Federal Reserve research has found that defined contribution plans — such as 401(k) or 403(b) plans — are the most frequently used plans among Americans who are saving for retirement.
Portfolio holders, however, can also opt to open a self-directed individual retirement account (IRA) — which allows you to include a variety of other assets, including some precious metals.
Understanding Precious Metals–Backed IRAs
Self-directed IRAs have some similarities to conventional IRAs, which often contain assets such as stocks, mutual funds, and bonds. Those items can also be included in a self-directed IRA — potentially in tandem with alternative assets such as gold coins and bars.
Self-directed IRAs also provide the same tax benefits as conventional IRAs. Contributions to a self-directed traditional IRA are made on a pretax basis with taxes deferred until the holder takes distributions. If precious metals are held in a Roth self-directed IRA, contributions are made on a post-tax basis, which essentially equates to tax-free withdrawals.
While a self-directed IRA allows for the inclusion of a wider range of assets compared to conventional IRAs, the IRS does not allow some assets. Items such as art or rugs, for instance, are generally not eligible, along with collectibles like stamps and gems.
Generally, though, a self-directed precious metals–backed IRA may give you greater control over how your assets are allocated than a conventional IRA does, providing additional opportunities for diversification. Your account custodian does not determine how your funds are allocated; you decide what the asset mix will be, and you can direct your custodian to adjust those proportions at any time.
Some portfolio holders appreciate having the ability to include a wider range of assets provided by a self-directed IRA — including real estate ranging from single-family homes to land and commercial properties, according to Forbes. These can be financed by investing in a mortgage and paying for it with funds from the self-directed IRA. Profits from the property’s sale would then remain in the account.
Precious metals assets such as coins and bars that possess a certain fineness composition can also be held in a self-directed IRA. A fineness of 0.995 is required for most gold assets, for instance, and silver assets must have a 0.999 fineness level.
To obtain the tax benefits associated with a precious metals–backed IRA, gold and other assets purchased by your account custodian for inclusion in your IRA must be stored in a recognized financial institution or IRS-approved depository. Keeping them in your residence could be viewed as taking a distribution and have tax implications.
“Under the IRS rules, [portfolio holders] cannot store precious metals products held in an IRA at home,” says U.S. Money Reserve President Philip N. Diehl, who also served as 35th director of the U.S. Mint. “That’s a very important fact to understand because some precious metals companies have suggested customers can purchase gold, take possession of it, and still receive the tax benefits of it being part of their IRA — and that’s simply not true. The gold must be stored in a licensed depository.”
Storing your assets remotely also provides additional security.
To be able to legally house IRA-related precious metals, approved vaults must meet a strict list of IRS requirements — including the ability to fulfill appropriate size, management, and recordkeeping considerations. The federal government closely monitors these facilities’ qualifications, which helps ensure that your metals are stored in a safe manner.
U.S. Money Reserve will help coordinate sending any precious metals items purchased via your self-directed IRA to an eligible secure facility.
Why Choose a Precious Metals–Backed IRA?
Despite more than half of Americans utilizing defined contribution plans, many don’t seem to feel they’re financially well-prepared to retire. Approximately 55% say they’ve saved less than they should have, according to a recent Bankrate survey. Nearly 35% say they’re significantly behind on their efforts to save for retirement.
The Federal Reserve has noted that stock and bond price declines in 2022 probably affected portfolio holders’ perception of their financial progress toward retirement. A survey the organization conducted found that retirees who receive funds from multiple sources are more likely to feel they’re doing okay financially.
Economic, political, and other factors can cause stock market volatility; precious metals, though, tend to have an inverse relationship to stocks, with a track record of rising when stocks decline.
With finite amounts of gold, silver, platinum, and palladium available in the world and a growing number of industrial and other applications, the demand for precious metals has remained considerable. Between 2000 and 2023, gold, silver, platinum, and palladium prices all increased, and in December 2023 gold reached a historic high of $2,315.39 per ounce — an increase of more than 770% from its lowest price in 2000.
Yet people often don’t realize they can put precious metals in an IRA, according to Diehl.
“I’ve been surprised by how many well-informed investors have no idea how easy it is to roll over part of an IRA into a self-directed precious metals IRA,” the U.S. Money Reserve president says. “Gold is security in the face of economic and political storms — and it has been for generations.”
