cents of the value it had in 1971. If stocks were purchased in 1971, they are not worth nearly what they were.
Gold prices fluctuate up and down also, but retains the value far better than paper currency. While the value of the dollar continues to drop in the U.S., gold prices are remaining steady. Furthermore, the dollar does not hold in value in the global market. Gold remains a global currency, recognized by every country and valued in every country. If the time comes that the dollar is no longer of much value in the global economy, gold owners will be glad they invested in the Gold IRA.