Is your retirement approaching? Does your retirement nest egg need some sparkle? Have you ever thought about investing in physical gold or other precious metals? Read on to understand how gold investments work and why you need to open a gold IRA account at Observer.com.
What is a gold IRA?
In order to understand gold IRAs, you must start by understanding what an Individual Retirement Account (IRA) is. An IRA is a tax-advantaged account that allows you to save up for your retirement. Tax-advantaged means that the investment is either tax reduced, deferred, or completely tax-free. There are several IRAs that you can choose from and they include the gold IRA, traditional IRA, and the Roth IRA that allow you to invest in stocks and bonds for the purposes of building money for investments.
In a gold IRA, you get to own gold bullion. This means that you get to own physical gold plus other precious metals such as high-quality silver in the form of bars, coins, and ingots. Once you open a self-directed gold IRA, you can start your journey to investing in precious metals. However, you need to know that the Internal Revenue Service (IRS) implemented new tax reporting and new requirements for record-keeping for self-directed gold IRA accounts and this is because gold IRAs hold more complicated assets as compared to the other IRAs.
Who manages your Gold IRA?
It is also important to note that in order to hold gold in an individual retirement account, you have to open a self-directed account which is managed by a specialist custodian who will be responsible for storing and handling the precious metal. This service is not offered by large brokerage firms.
You also need to know that the IRS does not allow account holders to store precious metals that are owned via a gold IRA in your house. This means that if you move the physical gold from the IRA to your home, the IRS will count it as a withdrawal and this will subject it to tax also, you will pay for early withdrawal penalties or have your account shut down altogether.
To avoid this, ensure that you do your research and keep yourself well informed. Work with a custodian who is qualified in the administration of gold IRAs. Your custodian will help you with all your paperwork and tax reporting so that you are well prepared for your retirement planning.
How Do You Buy Precious Metals?
Well, once you have opened your gold IRA account, you will need to deposit cash so that you can fund your account. That cash is what will be used to buy physical gold. There are several ways to fund your account and they include; depositing cash every year, transferring funds from your current retirement account, or rolling over a part of your retirement account and putting it in your gold IRA. If you opt for the roll-over method, you will not owe any additional taxes since your money will remain within the limits of a qualified retirement plan.
What are the pros of opening a gold IRA account?
1. Portfolio protection
Ever wondered why gold has always been referred to as the safe-haven investment? Well, since time immemorial, gold has been a store of value and in the past, before money came into the picture, it was a unit of exchange. Having gold in your retirement portfolio is a great diversification tool if you compare it to stocks, cryptocurrencies, and bonds. A gold retirement plan can minimize risks, especially during political and economic crises.
2. Long Term Hold
If your retirement is decades away, you need to get something that is not very liquid. This is what makes a gold IRA a good idea. Physical gold is an asset that you can buy and hold for many years and only touch when you are ready to retire.
What Are the Cons of Opening a Gold IRA?
IRAs are highly recommended for everybody who is looking to enjoy their retirement. Since time immemorial gold has always been viewed as a reliable investment. However, the prices of gold can be unpredictable at times. Here are two disadvantages of opening a Gold IRA.
1. The Fees Can Be High
When you open a gold IRA, you will not be allowed to store your gold at home or take it to the bank for safekeeping. You must pay a custodian to store it for you and to make sure that it is insured. The custodians’ fees can end up being very high if you compare them to the regular IRA managements.
2. There Are Funding Restrictions
You also need to know that you are prohibited from taking already owned precious metals into your gold IRA. You are also not allowed to personally purchase gold and take it to your Gold IRA. Only your reputable custodian is allowed to carry out such transactions.
Is Gold IRA for You?
Putting your money in a gold IRA is just like investing in other assets. Take time to understand your investment portfolio and see if it matches your tolerance to risk. The decision to include gold into your retirement plan should fit into your entire financial plan. Lastly, remember that gold adds diversification and this can boost your confidence, especially during seasons of economic uncertainty but make sure it forms just a fraction of your well-planned retirement plan.