In early August, gold prices hit an all-time high, eclipsing over $2,000 per troy ounce. In the midst of heightened economic and social uncertainty, investors are looking for something tangible that will last. Once again, they’re turning to gold as a standby option. But why?
For one, gold appeals to investors who enjoy owning an asset that they can see, touch and hold. Precious metals can even provide some emotional support during periods of uncertainty. Gold investments can also play a critical role in a longer-term diversification strategy, such as planning for retirement. Indeed, for skittish Baby Boomers, gold investments can be appealing retirement investments that act as portfolio shock absorbers during volatile times.
So, should you invest in physical gold? Whether you’re looking for peace of mind, portfolio diversification, or simply want to take advantage of the rising price of gold, there are a few things you should know about investing in gold– especially if you’re considering investing for retirement. A closer look at self-directed IRAs, recent regulatory changes and precious metals storage can offer an answer.
Investing in gold can be beneficial for a variety of reasons, including:
For those looking to gold to bolster their retirement options, they should consider adding gold investments to their individual retirement account (IRA).
While an IRA is meant to provide investors with a flexible, tax-advantaged account that can be used to save for retirement, most traditional financial services firms only allow investors to hold approved stocks, bond, mutual funds and CDs in their IRA.
In fact, the IRS allows self-directed IRAs to hold gold, silver and platinum coins. Investors can also hold gold, silver, platinum and palladium bullion that meet certain standards. Aside from gold, the three primary precious metals most often found in self-directed IRAs are:
Keep in mind, though, that you can’t just store your gold investments in your closet. Recent regulations from the IRS require savvy storage for any IRA-owned precious metals.
Some investors think they can save money on storage by buying gold or precious metals for their self-directed IRA through a limited liability company (LLC), and then storing the metals at home or in another place of their choosing. However, that’s a misconception. For one, establishing and maintaining an LLC can be pricey. Investors don’t realize that they could end up paying as much or more, while also adding administrative complexity. In addition, the IRS forbids investors from storing gold and other precious metals that are part of their IRA at home.
Unfortunately, if you do decide to invest in gold as part of your self-directed IRA, your storage options are limited. Similar to traditional IRA deposits, your gold deposits must be under controlled access, in order for the IRS to track and tax them. This means they must be stored in an IRS-approved licensed bank, credit union or trust company.
Some investors use Precious Metals IRA custodians who offer overseas storage options. But these facilities may operate with lower security standards than those in the U.S. And, should the assets need to be retrieved quickly, these offshore arrangements may delay timely retrieval.
For investors looking to skirt the rules and store their gold investments at home or in a storage facility, it’s worth noting that, if IRA-owned precious metals aren’t stored correctly, they no longer qualify as an investment with tax benefits. Instead, they’ll be considered collectible items.
While stable, liquid and traditionally safe, gold investments are not guaranteed to glitter for every investor. Keep in mind that, with gold and self-directed IRAs, the responsibility falls on the investor to ensure they’re undertaking due diligence. That means that investors must educate themselves on the proper storage, as well as tax concerns that come with gold investments and self-directed IRAs.
Another thing to keep in mind is that regulations around self-directed IRAs and non-precious metals can change. Be sure to contact your IRA provider if you have questions about investing in gold using IRA funds. Consulting a financial advisor or working with a precious metals broker can also help keep you abreast of evolving regulations.
To learn more about this and related topics, you may want to attend the following webinars: All About Asset Allocation, Personal Finance & Investing Fundamentals 2.0, Investing Basics. This is an updated version of an article originally published on October 6, 2017.]
©All Rights Reserved. December, 2020. DailyDACTM, LLC d/b/a/ Financial PoiseTM
John Drachman, Financial Marketing Writer, is an IABC Gold Quill-winner for editorial excellence, He has developed marketing communications initiatives for hundreds of financial services clients over three decades. He has also served in executive positions at Putnam and Pioneer Investments. Do you need to turn complex ideas into actionable messages? Discover more about John on…