A silver IRA is a special type of retirement account.It allows you to invest in eligible silver coins and bars.
The rules are the same as those for any other IRA, except for a few exceptions. You are able to silver and other precious metals to your account in a silver IRA. Regular IRA’s focus on stocks and other paper assets.
Silver IRA’s can help to diversify your portfolio and act as a hedge against inflation. However, there are a few pros and cons you need to understand to bulletproof your retirement funds.
What Is a Silver IRA?
Most people are familiar with traditional IRA’s because that’s what most people have. These are the ones you open at a brokerage firm, like Fidelity or Schwab.
When you invest in these types of accounts, your money is buying paper assets. Paper assets are generally stocks, bonds and mutual funds.
A less familiar option is to open a self-directed IRA.
These accounts have the same tax advantages and the same guidelines as any other type of IRA but with one material difference: you manage the investments.
This means you’re not restricted to the menu of investments that the broker offers; you can choose exactly what goes into your account.
The options are extremely broad and include hard assets that you can see or touch. These assets include cash-flow real estate, businesses, gold, silver, platinum and palladium.
A silver IRA is simply an IRA that has some type of silver investment held in the account.
A Silver IRA Has All the Benefits of a Traditional IRA and Roth IRA
Pre-tax dollars funds a traditional IRA account. You only pay incomes taxes when you take money out of the account at retirement.
Post-tax dollars are what funds a Roth IRA account. This means there’s no immediate tax saving, but you can take out your money tax-free at retirement.
For both types of IRAs, the investments grow tax-free while in the account. As long as you keep the gains in the IRA, you will not be taxed when you sell the silver.
The Internal Revenue Service restricts the amounts of contributions you can make each year. Usual contribution limits apply
In 2018, the annual limit for IRAs is $5,500 across all your IRAs, or $6,500 if you’re age 50 or older. Those limits will probably go up by $500 in 2019.
A Silver IRA as a Hedge against Chaos and Inflation
Silver provides a hedge against inflation and economic volatility. While currency values have a tendency to fall and devalue over time, the price of silver historically has gone up over time.
A silver dollar has notched a tenfold return over the last century, for example, whereas the value of a paper dollar has fallen over 90 percent in comparison.
Investing in silver means you’re protecting your retirement savings against currency declines and safeguarding its purchasing power over time.
Diversify Your Portfolio
Most IRA’s are based on paper assets like stocks and bonds, which means they are susceptible to extreme markets.
Many people, on the other hand, seek after silver and it also holds its value well over time.
By investing in silver, you’re essentially ridding yourself of the volatility of paper assets. This means there’s no risk of the metal losing its value in the event of a stock market crash.
An ideal diversified portfolio will contain investments that are only loosely correlated with each other. An example would be stocks and silver coins. This is so that each asset performs differently under different market conditions.
What Type of Silver Can I Have in My IRA?
The IRS allows the ownership of physical silver bars and non-collectible coins that are at least 99.9 percent pure in self-directed IRAs.
Purity refers to the silver composition of the coins or bullion. IRA-approved coins include the American Silver Eagle, Austrian Silver Vienna Philharmonic, Australian Kookaburra Silver, Canadian Silver Maple Leaf and the Mexican Silver Libertad.
A lot of the silver bullion in the world will not qualify on the grounds of purity. However, you can get pure bars from approved mints or refiners.
IRA rules forbid any type of jewelry.
Mutual Funds and ETF’s: Other Options
You can also purchase a mutual fund or exchange-traded fund that invests in silver, silver mining stocks and silver options in your self-directed IRA.
These funds may have lower annual fees than what you might pay for owning the metal directly. This is because you’re not paying storage or insurance costs.
Returns Are Restricted to Capital Gains
A silver investment will not provide you with rent, interest or dividends. For some, that’s a major disadvantage.
With stock investing, for example, you get to credit the annual dividend check to your IRA where the money grows tax-free until retirement.
You also get to reinvest that money and enjoy the benefits of compounding, whereby your interest earns you interest. Compounding plays a significant role in how quickly your retirement pot grows.
With silver, the only returns you make come in the form of capital gains from higher silver prices.
