The gold IRA industry has exploded since 2001 due to people being afraid of the US dollar and fearing it could crash. Besides the US dollar, gold is considered the safest place to store your retirement funds because it has consistently been held and valued by people for thousands of years (remember-Bitcoin was invented in 2008!).
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How Much Can You Put In A Gold IRA?
There is no limit to the amount of money you can put into a gold IRA or precious metals retirement account, assuming you buy physical gold and store it in a vault located in your home state.
However, if you want to invest in self-directed precious metal IRAs, like physical gold stocks and mutual funds (and let's face it – who doesn't?), there are firm caps on how much you can invest.
The Gold Price and the Different Gold IRA Options
There is a big difference between the price of gold in an investment account and in an IRA. If you own physical gold, you can buy and sell it at whatever price you want as long as you cash it out before your six months are up. However, if you are a self-directed precious metals IRA (precious metals stocks or mutual funds), there are firm caps on your annual distribution amount. Some values:
For gold, the distribution cap is only .01% (per year) for non-registered IRAs; and .25% for IRAs where you have been a participant for at least a decade.
This is one of the easiest ways to ensure you don't run into any problems with the IRS or other governing bodies because the IRS has very clear rules on how much gold can be distributed each year.
Different Types Of Gold IRA's
There are five different types of gold IRAs that we will list below in detail:
1) Individual Retirement Account
This is considered a special type of self-directed IRA and is managed by a trustee. Because this involves a trustee and requires you to have self-directed funds, it's not for everybody.
2) Company Retirement Account
This is not classified as a self-directed fund, so if you want to invest in gold stocks and mutual funds, this is not for you. A company retirement account (like a 401k) does not give you the ability to manage the portfolio by yourself.
3) Precious Metals Retirement Account
This is where people put all their precious metals investments together in one place. You can do this with gold, silver and other precious metals such as platinum and palladium. The distribution rules might be different depending on whether it's registered or non-registered, which are two different things.
4) Self-directed Precious Metals IRA
This special type of IRA allows people to invest in precious metals stocks and mutual funds, as well as many other options. One important thing to note is that this type of IRA is considered a self-directed investment (instead of a regular self-directed IRA).
5) Direct Participation Trust
This is also a self-directed investment account while still being managed by a trustee. The only difference between this and the PPT approach is that some states do not allow you to use your PPT to invest in gold.
Now that you have an idea of the different types of gold IRAs, let's look at the benefits and drawbacks of investing in precious metals.
Pros and Cons of Investing In Gold
How To Invest In Gold With A Self-Directed IRA
There are three options:
1) Liquidation Option
The legal procedure is quite simple if you want to liquidate your IRA. Let's say you want to cash out your investment in 2018. You would go to your trustee (who is managing your investments for you) and tell them that you wanted to redeem some of your gold holdings in December 2018.
The trustee would then have to check all of your holdings and confirm that you have enough gold to redeem your amount. However, if there is not enough available for redemption, the trustee will contact you by phone or email and ask for an additional amount of gold (called a shortage) to be transferred into your account.
You can rest assured that these shortage amounts are very small. For example, if you only own 100 ounces of gold in your account, the trustee will only request a 2-ounce shortage (100 ounces - 200 coins). In other words, out of the 2000-ounce collection you started within this hypothetical example – you would get back 2000 ounces + 2 ounces = 2002 ounces of gold.
If you want to sell some of your gold coins before December 2018, then the trustee will most likely manage this for you. But because of the shortage protocol noted above, the trustee might come in contact with you during the year and ask for your missing coins.
Though it's not common, some trustees will try to contact their clients after December 31st every year and ask for extra gold in order to be redeemed around that same time (this is not a requirement).
2) Donate Your Gold To Charity
You can also choose to donate half or more of your IRA portfolio to charities (which means you can get half or more tax breaks at the end of the year). You can turn the coins into a bullion dealer and then donate them to an approved charity.
As long as you notify the charity of your decision, you will receive a tax credit from both the donation and IRS. You'll also be able to deduct the cost of donating your gold (called Goodwill) from your income for that year.
Suppose you don't want to play around with charities. In that case, you might have a second option: sell a portion of your IRA gold to another investor at a significant gain (which is called "shorting") in preparation for taking some profits later in 2017.
