Gold as a time-proven hedge against inflation. In the Roman era, one ounce of gold got you a toga, sandals and belt. These days, it still buys you a decent men’s suit. So, it surely pays off to consider the king of metals when planning to maintain your purchasing power in retirement.
Gold Investments in Your Retirement Account
Through the years, we have received many questions from investors interested in the idea of long-term investing in precious metals via vehicles such as retirement accounts. Little wonder as defined benefit pension plans (in the private sector) mostly went the way of the dodo bird. Now, the would-be retirees look to their own retirement accounts, knowing that neither Social Security nor Medicare are what they used to be.
In this article, we’ll discuss your options thoroughly. We’ll introduce you to the shifting landscape of retirement planning, to the tricks played on keeping living standards high. We’ll follow with a look at the typical percentage investors allocate to precious metals in general, we’ll then move to which parts of the precious metals world are a fitting option for your investment account. We’ll also explore the vehicles you can make use of. Yes, we’ll talk about the various investment accounts, about putting them to work for your objectives. Inevitably, we’ll dive into the gold IRA.
Planning for Old Age: Social Security and Medicare
Maintaining living standards throughout retirement is not an easy task. The U.S. debt burden in increasing, and even according to CBO, so will have the tax burden. This affects various government promises made decades earlier, such asand Medicare. Some of you might remember that Social Security used to be tax-free, or that the payments into Medicare were the same for everyone regardless of income level. With the prospect of curtailed benefits due to appealing options elimination (File and Suspend, anyone?) or the prospect of means testing, and with healthcare costs skyrocketing and Medicare covering approximately 60% of your medical costs only, it’s high time for a more comprehensive solution than Medigap insurance to cover the rest of the health-related price tag.
Golden Food for Thought
But something to chew on first. Let’s start with quotations from the Maestro and the Oracle of Omaha.
Alan Greenspan’s 1966 thesis says that “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold.” Strong words indeed. Since 1974 luckily, Americans have again been permitted to legally own gold for investment purposes.
Or this one. Warren Buffet supposedly said back in 1998: “Gold gets dug out of the ground in Africa, or some place. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” Yet gold has put the famed Oracle to shame for more than a few years since the above statement. Clearly, there must be something to gold if this asset without an income stream attached is capable of beating Berkshire Hathaway’s performance for extended periods of time.
Let’s start with the reasons for investing in gold in the first place.
Why Gold Has Its Place in Any Retirement Plan
In a way, this is a rephrased question of why gold has its place in any. Gold is money, can’t be debased, and is nobody’s liability in its physical form. It’s a portfolio diversifier – depending on the timeframe, negatively or not at all correlated with other asset classes. It shines when most other asset classes fail, such as in stagflations or periods of higher inflation. Allocation of at least 5% in an investment portfolio regardless of the stage of the economic cycle we’re in, is a bare minimum though a 10% to 15% allocation is more commonly encountered as the baseline. If warranted by economic outlook expectations, even a share north of 20% has its rightful place in a balanced portfolio.
A retirement plan is a special type of a long-term investment plan. By extension, think about gold when planning for your golden years. But what is the optimal gold share within your retirement account? Just as with risk tolerance, there’s no one size fits all. There’s no cookie-cutter approach, yet helpful guidelines exist. Take inspiration from the above thoughts.
What Is a Gold IRA?
A Gold IRA is a kind of retirement account that you can use for investing directly into precious metals. In the wake of the 2008 financial crisis, gold IRAs have grown more popular. The process of investing in a gold IRA has been streamlined. It has become easier and gold IRAs have taken off as a result. You only need a broker (a precious metals dealer) to buy the gold and a custodian such as a bank, trust company, credit union, brokerage or an S&L company to take care of the account. As a rule of thumb, go for a transparent and established custodian with a verifiable track record. Gold IRAs can either be a traditional IRA account type, or the Roth variety. Remember though that the underlying metal has to be of specified investment purity, and be kept in an approved depository.
If you want to avoid the costs associated with a custodian, you can choose a checkbook IRA. For starters, you must have a limited liability company with a business checking account. If you jump through all the hoops, you can hold your Gold Eagles personally, no storage fees associated – though this avenue is increasingly being questioned.
This means that you have to count with the production and markup costs of the gold or silver product you consider buying, setup costs and custodian fees of your gold IRA, storage fees for the precious metals products bought, and sales costs when you decide to close your gold IRA or liquidate part thereof. You would have to do that when the time has come to take the required minimum monthly distributions (unless of course you take these distributions from your other IRAs).
Physical Precious Metals and Retirement Accounts
, , silver coins and silver bullion can be purchased for self-directed IRAs or 401(k)s established with a trust company. If you choose to make your own investment decisions, there are .
