The Taxpayer Relief Act of 1997 broadened the types of investments allowed in individual retirement accounts to include certain types of precious metals.
Tax law also specifies the purity standards for each metal. For example, the American Gold Eagle coin is an approved gold asset.
A Brief Introduction to the Gold IRA
Investors became more interested in gold IRA’s After the financial crisis in 2008, which brought about a recession.
In October of 2007, the stock market hit its pre-recession high, then by March of 2009, the market lost 50 percent of its value, and investors’ retirement portfolios reflected this significant drop in value.
Gold prices move in the opposite direction of stock prices, so gold IRA’s became a reasonable hedge against inflation.
These IRA’s are useful for portfolio diversification and for anyone who is concerned with economic and world news that might cause another stock market drop.
What is a Gold IRA Rollover?
If you have a retirement plan such as a 401(k) or 403(b) through your employer and you leave to take another job, you can roll the money you have in your current retirement account or IRA over into another IRA.
through your employer and you leave to take another job, you can roll the money you have in your current retirement account or IRA over into another IRA.
The same rules apply if another IRA offers better investment opportunities than the one you have. You must follow certain rules and regulations.
The same is true for a gold IRA, but there are even stricter regulations to follow.
Rollovers can occur under one of three conditions:
- The sponsoring company substantially changes its retirement plan
- The sponsoring company changes the custodian of its retirement plan
- The employee terminates employment with the sponsoring company
How Are Rollovers Done?
The IRS stipulates three ways to complete a rollover:
- Direct Rollover: You can ask your retirement plan administrator to issue a check directly to the retirement plan or IRA to which you wish your money rolled over. Using this method assures that there will be no taxes withheld from your rollover.
- Trustee-to-Trustee Rollover: If you are rolling over your IRA, the trustee of the IRA can facilitate the rollover to the trustee of the other IRA. There are no taxes withheld using this method.
- 60-Day Rollover: A check can be issued directly to you for the amount of your rollover. If you invest it in another IRA or retirement plan within 60 days, no taxes will be withheld.
Some investors choose to roll part of their retirement savings into a gold IRA rather than all their savings.
In this case, a portion of the retirement savings will be subject to the special rules concerning a gold IRA rollover.
How Are Gold IRA Rollovers Different?
Gold IRA’s can either be traditional or Roth IRA’s. The first thing that a potential investor must decide is whether they want to invest in the actual physical gold or in gold company stock, a gold mutual fund, or an exchange-traded gold fund.
If the investor decides to invest in the actual gold, it must be gold coins or bullion that meets the standards of the IRS regarding purity. The gold must be held by a custodian that is IRS-approved and should not be held in any type of home storage.
Rolling over retirement funds to a gold IRA is more complicated and expensive. You have to establish a self-directed IRA which allows you to invest in a wider range of assets.
Then, you need to choose a custodian to create and administer your self-directed account. It is usually a bank, but it can be other types of financial institutions such as credit unions, brokerage firms, or trust companies.
The custodian you choose must have the facilities to store the physical gold for you. The federal and state agencies give these custodians the approval to provide asset custody services.
Gold IRA Custodians to Gold Brokers
You then need a broker to buy the physical gold. The custodian may have relationships with established brokers and can give you referrals.
Choosing a broker is very important. The broker chooses gold that meets the standards of the federal government for inclusion in an IRA.
You want your broker to have, at least, the following characteristics:
- Qualifications: The broker should have all the appropriate licenses, bonds, and insurance to protect your investment.
- Reputation: The broker should have an excellent reputation based on the word of previous clients and organizations like the Better Business Bureau. You might want to look at consumer reviews or number of complaints filed.
- Responsiveness: The broker should be responsive to your needs as an investor. They should be well-versed in the tax law regarding IRA’s and Gold IRAs and be willing to work with you to be sure you are meeting the requirements.
Ways to Invest in Gold
There are more than a few ways to invest in gold. Therefore we will mention the best way first: purchasing gold coins and bullion in an SDIRA.
However, it does not hurt to know the other ways of investing in gold. We will also see why it is best to invest in gold by purchasing physical gold in an IRA.
1) Gold Coins and Bullion in an SDIRA
You can buy physical gold from a variety of gold and precious metals brokers who sell the gold in the form of coins, bars and bullion.
While owning actual gold sounds thrilling, storing it in your home can be a safety issue if anyone learns you have the gold in your possession. A relative or friend may mention to others that you have gold in your home, which can lead to theft.
