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.
Investing in the stock market gives investors a chance to earn spectacular gains but with the risk of loss on every trading day. As an alternative, some investors look for financial opportunities outside of traditional paper assets.
Tangible assets, such as gold, are clever ways to diversify a portfolio with a steady increase in value. However, investing in gold requires a professional who can oversee these processes. Take a close look at what a precious metals IRA custodian can do for the average investor today.
Prior reading further, it is important to acknowledge that investing your savings is a not easy. When it comes to incorporating precious metals into your investment portfolio, how can you tell which companies are reliable?
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Learning About Gold IRA Custodians
A gold IRA or Individual Retirement Account custodian is essentially an account manager. These professionals have specific certifications when it comes to tangible assets in the financial world. For example, an investor's traditional IRA administrator wouldn't have the same skill set as a gold IRA professional.
Gold IRA custodians don't manage funds that are simply on a computer screen. They're in charge of overseeing precious metals purchases, shipping, and asset storage options. Being a custodian is a much more demanding job than a standard finance consultant.
Gold IRA custodians know how to guide an investor through account setup, funding, and purchasing precious metals. Custodians also consult with the investor about tax implications, such as early withdrawals versus distributions taken during retirement.
It's the custodian's job to facilitate all transfers and purchases within the account. Investors cannot perform these duties on their own. Their presence protects the account as a tax incentive by the United States federal government. Custodians simply make all transactions simpler for the investor because the work falls solely on the custodian's shoulders.
Exploring the History of Precious Metal IRA Custodians
The history of the gold IRA custodian begins in the mid-1970s. The United States government passed a set of laws referred to as the Employee Retirement Income Security Act. In essence, this act created the traditional IRA.
Congress wanted citizens to have another pathway to retirement besides an employee-driven plan. People who didn't have access to a retirement plan could now start one with as much ease as activating a checking account.
However, these IRAs were limited to paper assets, such as mutual funds, bonds, and stocks. The Taxpayer Relief Act of 1997 was the next step toward enhanced investment freedom. In this package, citizens were allowed to hold precious metals as an investment option. It also laid out the rules for managing these accounts. As a result, the gold IRA custodian arose from this mid-1990s law.
By this point, investors could see how gold rose in value over time. They were now free to select certain precious metals for their portfolios. As the popularity of gold IRAs grew, more custodians were available for hire.
Breaking Down Custodian Duties
Reputable gold IRA custodians perform a variety of duties for the investor. Initially, custodians activate an account. They'll link it to their omnibus account, which is an accounting device that allows the custodian to perform financial transactions on behalf of the investor.
Afterward, custodians work with the investor to fund, buy and sell precious metals. Investors should also receive advice about distributions, tax incentives, and other information.
A duty that's unique to the gold IRA custodian is asset inventorying. Custodians work with a depository or secure building to hold investors' precious metals. Custodians should know how many products are stored at the depository at all times. They'll even have a rough value for the investor as the items appreciate in storage.
Lastly, custodians issue statements and answer any questions for the investor. Because they're essentially a caregiver for the account, custodians should have the proper credentials to operate in the financial marketplace. Asking about their certification, for example, is a great way to find out if a custodian is legitimately employed.
Knowing Gold IRA Custodian Limitations
Investors should also understand which services gold IRA custodians do not offer. These professionals should be seen as account middlemen. They simply offer a conduit for investing in precious metals.
They won't offer any financial advice or suggestions. Custodians ask for an investor's order when it comes to adding products to the IRA. The only suggestions custodians will make involve appropriate investment products.
For instance, custodians will tell the investor if they can or cannot add a gold item to the account. These professionals aren't finance or tax experts. The investor has to pick and choose the items that enhance their portfolio.
Custodians don't offer any insurance on an account, but the FDIC does cover an investor's assets up to $250,000. Keep this fact in mind as investors open and fund an account.
Regulating Custodian Operations
Investors do have a way to verify that a gold IRA custodian is in good standing with the financial world. These professionals are also known as nonbank trustees or NBTs. To be recognized as an approved NBT, custodians must submit their information to the IRS.
In conjunction with the United States Treasury, the IRS approves a professional's status and lists him or her on its website. Investors can look at these lists to verify a custodian's status. There are several steps that custodians must take to be approved by the federal government.
They must submit proof that they have a legitimate business, a strong financial background, and a physical address. In addition, custodians must prove they have financial stability and are bonded to operate as an NBT. It can be difficult to become a custodian, which means that only the best names can be listed with the IRS.
