Can I use my IRA to buy gold?
The basic principle behind retirement is simple. During your working life you put aside a sum from your earnings to enable you to live off of that sum once you can no longer work (or decide that you don’t want to). This money is invested carefully to grow in value to the point where it provides a replacement income that gives you enough to be comfortable and secure for the rest of your life.
There are many ways of doing this. If you have paid employment, it is often the case that both you and the employer contribute to the retirement plan that you have opted for. Both you and the employer get tax breaks for doing this. The thinking behind the tax breaks is that any money that you and the employer provide for your retirement, is money that the government does not have to find. To encourage you to save in this way, the government give a monetary incentive to join – and continue – such plans.
If you are self-employed you can start a plan in the same way – but of course there is no “employer” to contribute their portion of the plan. This is where a good CPA or attorney comes in handy.
There are many ways to invest the sum of money that constitutes the basis of your retirement fund. There are mutual funds, there are stocks, there are bonds, there are ETFs and many other types of allowable investment. Full list of them can be found here on the IRS Website.
There are many pros and cons to every method of investing for retirement and each has its own specialist advice and input. The notes here are in regard to investing in precious metals such as gold, silver, platinum, and palladium as part of a self-directed IRA plan or 401(k) rollover.
There are chapters – whole chapters – with regard to the rules and regulations around owning precious metals within an IRA. these rules cover things like special limits on the type of investments available to retirement plans, prohibited transactions, and disqualified persons. We cannot hope to cover them here, but will give you a brief overview of the more pertinent details. To find out more you can call us on telephone number here or email us at email address here.
The US government has a problem. The national debt is growing at a rate that it cannot keep up with. Social Security payments will eventually outstrip the income necessary to support them. Because of this, the government is trying to “outsource” as many of its liabilities as it can. Demographically, the US is a timebomb. There will be more people retiring, and needing to be supported, than there are people paying taxes to support them.
Because of this national debt, quantitative easing, and inflation, the value of the dollar is diminishing by the day. This means that by the time of retirement, what might have been considered a large sum of money to act as a pool, from which a retirement annuity is drawn, is much reduced.
Any investment to improve the amount of money in that pool would have to earn interest above the average in order to keep up – let alone accrue even more capital. There are very few financial instruments that are capable of doing this. Most of those that can fall into very high risk categories where your money is more liable to be lost than it is to gain value.
It is because of this background that precious metals are coming to the fore as a method of storing value – and even increasing it.
This graph shows exactly that. The “gold” line represents the value of gold in 1900. The other lines represent the value of different currencies throughout the world from 1900. As the years have progressed you can see quite clearly that the value of every single global currency has lost value, to the point where, today, all currencies are relatively worthless.
What this means quite simply is that if you bought a loaf of bread for, say $0.10, in 1900 that same loaf of bread will cost you, say three dollars.
If, instead of paying for that loaf of bread with “money,” you had paid for it with a piece of gold worth $0.10 – that same piece of gold today would be worth hundreds of dollars – so you could buy hundreds of loaves with that exact same piece of gold!
The value of money has declined – but the value of gold has increased.
Money can be debased or printed – and has been over the years. Most of us have seen pictures from Germany prior to World War II where people were exchanging whole wheelbarrows of paper money for a loaf of bread.
Modern threats to money, in the United States, come in the form of the fallout from sub-prime mortgages, complicated derivative products, and credit default swaps – all of which have failed in a big way – causing the government to print money to avoid financial catastrophe. In printing this money the government has increased inflation and the results of this now being felt in the value of the dollar.
This is the principle behind investing in gold – especially for long-term retirement planning as part of your self-directed IRA or 401(k) rollover.
For an individual retirement account can I actually buy physical gold?
In a word – yes.
You can buy precious metals, in the form of gold, silver, platinum, and palladium. As we mentioned above, there are rules regarding their inclusion in an IRA or 401(k) rollover. These rules cover the type of metal, its purity, and its purpose.
Rollovers are often the most common way of getting involved in a self-directed IRA. Thrift savings plans (TSP), annuities, 401(k), 401(a), 403(b), and 457s are currently allowed as precious metals rollovers.
One of the most common reasons for investing in such a plan is that of taking control of your retirement fund. The problem with annuities, mutual funds, stocks, bank deposits, ETFs, and other “managed” funds, is exactly that, they are managed on your behalf by a third-party. You have absolutely no control or say over how your money is invested. It does not matter to the money manager whether the product makes a profit or not because they usually charge a management fee on the capital amount invested in the first place. This charge can vary from 1% to 4%. That is quite a chunk of money when the average fund is making a return of less than 1% currently.
Precious metals are simple in essence. They are just a tangible piece of metal which can be kept in a safe place. There is no argument about how much there is, because it is a known weight from the start. This never varies. The gold you put away today will be the same gold that you retire with, in 10, 20, 30 years time. The same cannot be said for any of the “paper” assets above. The money managers in charge of them can buy and sell their instruments within the funds to try to increase the funds value. In a crash or recession they may have to sell chunks of assets at a loss. If they wanted to replace these they would have to buy them back.
With precious metals the physical metal itself just exists as an entity. It is the price of it which fluctuates. This is an important distinction when dealing with physical metals as opposed to paper assets.
Another distinction worth remembering, is the way in which timing is not such an issue when dealing with precious metals – unlike real estate or stock market investments. Because gold’s tangibility is a constant, waiting for the right price point for entry is less important as it is acting against inflation, and monetary devaluation – not just relying on its price.
The whole point of holding precious metals in your portfolio is to hedge against any catastrophic fall in the stock and bond markets – as their prices tend to move in the opposite direction, i.e. when the stock market falls gold usually rises and vice versa.
The trustees that you choose for your self-directed IRA do not act as financial advisers. They do the administration and reporting to the IRS. For this they charge a service fee which is known in advance and is part of the cost of setting up your IRA or 401(k) rollover in the first place. This, of course, would always be the case – whatever you were investing in.
It should be noted that investors are not able to put metals that they already hold privately into their IRA account. The purchase of any metals for inclusion must be made by the trustee, as a third-party, unconnected with the “buyer.” This is to prevent ownership being taken of the metals before they are stored. Taking personal delivery of any metals which are destined for an IRA is not allowed.
In summary, a precious metals IRA account is very easy and straightforward to set up. In most cases the initial forms can be filled in five minutes and the whole process takes around two weeks.
The steps are quite simple:
- Submit completed paperwork to trustee
- Why are funds to trustee
- Instruct buyer which precious metals are needed