For those of you reading this who may not have the slightest clue what an IRA is, allow me to explain. An IRA is an “Individual Retirement Account” that allows you to save cash, stocks or bonds for retirement, without contracting any tax deductions on these amounts or deferring any tax payments. It can be opened at any financial institution and interestingly enough, a sanction has been put in place which charges at least 10% on any amount a person under fifty-nine (59) years of age draws from the account.
This rightly is so because it is a retirement account and the government aims to discourage your raiding it until absolutely necessary. Once you pass fifty-nine years and are withdrawing cash, you are not charged. This is referred to as “qualified distributions”.
There are some little known facts about IRAs:
- There is a limit on the amount you can invest in an IRA which is $5,000 yearly before fifty years old and $6,000 yearly thereafter. If you contribute more than the maximum allotted amount, a 6% deduction is made each year.
- You may open more than one IRA, however, the total amount deposited in all the accounts per year cannot exceed the $5,000 or $6,000 maximum balance
- You can start contributing to an IRA from as early as a child: once you start making an income. The maximum age to deposit in a Traditional IRA, however, is seventy-and-a-half years old while senior citizens may save in a Roth IRA indefinitely (we will not get into the technicalities of a Roth vs. Traditional IRA)
The bottom-line is being aware of the rules, and investing early and regularly in your IRA.
With this in mind then, what is a Gold IRA?
This is also referred to as a “Precious Metals IRA” (http://2gov.org/gold-ira/precious-metals/) and unlike the traditional IRAs which allows you to save paper-based assets, this IRA allows you to hold platinum, gold, silver or palladium (a silver-white element of the platinum group) coins or bullions. We will focus on the gold IRA specifically. It is an advisable option to own one since the value of gold, especially, is on the increase and is axiomatic: you do not need to question whether you will benefit from owning a gold coin. On a “rainy day” all you need to do is trade that in for some cash and the sun starts to shine through! This coin or bullion must meet the “IRS Finesse Standards” to be held in an account which has to be kept at a depository that the IRS determines and approves since it is of such great value. The account holder may liquidate their IRA metals for cash or take physical possession of them, but either way there is a huge benefit to be derived since gold is a “long-term protection against inflation”.
How do I go about establishing a Gold IRA?
According to Scottsdale Bullion and Coin (SBC) there are six steps in setting up a Gold IRA:
- Select Which IRA Plan You Will Use: There is the option of using a local storage plan where the metal is sent to you, the IRA manager, and you determine where to store it. The other is a national storage plan where the precious metal is sent directly to be stored in a national depository and does not pass through your hands.
- Figure Out How You Will Fund Your IRA: The most widely available option is doing a roll-over of funds from your previously owned (paper-based) IRA. This suggests then that opening a precious metals IRA comes after you have been investing in a traditional IRA then decide to branch off.
- Select Which Precious Metals You Wish To Invest In: Your precious metals dealer will advise you on the standards and requirements and suggest which metals to invest in.
- Invest in The Precious Metal You Have Decided To: Gold, silver, platinum and palladium coins or bullions are all allowed, but a minimum requirement on the fineness of the metal is stipulated by the IRS as stated further up.
- Purchase and Pay for the Precious Metal: With the local storage option, the Directed Trust Company you selected will fund you and you will fund the entity with which you are conducting the business. With the national storage plan, the Directed Trust Company will directly fund the entity with which you are conducting business. With this option, the money or metal does not pass through your hands.
- The Precious Metal is Now Available: It is now shipped to the local storage you selected or to the national depository and you have successfully established a gold IRA.
What are the benefits of owning a Gold IRA?
- There are tax benefits to be gained. Gold falls under the bracket of income investment that is tax-deferred, thus, investors can accumulate wealth on it without paying taxes. The only time you will be required to pay any tax is when you are withdrawing investments for distributions. This sort of tax incentive is not offered on many other investment options.
- The wealth gained is preserved. In essence, the same lavish lifestyle that the investor lives this year can be experienced in the next ten years without worries about financial stability/ instability. The condition of the economy will not affect your investment adversely and no other economic factor has a bearing on your wealth.
- Inflation does not affect the balance in your account. An investment in a precious metal allows you to maintain your purchasing power since it is rare and their value is inversely proportional to that of currency: as currency decreases the value increases.
- There is potential for growth. The decline in the value of currencies increases the value placed on acquiring precious metals as a safe haven against this economic downturn. The heightened value of these resources will only grow into the future since they are scarce and non-renewable.
In conclusion, it is apparent that there are two major types of Individual Retirement Accounts that an individual may choose from. The first of which is a regular IRA which stores cash, stocks and bonds: all paper-based. The second, and more profitable investment option, is a Precious Metals IRA which provides long-term tax-deferred retirement planning.