Scott R. Hillford
Author & Founder Gold Is Money 2
Disclaimer: Some or all of the companies reported here may provide compensation to us, at no cost to our readers. This is how we keep our reporting free for readers. Compensation and detailed analysis are what determines how companies appear on this website.
As an investor, it's difficult to watch your hard-earned money ebb and flow on the stock market. An economic downturn may occur at any time. This reality prompts many investors to look for alternative investments.
Starting a gold IRA or Individual Retirement Account is a common choice. You may have considered starting your own gold IRA at home. Investors should step back and research gold IRA details before choosing an at-home method. There's a fine line between legal and illegal practices according to the IRS.
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Learning About Gold IRAs
Understanding gold IRAs is the first step toward this alternative investment. This account operates similarly to traditional IRAs. Investors deposit pre- or post-tax funds into the account. Rather than using those funds on paper assets, such as stocks or bonds, they're used to purchase gold or silver coins and bars.
The precious metals must be IRS-approved products, which are subsequently stored in a secure facility called a depository. Investors wait until retirement for any distributions.
By this time, precious metals may have gained value in the marketplace. Liquidate them as cash distributions, or investors might opt to take physical possession of the coins or bars.
By following these gold IRA rules, investors gain tax incentives. They don't pay any income taxes on the products until retirement. The IRS is extremely strict about its IRA rules so that taxation is fair for every party. If investors hold a gold IRA at home, there's no regulation regarding these specific rules. As a result, there are no legitimate gold IRAs held at home.
Popularizing "Home" Storage with Advertising
There's been confusion in the gold IRA marketplace because of deceptive advertising. Investors may have seen commercials or images depicting a satisfied customer posing with his gold bars and home safe. The term "home storage gold IRA" implies that investors can keep the precious metals at home with all the tax incentives of a gold IRA.
No home storage is allowed with a legitimate gold IRA account. Any IRS-approved precious metals must be stored in a depository. Investors who try to take tax incentives for gold, silver, or platinum stored at home may be breaking the law.
Investors always have the option of storing gold at home to protect their financial futures. It doesn't have any tax incentives, but it can be sold to a dealer or other party at any time. Precious metals don't produce dividends, unlike paper assets. Any profit stems from a value gain over many years.
Gold, silver, and other precious metals have historically grown in value over the decades. Investors know that tangible assets can be bought, sold, and bartered over as opposed to paper assets and their face value. Alternatively, hand them down to loved ones as generational wealth. These precious metals may not be in an official gold IRA, but they still have value when sold as a long-term investment.
Knowing IRS Rules Regarding Gold IRAs
The IRS requires a trustee or custodian to oversee any legitimate gold IRA. These individuals act as account managers. Investors work with the custodian to purchase and store precious metals in an appropriate depository. In return, investors pay account or maintenance fees to the custodian. These charges might be monthly, quarterly, or annual charges depending on the custodian.
Additionally, the custodian verifies each precious metals purchase as an appropriate contribution to the gold IRA. Gold coins or bars must be at least 99.5 percent pure. Alternatively, only 99.9 percent pure silver is allowed in a gold IRA. Investors may want to add palladium or platinum to their accounts too. Look for 99.95 percent purity with these precious metals.
These purity standards originate from an IRA law that involves collectibles. No IRA can hold collectibles, including antiques or impure precious metals. Because of this law, purity standards must be upheld with every precious metal purchase.
The IRS also has limits on the funds added to a gold IRA account. Every tax year can have different values, so investors should review contribution levels with their custodians. For 2022, investors under age 50 can contribute up to $6,000. Older investors can take advantage of a higher limit of $7,000.
Investors who want to buy more than the contribution limits have an alternative with rollovers. Using an existing IRA or 401(k) to fund the gold IRA requires a rollover; it's not considered a contribution. As a result, investors roll over any amount they desire.
Ideally, investing up to 10 percent of a retirement portfolio in a gold IRA is sufficient for diversification. A comfortable retirement is possible with your funds spread out across different investment types, including both tangible and paper assets.
Investors should always diversify as much as possible. As one fund takes a downturn, another investment might gain value. Maintaining an upward trajectory for the entire portfolio is the goal. There are no "get rich quick schemes" for retirement savings. Remember, there are no IRS rules regarding portfolio diversification. It's up to the investor to make that decision.
In the end, monitoring a personal residence for IRS compliance regarding gold IRAs is impossible. Allow custodians to perform this duty. Storing precious metals at home for personal wealth is always welcome, however.
Considering "Home" Storage Fees and Penalties
If investors decide to store precious metals at home, this scenario is entirely legal. Adding them to a safe or bank deposit box for safekeeping is their right. However, they can't claim any tax benefits from the purchases. If so, they face strict fees and penalties.
Keeping precious metals in your possession and declaring it a gold IRA to the IRS triggers costs that could be avoided otherwise. Because the products aren't in a depository, the IRS considers any precious metals at home as a distribution.
Investors who're older than age 59-1/2 will pay income taxes on the entire amount at home. Depending on the precious metals value, this tax can be substantial. If an investor is younger than age 59-1/2, there are income taxes and a 10-percent penalty fee on the precious metals.
