What are the Options for Precious Metals in Self Directed IRAs?
When hard times hit economically, investors tend to get creative. They start looking for new investment vehicles that offer some combination of economic safety and solid returns, all of which partially explains the movement toward investing in precious metals using a self-directed or traditional IRA.
It’s not a difficult thing to do, but you have to know something about the history, the guidelines and the steps.
What follows is a walk through all of those, focusing mostly on the advantages, but also with a breakdown of some of the tradeoffs and some appropriate precautions.
The History
To get an idea of the relationship between precious metals and self directed IRAs, the simple fact is that they didn’t have one before 1997.
That’s when the Tax Payer Relief Act passed that year made it possible for precious metals to be held in a traditional IRA, and that opened the floodgates for savvy investors to start examining this particular option.
The Strategy
Simply put, those who purchase gold, silver, platinum or palladium are making a bet. The bet is that the market will decline along with the economy, both in America and globally.
If that sounds familiar, it’s probably because that’s basically where we are now, economically speaking. Runaway inflation is wreaking havoc on the economy along with the pandemic, and precious metals are considered one of the best investment hedges available against inflation.
There’s a significant hunkering-down effect at work, too. Gold has always been considered a good, solid option during uncertain times, and this particular stretch is no exception to the rule.
There are those who add a doom-and-gloom twist to the strategy. Throw a penny out the window of a building overlooking a busy street—say, Wall Street, for instance—and you’ve got a solid shot to hit an economist or a financial expert who thinks that our money-based economy is about to go completely down the toilet, while will leave precious metals as the only remaining currency option.
As fanciful as that belief may seem, the truth is that in the current climate, IRAs and precious metals go together hand-in-glove. Adding precious metals to an existing IRA or starting one based on precious metals from scratch is a solid diversification strategy, so it’s at least with some serious research.
The Steps and the Process
If you do decide to take the plunge and buy precious metals with a self-directed IRA, the basic steps to do it are refreshingly simple.
Start by establishing an account with an administrator who handles self-directed IRAs. Then research the various metals you’re interested in, and when you’ve narrowed your search to a single metal and decided how much to invest, make the purchase through your chosen precious metals dealer.
A word of caution is necessary here, though. The IRS has its hands in on the regulatory process for metals like gold, silver and platinum, so make sure you consult their website to make sure you’re making a kosher buy.
Once you make the buy, the metal will be stored in a depository. You get to choose the depositor, but it has to be on the approved IRS list. There’s a fee for this storage, so make sure you incorporate that into your investment plan and your overall budget.
The Self-Directed Part
It’s also important to note that self-directed IRAs are just that—you’re the investor, so you get to call the shots.
Whatever third-party administrators you work with to engineer the transactions are disqualified by the IRS from doling out any kind of investment advice, which means you have to seek out a different third party as you do your homework and research.
That usually means consulting with an attorney who knows the tax code inside out, possibly along with a CPA or a qualified financial advisor. That way you cover all the bases when it comes to the ins and outs of your purchase, and you’re aware of the risks and tradeoffs in addition to the benefits.
It may seem like a lot of extra work, and in some ways it is, but the possible payoff is worth it. A lot of investors are making good money using self-directed IRAs to invest in precious metals, and they’re helping to ensure their financial future as well.
And at the end of the day, there’s no reason you can’t be one of them if you like what you’re reading here.
