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Investing in Precious Metals with your Retirement Account

Should you invest in gold? Answers to this question tend to gravitate toward one extreme or the other. Many investors on one side of this discussion believe that investing in gold is a losing proposition because it does not pay any interest and dividends and it costs money to store and protect.

On the other end of the precious metals spectrum there are investors who believe that the U.S. dollar is quickly losing purchasing power, and gold will provide a store of value during times of crisis. There’s also a growing concern that inflation and debt will eventually make the dollar worthless.

Since the 2008 Recession, there has been a wave of advertisements and experts encouraging retirement savers to convert their cash savings into precious metals within an Individual Retirement Account or Gold IRA. Before you decide to commit your hard-earned retirement nest egg toward any investment, you should take time to understand how these accounts work.

What Is a Gold IRA?

While the majority of IRAs invest in more traditional assets like stocks, bonds, and cash equivalents, the tax code also permits for self-directed vehicles that can hold precious metals such as silver or gold. But this does not mean that all types of precious metals are allowed within a self-directed IRA. The tax code designates specific gold, silver, and platinum coins that qualify and sets the purity standards for gold, silver, platinum, or palladium bars that can be held in these specialized accounts. Other forms of precious metals such as collectible coins and jewelry are not allowed.

Investing in a Traditional or Roth IRA

The tax rules allowing gold to be held in IRAs apply equally to traditional IRAs and Roth IRAs. Simplified employee pension (SEP) accounts and SIMPLE-IRAs are also allowed to hold precious metals. The same decision-making process applies when choosing between a traditional and Roth IRA. There are pros and cons for both types of accounts. Traditional IRAs have deductible contributions and tax-deferred growth. On the other hand, Roth IRA distributions are tax-free and contributions are made using after-tax dollars.

Is it Safe to Own Gold in an IRA?

In retirement, you need an investment that either generates current income or is reasonably expected to appreciate in value so you can sell it in the future and use it for consumption purposes. You are essentially wasting tax-deferred space for something that does not generate income; thus, it is not saving you from any taxes. Just like any other traditional IRA account, the value of the account will be subject to taxes upon withdrawal. Unlike owning stocks, mutual funds, ETFs, etc., physical gold does not generate any dividends, interest, or capital gains distributions, all of which are tax-sheltered in an IRA.