There is a good reason for this penalty, which applies to all IRA types. The government encourages all investors to keep their retirement funds until the proper age. These penalties discourage borrowing from the fund for unnecessary purchases. Because precious metals stored at home are technically a distribution, the penalty fee applies.
There are a few exceptions to the 10-percent penalty, however. Gold IRA owners who're paying for higher education expenses, buying a home for the first time, or covering their expenses as permanently disabled individuals often qualify for an exception.
However, these exceptions may not apply to an investor with precious metals stored at home. A tax professional can clear up any legal discrepancies. Preferably, store the precious metals at a depository to avoid these tax and penalty scenarios.
Explaining Gold IRA Confusion
Advertisers take advantage of some complicated laws surrounding gold IRAs and home storage to generate sales. There is a particular scenario where an investor can perform precious metals purchases and secure the products in an approved depository.
This process can only be legally performed if the gold IRA or self-directed IRA is owned by an LLC or Limited Liability Company. For example, an investor creates an LLC with the state.
The investor becomes the LLC's manager with access to the gold IRA as an account holder. With this relationship documented in writing between the gold IRA and LLC, the account holder can now take control of the transactions.
Because the account holder is merely an LLC manager, any withdrawals should remain with the LLC's checking or savings accounts. If the account holder takes personal possession of the precious metals or liquidated funds, these transactions are deemed illegal by the United States government.
This scenario has confused many investors, which taints the gold IRA's legitimacy in the financial world. It's uncommon to create an LLC solely for gold IRA control. This situation may be a red flag for a potential IRS audit. Ideally, investors should follow the rules by working with an experienced custodian and depository.
Reputable custodians and precious metals dealers don't typically sell or give away home safes along with their services. These professionals know that IRS-approved depositories are the only locations allowed for investment storage. Next time, you'll know which advertisement is deceptive or truthful. It'll help you narrow down those choices when considering a gold IRA account.
Looking at Legitimate Account Setup
Opening a gold IRA starts with researching companies that offer this service. Every day banks don't usually have these financial products. It's much more difficult to manage tangible assets compared to paper assets. Gold must be stored; paper assets are typically numerical values on a computer screen.
Begin with a look at precious metals dealers. Their websites typically have custodial partners listed on a main page. Investors can contact either the dealer or custodian to activate a gold IRA account.
Opening an account requires funding. The custodian or dealer will cover the setup basics, such as a minimum amount due. However, each company is different regarding account minimums. As a result, researching various companies to verify this information is critical. These minimums can be as high as $50,000 or as low as $2,500.
Select your funding source with care. Using a checking or savings account means that the funds have already been taxed. Investors often turn to their 401(k) accounts for gold IRA funding, for example. These funds are pre-tax dollars. Rolling part of the balance into the gold IRA means that no taxes are due on the transaction.
The custodian can work with an investor's account administrator to facilitate this process. Investors sign paperwork regarding the rollover to get the process started.
Depending on the banks involved, the transfer might take a few days. The custodian contacts the investor when the account is finally funded.
Next, investors select the precious metals for the account. Custodians walk the investor through all the options. Choose from a combination of coins and bars, or investors might opt for a purchase of one product type alone. Custodians keep the investor on task by allowing only IRS-approved products into the gold IRA.
Investors must select a depository for their precious metals. In some cases, the custodian only works with one or two companies. Alternatively, the investor chooses a particular depository. There are only a handful of IRS-approved depositories across the nation, which makes the decision easier for most investors.
Investors receive a sales receipt and tracking number for this transaction. The custodian oversees the purchase, shipment, and storage of the precious metals. Investors will know where the products are at all times with the tracking number.
With the coins or bars secured at the depository, the investor can simply watch how those precious metals perform in the marketplace. They're safe and secure until retirement. Ideally, allow the account to gain value over several decades to see the largest return.
Narrowing Down Reputable Gold IRA Companies
After deciding on investing in a legitimate gold IRA, investors must research precious metals dealers, custodians, and depositories. Initially, perform an online search for a dealer. These companies sell physical gold, silver, and platinum for investment purposes.
Read over their policies regarding sales and gold IRA accounts. Many dealers assist with account setup so that they can arrange a sale shortly thereafter. It's common for dealers to have affiliates who perform custodial and depository duties. These industry relationships benefit investors because the precious metals sale and account setup comes as a package deal.
Ideally, select a dealer that offers custodial and depository names on the website. Investors can research these companies too. Every business has its responsibilities with your money. It's good to know about business reputations before investing thousands of dollars.
Select three or four dealers for further research. Take a look at their online reviews. Most established companies have plenty of reviews to read over. You'll find both positive and negative comments, which gives you a well-rounded picture of the company. Look for any unusual patterns, such as unclear pricing or shipment problems. These reviews help you narrow down your choices.
Don't overlook the Better Business Bureau website either. This organization posts reviews and complaints. Dealers who have customer complaints will often post their responses on this platform.
When companies work on resolutions with concerned customers, these actions show off their business ethics. Mistakes can happen, and rectifying the problem only improves the company's reputation.
Although there are additional costs associated with an official gold IRA account, investors benefit from legitimate tax benefits. Research precious metals dealers, custodians, and depositories before investing with any entity. This preparation puts you in control of your financial future from the start.
Let our expertise and analysis help you before you invest your savings by reading our list of the best companies!
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