The starting point is making a transfer from your IRA or a rollover from your 401(k), 403(b) or 457, Thrift Saving Plan or annuity. This will enable you to invest into the physical precious metal as opposed to its.
Beware of the gold investment vehicles you choose.often carry a huge mark-up. Mining stocks’ prices aren’t determined by the metal prices alone. You want to avoid counterparty risk or derivative exposure. Run-of-the-mill precious metals investment products such as COMEX-standardized bullion bars, Gold (Silver) Eagles, Gold (Silver) Maple Leaves and other similar broadly recognized ones are your best options if your aim is to accumulate precious metals while minimizing the costs of doing so.
Once your rollover paperwork is over and your IRA has been funded, you can instruct the chosen trust company to make the precious metals purchases you want them to make.
Making Gold (IRA) Rollovers Work
Just the same way you can move your funds in the 401(k) or 403(b) account with the previous employer into your current one’s, you can decide to allocate some of your retirement funds to gold. Remember though that you need to meet IRS purity standards – investment grade (999 or higher) is the way to go.
The rollover process isn’t as complicated as it seems. Don’t be daunted! First, you establish a self-directed IRA so as to be able to invest in many asset classes. Then, get the custodian to create and administer your self-directed account. Be it a bank, credit union, brokerage or credit company, they must have federally-approved storage facilities. Finally, there’s the broker through whom you’ll buy the physical metal. Your custodian can refer you to one usually. And that’s it!
Apart from Gold, Can I Invest Also in Silver or Mining Stocks in my IRA?
In short, the answer is often yes. It’s possible to choose either of these in a olo 401(k), SIMPLE IRA, SEP IRA, SARSEP, Traditional IRA or a Precious Metals IRA. It also applies to their Roth versions (Roth means that it’s not subject to taxation after distribution), or Roth 403(b) and Roth 457(b). Direct investment in bullion is a domain of all the above apart from Traditional IRAs, 403(b) and 457(b). A Precious Metals IRA is the most popular route to go that has it all. Anyway, please check with your financial advisor for the latest regulatory developments.
Once sure you can accommodate your intended investments in your account, think about their characteristics and suitability for you. Arguably, this consideration should be the starting point.
While gold can be volatile at times, silver often experiences even bigger swings. Gold stock investors are in for a wild ride, too.are typically harder to tame than . A broad-based instrument of the ETF kind surely mitigates the individual company-based risk.
The broader idea is however benefiting from the predictable. It’s different at the start of another gold upswing or when gold decides to take a pause and is forming a local top. This is the kind of expertise the professional investors and portfolio managers might apply in an actively managed portfolio in an (private funds are generally available for ). In many cases, the IRA funds can be used for gold and silver trading as well and in this case, the accredited status is not required. If you’re interested in any of the above, please .
The good news is that even if you’re not a millionaire and won’t be able to have a professional manage your gold investments for you, you can do so on your own. Even within your retirement plan, you can keep, or shifting your investment focus to gold, silver, or miners as you see fit (it might be a good idea to nonetheless, or at least examine and take into account the ).
The point or investing in gold through one’s IRA is to see one’s funds grow tax-free until it’s time to take distributions. That’s the purpose of using your retirement account (a tax-deferred vehicle) for such an investment. This gives extra power to the magic of compound interest, working in your favor.
Putting a part of your retirement savings to work in precious metals is certainly a laudable and sensible idea. Just how much exactly, varies – generally, anything from 5% to over 20% can be right given your approach, risk profile and market circumstances.
You can invest directly in, , and sometimes even into in your retirement account. It depends on the exact type of your retirement account.
Within a traditional IRA, you enjoy tax-free contributions and tax-deferred growth but must take distributions once you reach 70 years of age. To a Roth IRA, you contribute with your after-tax funds but the distributions are tax-free and there’s no mandatory distribution prescribed. Unfortunately, Roth IRAs are not available for higher-income earners. Roth options are helpful in that they help you keep your tax bill down in retirement – highly desirable when looking at the trajectory the U.S. budget balance is on.
Gold IRA (that’s the Precious Metals IRA) is the broadly recognized way to go. It has become easy to invest in this way, and there is a broad selection of reputable precious metals dealers and custodians that set you up for success in achieving your goals.
Certainly, it’s great to get the help of your financial and tax advisor – should you hesitate, they’ll help you figure out the metal’s place in your portfolio, and navigate you through the landscape of which type of investment is and isn’t permitted under your existing or planned retirement account type. If you’re interested in using your retirement funds for making the most of the biggest moves in the precious metals market, while at the same time gaining through the, and through individual , – we might be able to provide you with a solution that you’ll find convenient.
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