Retirement is a time when people enjoy a leisurely lifestyle and reap the fruit of their lifelong labours. While this is true in an ideal situation, many retirees have faced untold hardship for one reason or the other. It could be that some of them did not save for rainy days or prepare for retirement or they lost their life’s savings or made wrong investments.
Whatever the reason may be, being without a means of livelihood at retirement is not something anyone should experience. That is why a lot of investment companies have come up with schemes to help working class individuals or anyone who earns an income to prepare for retirement.
One asset that many people are buying into these days is gold because it is considered to be a great hedge against inflation. You can take it a step further by holding the physical asset in a tax protected account which is known as Gold IRA (Individual Retirement Account).
There are many investment companies that have expanded their investment plans to Gold IRA. However there is no Vanguard gold IRA in case you are one of those asking. While there is no direct Gold IRA plan from the Vanguard Group, there are several great IRA companies that offer precious metal IRA directly.
You can also research the company alongside other reputable investment firms to ascertain what plans they offer and which one is best for you. In the meantime, this article will give you the basics of Gold IRA so that you will know what it is all about and what to look out for when you go shopping for the right firm to work with.
What is Gold IRA?
A gold IRA also known as precious metals IRA is an Individual Retirement Account that holds gold or other precious metals for the account holder. This account functions just like the traditional IRA however; the holders of this account can hold the assets physically in form of coins or bullions or other securities related to precious metals.
It is important to note that this account can only be opened through a custodian or broker and must be separate from other conventional retirement accounts. However, the rules for contribution limits and distribution are the same across board. So if you want to open this type of account you must seek out custodians or companies that specialize in the niche. This is because they are the ones that will be able to handle everything that has to do with all the paperwork and tax issues required for maintaining a gold IRA. Visit https://www.irs.gov/retirement-plans/traditional-iras to find out the rules for traditional Individual Retirement Accounts.
Types of Gold IRA
There are different types of precious metals Individual Retirement Account and they are as follows:-
Traditional Gold IRAs: This type of account is funded with pre-tax dollar which means that contributions and earning in the account are not taxed until it is time to make withdrawals. When the holder retires and decides to withdraw the earnings, that’s when they pay tax. The eligibility for this type of account is a steady income and the contribution limit is $6,500 or $7,500 for people who are 50 and above as the tax year of 2023. If you withdraw before you are 59 and half years, you will pay a 10% penalty and taxes. However, you must start making withdrawals once you are 73 years old.
- Roth Gold IRAs – The money used to fund this account is after tax which means that there is no tax advantage for the holder. Additionally, when the account holder retires and it is time to take distribution, they will also pay taxes on the distributions. Eligibility for this account is an income that is not more than $153,000 for individuals a but married couples have a limit of not more than $228,00 as at 2023 tax year. Contribution limit is the same across board.
- SEP Gold IRAs – These are plans that are available to self-employed persons or/and their employees. Like the traditional variant, holders of this account only pay tax on withdrawals after retirement. The contribution limit approved by IRS is only 25% of their remuneration or $61,000as at 2022 but is now $66,000 for 2023. Click here for more information.
How to Set up a Gold IRA
The following are steps to follow if you want to start investing in precious metals through your Individual Retirement Account:-
Select a Custodian
This type of account is known as a self-directed IRA and requires a custodian. This custodian can be a bank or any financial institution that is approved by IRS. The custodian is authorized to help you hold alternative assets such as precious metals in your retirement investment portfolio.
Choose a Dealer
It is your prerogative to choose the dealer that you want to buy from. When you do, you then go on to send money to the dealer through your custodian. Note that the law does not permit you to make the purchase directly.
Ensure that the dealer that you want to buy from is legitimate. Check for membership in any professional group such as Professional Numismatists Guild (PNG), American Numismatic Association (ANA) or Industry Council for Tangible Assets (ICTA). You can also ask your custodian to make recommendation as they may have more knowledge in that regard.
Decide What You Want to Buy and Choose a Depository
Decide on the product that you want to buy whether American Gold Eagle, South African Krugerrand, Canadian Gold Maple Leaf or Australian Gold Kangaroo. When you have made a choice, look for an approved depository where it will be sent to. Bear in mind that you cannot store the precious metal you buy for your IRA by yourself.
You can either let your custodian recommend or you can choose one for yourself. However, you must ensure that they meet the IRS’s requirements.
Complete the Transaction
This is the final step after you have found a custodian, the best dealer for you and the depository of your choice. Bear in mind that it is the custodian that will take care of the payment and then liaise with the dealer to ship your precious metal to the depository.
Conclusion
Preparing for retirement is very essential for every one of us and we have discussed one investment that we feel is a solid one. Setting up a gold IRA should not be complicated. All you need to do is to do your due diligence so that you will not fall into the wrong hands (like working with the wrong custodian or dealing with a scam gold dealer).