Like any type of investing, a silver IRA does not guarantee higher gains. A traditional IRA (but not a Roth) forces you to begin taking minimum distributions at age 70 1/2 and you likely will have to sell your silver to help meet this requirement.
If the price of silver happens to be low when you liquidate, you may get less money than you paid for it.
Restrictions in Silver IRA Custody
Many investors like the idea of silver investing because you get to own a real, tangible asset. But that’s only partially true.
IRS rules forbid you from buying the silver yourself, displaying your coins at
Rather, you must channel your investing decisions through an account custodian. This exposes you to counter party risk in the form of theft or fraud.
Custodians save you the headache of buying the silver, arranging insurance, physical transport and storage of your bullion. They will keep the coins safe in an insured and licensed third-party storage vault.
Because you never get to see the metal, you really don’t know what you’re buying and whether it’s actually there.
The U.S. Commodity Futures Trading Commission has a web page listing some common precious metals frauds.
You can mitigate these risks by educating yourself on the scams and choosing a reputable silver custodian for your IRA. Make sure to read the reviews on our List of Top 10 Gold/Silver IRA Custodians before making your decision.
Watch Out For Costs and Fees
Once you find a reputable custodian, opening an account is as simple as filling out a few forms and funding the silver IRA.
Custodians will generally allow you to rollover your current retirement plan such as a 401(k) with no taxes and penalties.
Administration and storage fees typically range from $250 to $500 annually, depending on the location and quality of the storage facility.
A more significant cost is the “spread” – anywhere from 17 to 33 percent – between the prices that the company will buy and sell silver.
You would need the silver to increase in value by the spread amount, just to break even.
What Does Investing In Silver Mean?
Investing in silver means putting your money into the production, trading and outright ownership of silver metal.
For most investors this means buying quantities of bullion in coin or bar form and holding onto it.
While silver is technically a commodity like any other, precious metals are somewhat different as an asset class.
Unlike crude oil, corn or lumber, consumption uses do not affect the value of silver In fact, while silver does have non-trivial industrial applications, most of its value comes from its status as an investment vehicle.
Like gold, market demand is what chiefly drives the demand of gold. Since silver is used relatively rarely compared to other industrial metals, it does not have the production/consumption cycles of most commodities.
Instead, it is the long-term investors or those seeking to ride out a down market who are chiefly driving its value. Often this means that silver (again, like gold) tends to perform counter-cyclically to the stock market.
Silver Is Not Better Money
It is, however, at this point that we should note the enormous volume of bad reporting on the subject of precious metals investment.
Many articles written on this subject urge investors to put their money into silver and gold because these assets are “real money” and inherently safer than fiat currencies. This is wrong.
Silver has limited inherent value. While, unlike a fiat currency, its supply is limited, like a fiat currency it is real money only to the extent that other parties will to accept it in trade.
Investors who believe in the “real money” theory of silver should try paying their bills in specie and see exactly how far that will get them.
Others should consider the asset’s high (sometimes enormous) volatility index compared to that of the dollar.
Fiat currency has structural value because of its ties to a national economy and its role in tax collection. Silver does not.
Supply and demand drives the value of silver almost entirely. Industrial applications also influence the value of silver.
That does not make it a poor choice of investment, but it does mean that its value depends entirely on what someone else is willing to give you for it, just like currencies, stocks and pretty much every other form of investment on the market.
Why Invest In Silver?
Compared with gold, silver is generally cheaper. An investor can buy more silver for less money, making it potentially popular choice for lower capitalization investors.
Silver is also more volatile than gold. For active investors this can make silver a potentially lucrative investment, as its tendency toward price swings can lead to sharp upward movements.
Much of this volatility comes from the fact that silver is a smaller market than gold, and that gold tends to draw more investors seeking more stability in uncertain markets.
Compared with stocks and paper investments, however, silver is still generally seen as a safe haven for investment during market instability.
Despite its volatility, investors will often move their money into precious metals at the beginning of a downturn.
Finally, silver is seen as a more liquid safe investment than other non-market options like government bonds.
The high volatility of silver can make selling more difficult, as you may have to wait for the price you want. However, it is still easier to end your position than in a Treasury bond, and often for a better (if still relatively low) return.
Do you have any questions on how a silver IRA is a good hedge against inflation? Ask below!