However, gold IRA companies securely store your gold with their trusted depository for a fee, usually a small flat annual fee.
A Gold IRA allows you to rollover your retirement funds or invest your resources directly into one that holds physical gold bullion or coins.
Look for a dealer offering free shipping and compare offers from multiple brokers to see if you can reduce costs and increase your profits when you sell the gold. You can see them in our List of Top 10 Gold IRA Companies.
2) Buy Gold Exchange Traded Receipts (ETR)
Another way to own physical gold is by investing in Gold ETR’s from the Canadian Gold Reserves Program.
You can trade Gold ETR’s on the Toronto Stock Exchange (TSX) through several U.S. brokerages in Canadian (MNT) and U.S. (MNT.U) dollars.
The gold receipts prove that you own physical gold bullion held at the Royal Canadian Mint. You pay a monthly fee equal to an annual rate of 0.35 percent.
The purity of the gold an ETR represents is guaranteed to be at least 99.9%.
You can redeem your ETR’s for gold bullion or cash once a month, and the minimum redemption is 100,000 ETRs.
However, there’s no need to take possession of the gold with ETR’s. When you’re ready, you can sell your certificates on the Toronto Stock Exchange.
3) Invest in Gold Stocks
When you buy stock in a gold company, you’re buying into a gold mining or processing operation rather than gold itself.
The company makes a profit when it sells extracted gold for a higher value than the cost of the mining operations.
Gold stocks can be a great way to indirectly take advantage of rising gold demand and prices, but you must practice due diligence when selecting gold stocks.
Two things to consider when picking gold stocks are:
- When considering gold stocks, buy into financially stable, quality companies with contracts for future mining projects.
- You can also look into stock sold by companies involved in processing gold, which may have somewhat less potential for volatility.
Gold stocks usually follow gold prices but can regress while gold prices climb when the economy falters.
3) Buy Gold ETF’s
An exchange-traded fund, commonly known as a ETF, is a basket of stocks sold on the stock exchange throughout the day.
A Gold ETF may be backed by physical gold assets or could track the price of gold using futures.
Many Gold ETF’s hold derivatives and options, with gains taxable at the collectibles 28 percent rate.
The ETF is the one gold investment you may not want for the long term as fees eat away at profits, depending on the ETF.
Thoroughly research the gold ETF’s you’re interested in and how much investments they can hold. It is also wise to consider taxes and past performance.
4) Gold Fund Investing
Gold mutual funds may invest in any mixture of physical gold assets, precious metals processing stocks, other precious metals or gems, and domestic and foreign gold mining company stocks.
Determining which gold fund to invest in takes a bit of research so you can choose a fund that meets your financial objectives.
Some gold funds hold almost all physical gold and effectively track gold prices. Some focus on emerging gold markets and can be lucrative over time. Others hold a percentage of investments in diamonds, silver and other precious metals and minerals.
Choose a gold fund with a level of foreign company exposure you’re comfortable with. Make sure to also take a look at the past performance of the mutual fund compared to the overall market.
Buying shares in a gold fund can expose your portfolio to the benefits of gold-investing at a low cost. Look for no-load funds or low-load funds with expense ratios under one percent.
5) Buy Gold ETN’s
An ETN is an exchange-traded note, and this instrument combines some aspects of ETF’s with bond securities.
Gold ETN’s may track a gold index or may move opposite of the value of gold, which is useful for the contrarian investor.
A bank issues Gold ETN’s with a maturity date much like buying non-interest bearing bonds. When the ETN matures, the bank pays the investor back with a profit depending on gold futures.
With great risk comes great reward, and Gold ETN’s can pay a handsome return. However, you also can lose your entire investment.
Invest in Gold Wisely
There are many ways to invest in gold. Some investors are looking for a hedge against the economy. Others think of it as a way of growing their retirement portfolio. Still others consider possibly getting in on a short-term payoff.
Do a few hours of research first irregardless of what gold-investment method you choose. It is best to consult with a financial adviser to ensure your gold investment method compliments your financial goals.
Rolling over your investments into a Gold IRA is a popular option for people looking to avoid the uncertainty of the stock market.
If you’re not sure about where to start, read our guide on the best Gold IRA companies to help you get started in your decision-making process.
Do you have any questions on why rolling over your retirement to a gold IRA is your best investment option for 2019? Ask below!