Discovering Gold IRA Options
The most common type of gold IRA is the traditional version. Investors can add either pre- or post-tax income to the account, such as from rollovers or basic contributions. Currently, investors can add $6,500 to the gold IRA each year. For investors over the age of 50, they can contribute up to $7,500 each year. Any distributions in retirement are taxed at the current rate.
A Roth gold IRA operates in the same manner as traditional types, but there's no tax on the distributions in retirement. Any tax is collected as investors contribute to the account. The same yearly limits apply to both the standard and Roth gold IRAs.
SEP or Simplified Employee Pension gold IRAs are designed for investors who're self-employed individuals. The employer contributes up to 25 percent of an employee's pay to this account, which creates a nest egg for them in retirement.
The final account offered by custodians is the SIMPLE IRA or Savings Incentive Match Plan IRA. It's another employer-employee plan for retirement purposes. However, most investors usually look for either traditional or Roth gold IRAs for their financial future. The SEP and SIMPLE plans are geared more toward employers than the everyday investor.
Analyzing Fee Structures
There will be more fees on a gold IRA account when compared to a traditional IRA. The custodian must perform many duties in association with each account, which means even the best custodians will have fees charged to the investor.
Initially, investors pay a setup fee. Most custodians charge around $50 for account activation, but it can balloon up to even $250. Asking the custodian for a list of fees before starting the account is a good way to compare professionals. An expensive setup fee may be a red flag. However, it's only a one-time fee to get the account up and running.
There should be an annual or maintenance fee on the account too. This fee covers administrative costs, for example. It's typically a flat rate that can range from $100 to $400. Investors should note that these fees can change from year to year based on prevailing costs. However, investors should receive a notice before any fees change.
Unlike paper assets, tangible assets must be stored and maintained regularly. With this fact in mind, the custodian might charge storage costs on behalf of the depository. These charges can differ between custodians.
Ideally, investors should work with a custodian who charges a flat rate on storage. As a result, investors know exactly what they're paying each year without any confusion.
However, some custodians use a sliding scale. The storage fees are based on the precious metals value. If an investor holds a lot of precious metals, this fee can be significantly higher than just a flat rate. Always verify storage costs with the custodian to protect those assets.
Additionally, ask the custodian about any account minimums. Some accounts have no minimum amount, whereas others require hundreds or even thousands of dollars kept as an account holder. Be sure to stay above these minimums to avoid extra charges.
Investors should note that fees are part of doing business with a gold IRA custodian. They should be fair amounts, however, so reading over the fee structure is always a good idea.
Storing the Precious Metals
Investors can only earn tax incentives on gold IRAs when the precious metals are stored in an IRS-approved depository. They cannot hold gold and silver at home in a safe, for example. These depositories aren't found in every city across the nation either. There are only a handful of depositories that are officially approved for gold IRA use.
First State, CNT, International Depository Services, Delaware, Brinks Global Services, and Loomis depositories are all IRS-approved facilities. Most custodians have relationships with one or more of these entities too. Investors can usually pick their depository or simply work with the custodian's affiliates.
Every depository is secure, so investors have no worries about their investments. They'll receive tracking information and receipts regarding their deposits. The precious metals never leave the facility until they're withdrawn in retirement.
Knowing About Industry Scams
The gold IRA industry has a lot of online scams that can confuse investors. Understanding what to look out for can protect every investor. Ideally, avoid websites that advertise the "best gold IRA custodians." These sites are rarely legitimate and typically confuse investors into trying a questionable custodian.
Alternatively, perform an independent search for a particular custodian. They might have a listing under the Better Business Bureau, for instance. Read over any reviews or complaints because the BBB is a reputable platform for consumer issues. There are other review sites, but the BBB is one of the most trusted entities.
Any business or individual with many negative reviews should be avoided. Investors who take the time out to write up a review are probably detailing the truth. They want others to know about their experiences. Take a look at many reviews to get a clear picture of the custodian. Multiple negative reviews may reveal a pattern that won't serve investors' needs.
The IRS also posts its list of approved NBTs. It's updated as often as possible, so investors should be able to find a reputable individual here. In addition, investors might also use word of mouth in this situation. A solid reference from a trusted friend can considerably streamline the custodian research time.
With plenty of research, a reputable custodian can be found and secured for account management. Investors should work closely with this individual so that their precious metals investment receives the proper attention. From tax implications to asset gains, these IRA accounts can produce a strong nest egg with the right professional guiding the investor through the years.
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