Diversify Retirement Assets with a Gold Backed IRA Account

Today’s investors are seeking much more variety in their portfolios than what they can get by investing in stocks, bonds, and mutual funds. While these more “traditional” investment options may have provided nice returns a decade or two ago, they have recently caused investors numerous sleepless nights, with very little return to show for it.

Given that, many investors have begun to look towards gold and other precious metals for their retirement portfolios. Metals have long been an investment option that has offered the opportunity for both growth and protection – and today it has again become an asset of choice, especially for those who are fast approaching retirement.

Where Gold Fits into a Retirement Portfolio

There are a number of advantages to adding gold into one’s retirement portfolio. These can include:

  • Growth – Throughout history, gold has had the ability to maintain – and to continually increase – its value. This is why gold is oftentimes seen as way to preserve and pass on wealth from one generation to another.
  • Diversification – Due to its negative correlation to stocks, gold is seen as a way to diversify a portfolio. This is why adding gold to a portfolio that already contains more “traditional” investment vehicles like stocks and bonds can help in reducing overall volatility, as well as risk.
  • Asset Protection – Because of diversity and reduced risk, gold is also essentially seen as a way to protect portfolio assets overall.
  • Hedge Against Inflation – Gold has also been a great tool for hedging against inflation. This is because the price of gold has always tended to increase when the cost of living goes up.
  • Supply versus Demand – Over the past several years, the increased wealth of many emerging markets has increased the demand – and therefore the price and the value – of gold. This has in turn increased the demand for this metal among investors.

How a Gold Backed IRA Works

Many investors are already familiar with the IRA, or Individual Retirement Account. Since their beginnings in the mid-1970s, these accounts have offered investors the opportunity to set aside funds and allow them to grow on a tax deferred basis until withdrawal.

A gold backed IRA can be set up as either a traditional or a Roth IRA, providing all of the same tax related benefits that these types of IRA accounts allow. For example:

Traditional IRA

With a traditional IRA, many investors are allowed (based on certain income guidelines), to deduct some or all of their annual contribution. Gains in the account are allowed to grow tax deferred, which can help to really compound the growth in the account over time.

Roth IRA

Those who own a Roth IRA are not allowed to deduct their annual contributions. However, gains in the account are allowed to grow on a tax free basis, and the withdrawals from the account are also allowed to come out tax free. This can be a substantial benefit to retirees who are living on a fixed income and need as much income as possible, without having to hand over a percentage of that income in tax.

For both a traditional and a Roth IRA, investors can contribute a certain amount each year – up to a maximum annual limit. For 2014, this limit is $5,500 for investors who are age 49 and under, and $6,500 for those who are age 50 and over.

Allowable Metals

When investing in a gold backed IRA, it is important to follow the rules that are set forth by the IRS (Internal Revenue Service) in terms of what is – and is not – allowed to be placed inside of the account. This is because not all types of metals are IRS approved for inclusion in a self-directed IRA.

According to the IRS, the allowable types of gold that may be placed in an IRA account include the following:

  • American Eagle coins
  • Canadian Maple Leaf coins
  • Australian Kangaroo Nugget coins
  • Austrian Philharmonic coins
  • U.S. Buffalo Gold Uncirculated coins (not including proofs)
  • Credit Suisse – Pamp Suisse Bars .999
  • Bars and rounds that are manufactured by either a NYMEX or a COMEX approved refiner or assayer, or by a national government mint and that meet the minimum standards for fineness

In addition to gold, investors may also place silver, platinum, and palladium metals into a precious metals IRA account as well. The allowable metals in these categories include:

Silver

  • American Eagle coins
  • Canadian Maple Leaf coins
  • Australian Kangaroo Nugget coins
  • Austrian Philharmonic coins
  • Mexican Libertad coins
  • Bars and rounds that are manufactured by either a NYMEX or a COMEX approved refiner or assayer, or by a national government mint and that meet the minimum standards for fineness

Platinum

  • American Eagle coins
  • Canadian Maple Leaf coins
  • Australian Kangaroo Nugget coins
  • Austrian Philharmonic coins
  • Isle of Man Noble coins
  • Bars and rounds that are manufactured by either a NYMEX or a COMEX approved refiner or assayer, or by a national government mint and that meet the minimum standards for fineness

Palladium

  • Bars and rounds that are manufactured by either a NYMEX or a COMEX approved refiner or assayer, or by a national government mint and that meet the minimum standards for fineness

Based on Internal Revenue Service rules, the minimum fineness standards for precious metals IRAs is .995 for gold, .999 for silver, .9995 for platinum, and .9995 for palladium.

It is important that investors follow the rules regarding what types of metals can and cannot be placed inside of their gold backed IRA accounts. Otherwise, they could lose the tax advantaged status of their IRA account if it is discovered that a non-allowed metal has been placed inside of the account, either intentionally or unintentionally.

The Bottom Line

When investors are contemplating what type of financial vehicles to include in their Individual Retirement Accounts, gold and other precious metals should be highly considered. This is because these vehicles can provide a number of advantages that more traditional options such as stocks, bonds, and mutual funds simply cannot – and metals can offer these benefits without all of the ups and downs and vast volatility that is oftentimes found by investing in the stock market.

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