- 06 Nov 2022
- Bonds
- Precious Metals
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If you're looking for the best solution for your retirement account, you may be considering setting up a Gold IRA. Perhaps you've heard from friends, family, or financial experts that Gold IRAs offer many benefits and can be a smart investment decision. However, do you really understand what those benefits are?
Today, we're going to provide you with more information about the reasons you may want to consider setting up a Gold IRA. After you read through all the benefits listed below, you should have the information you need to determine whether a Gold IRA is the right solution to help you prepare for retirement. Let's get started!
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What is a Gold IRA
Gold IRAs are a type of Self-Directed individual retirement account (IRA). With a Self-Directed IRA, you have more flexibility with the types of assets you can hold in your account. Instead of being limited to stocks and bonds, you can hold gold, silver, platinum, and palladium coins and bars in your account.
As with traditional IRAs, the IRS limits the total annual contributions that individuals can make to their Gold IRA account. Currently, individuals under the age of 50 can contribute up to $6,000 to their IRA accounts. The IRS allows those 50 and older to contribute up to $7,000 to their IRA accounts. If you have other IRAs, keep in mind that these amounts are the total you can contribute to all of your accounts, so you will need to split the $6,000 or $7,000 between multiple accounts.
Like other types of IRAs, there are both pretax and after-tax Gold IRA options. Some of these include:
What are the Benefits of Opening a Gold IRA?
Now that you know a little more about what a Gold IRA is and the different types of Gold IRAs you can choose from, let's get into the benefits of opening this type of retirement account.
Diversification
One of the top reasons to set up a Gold IRA is because they can help you diversify your investment portfolio. Diversification refers to having your assets spread out between different investment types, such as some stocks and bonds, some precious metals, and some real estate holdings.
When your portfolio is diversified, it provides you with some stability even in the midst of market fluctuations. For example, if you have all of your money invested in the stock market, consider how negatively impacted your total portfolio would be if the market were to crash.
On the flip side, if only a portion of your portfolio is invested in the stock market, you'll have the other investments to help minimize the negative effects. While your portfolio will still be impacted, the effects will not be as severe.
Balance
When the economy is thriving and the stock market is following suit, it can almost make you forget about the times when the opposite has been true. Almost. If you've lived through some tough economic times (and we all have), then you know the stress and worry that a struggling or tanking stock market can cause. There is a lot of uncertainty, and you can feel hopeless and helpless watching the value of your portfolio continually decrease.
Investing a portion of your portfolio in gold can help provide a balance for this negativity. Throughout history, there are patterns showing that the price of gold performs best during times of political or economic downturns or chaos.
Adding this balance to your portfolio can help make sure you're prepared for whatever the economy has to throw at you.
The Ability to Invest in a Tangible Asset
Unlike stocks and bonds, precious metals are a tangible asset. Their value is not going to just disappear. When you're ready to retire and want to take distributions from your account, you can choose to take possession of your precious metals or to sell them for cash. If you need the cash, it will be simple to find a buyer because of how easy it is to liquidate gold and silver.
Potential for Growth
With gold and other precious metals, you also can't forget about the growth potential. Historically, these metals have done well and shown great profits. For example, between 2000 and 2017, the price of an ounce of gold rose from about $200 to over $1,200. That's a significant increase!
Gold is a Limited Resource
There is not an endless supply of gold. Basic economics shares that when supply is low and demand is high, the cost will increase. When you combine this with the fact that precious metals are highly coveted across the globe, it is easy to see why financial experts recommend investing in gold and silver. Moreover, additional uses for gold and silver in manufacturing, technology, and medicine are increasing the demand for these precious metals.
Tax Benefits
Earlier, we touched on the tax benefits of opening a Gold IRA. Each of the different types of Gold IRAs (Traditional, Roth, and SEP) can be quite beneficial for investors. With a Traditional Gold IRA or SEP IRA, your investment is able to grow tax-free until you are ready to start making withdrawals. This can be a huge benefit, particularly for those who believe they will be in a lower tax bracket after retiring.
Roth Gold IRAs also offer tax benefits. They can be the best choice for individuals who believe they will be in a higher tax bracket when they retire. With these IRAs, your contributions are taxed at the time they are added to the account. Beyond these initial taxes, you won't have to pay any additional taxes throughout the time you hold your IRA and once you start taking distributions.
There are also additional tax benefits to consider. Some individuals can qualify for a Saver's Tax Credit, which allows them to receive a credit for up to 50% of your contributions. This credit is only available to individuals 18 or older who are claimed as a dependent on someone else's return and are not currently a full-time student.
In addition to favorable tax benefits for you, opening a Gold IRA could potentially offer tax benefits to your heirs. With some Self-Directed IRAs, the assets held in the account can pass directly to the beneficiaries with zero or at least fewer tax headaches.
Which Precious Metals Can You Add to a Gold IRA?
While the name "Gold IRA" may make you think that you can only hold gold in this retirement account, that is actually not the case. While Gold IRA is the more well-known term, this type of account is also referred to as a Precious Metals IRA. So, in addition to gold, you can hold other precious metals including silver, platinum, and palladium.
Which Coins and Bars Can You Hold in a Gold IRA
There are several different coins and bars that can be held in a Precious Metals IRA. However, not every coin and bar will meet the regulations put in place by the IRS. These regulations have established minimum purity levels for each type of precious metal.
The minimum purity requirements are:
Below are several of the coins and bars that satisfy these minimum purity requirements for each type of precious metal:
❑ Gold Coins
❑ Gold Bars
❑ Silver Coins
❑ Silver Bars
❑ Platinum Coins
❑ Platinum Bars
❑ Palladium Coins
❑ Palladium Bars
Setting Up a Gold IRA
Now that you've had a chance to learn more about Gold IRAs, the many benefits they offer, and some of the different precious metals you can hold in a Gold IRA, are you ready to open your new account today? Before opening a Gold IRA, thoroughly research the company you want to work with. There are dozens of companies that offer this service, but they are not all the same. Check reviews from past customers, consult the company's ratings with the Better Business Bureau and Business Consumer Alliance, and preview the different precious metals they have available for clients to choose from.