Take note that there are legal regulations on when you can take profits using this strategy. If you decide to do this, please read the following legal disclaimer:
The following information is relevant only to the scenarios depicted in this article. This article presents hypothetical examples of contribution transactions and subsequent redemption transactions. Although actual transactions are similar in some ways, they are not precisely the same, and therefore the outcomes described herein cannot be reliably replicated exactly or even generally. The examples used herein are for illustrative purposes only; it should not be inferred that any tax treatment described herein is appropriate for any specific individual. An investor should consult his tax adviser on whether this strategy complies with his particular circumstances and personal prerogatives.
This is a transaction involving a self-directed IRA pension plan. The tax consequences of the transaction described herein may be influenced by the laws governing your particular retirement plan. It is important to verify that the transaction described herein is permitted under the terms of your retirement plan. Suppose your plan prohibits transactions such as those described herein. In that case, it may be possible to transfer assets from your self-directed IRA into a self-directed IRA maintained by a spouse or other family member who does not have such a prohibition in his or her IRA.
The techniques depicted in this article apply only to participants in Individual Retirement Accounts maintained as defined contribution plans (as opposed to Roth IRAs, which are subject to different restrictions).
3. Protect Your IRA With Gold
In case of major market corrections, gold becomes a very valuable hedge against losses. In fact, if you have an IRA with gold holdings, your IRA should be protected against market fluctuations during a correction. That's because even if the value of your gold goes down during a major correction in the market (like 2008), it will always rise again – eventually.
This is because the amount of gold minted over the past 5,000+ years combined does not go down in value for long periods of time. Also, unlike stocks or bonds, which can be liquidated or sold at any time, your precious metal holdings cannot be liquidated except in certain cases (such as bankruptcy).
In the end, gold is proven (and safe) wealth protection for your IRA.
How To Invest In Gold With A Self-Directed Business Pension Plan
The process for investing in gold with a business pension plan is similar to an IRA. However, there are some additional rules that apply.
For example, you can only take $250,000 US Dollars (or less) out of your retirement account in one year (this is why it's called a Self-Directed Business Pension Plan).
If you have more than $250,000 US Dollars in your plan as of January 1st, then the following rules will apply:
1) Rollover Your IRA
You do not have to take all your money out at once. You can choose to roll over half or more of your holdings into another retirement account that holds precious metals.
As long as you roll over at least 50% of your plan into another precious metal account, you can take out the rest of the funds (up to $250,000 or less) in cash later on.
You can then invest the IRA cash into a new precious metal retirement account for 2017.
2) Buy & Sell Precious Metals
Once again, there are many ways to invest in gold and silver with your business pension plan. You can either:
You can also buy physical gold/silver and hold it in your vault or do any combination of these.
It's important to note that you must comply with the rules of your business pension plan.
For example, if you go this route and choose not to invest all of your IRA cash (which somehow becomes liquid at some point), then you won't be able to convert all the assets into precious metals later.
Most likely, the investment manager of your retirement account will allow you to take a loan out from the IRA with interest. In this case, you can have a second IRA to deposit your other assets (such as stocks or bonds).
This second IRA will meet the 50% criteria of your Self-Directed Business Pension Plan (since they will be other assets banking in there). You can then use this second IRA to purchase precious metals later on.
Filing IRS Form 8606 is not required to convert all or a portion of your retirement account. However, you should keep track of all transactions and investments, including precious metals.
However, once again, if you are uncomfortable with this process, you should do a rollover instead (as discussed above).
Precious metals are such a good hedge against stock market dips because they provide liquidity. In the event of a market correction, you will be able to liquidate any precious metals holdings in your business pension plan and receive cash.
With this cash, you can then use it to buy other investments like stocks or bonds.
However, it's important to remember that precious metals are not liquid right away (as opposed to other investments, which can be sold or transferred at any time).
It is impossible to convert all assets in your Self-Directed Business Pension Plan into gold and silver simultaneously. If you are uncomfortable with this reality, then you should consider a rollover instead.
But if a rollover is not an option for you (or is unknown to you), then it is possible to invest in precious metals with a Self-Directed Business Pension Plan.
Remember that investing in precious metals with a business pension plan is like investing in gold and silver with an IRA (and any retirement account). It's very simple but requires compliance with your business pension plan's rules and regulations.
It's important to note that the IRS makes no distinction between gold, silver and other precious metals – they all count as assets of your retirement account if held in a self-directed account (which are taxable under the same rules).
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