Whether you’re an amateur or a seasoned investor, you need to understand the importance of asset diversification to maintain a healthy portfolio and a secure retirement. When you own a self-directed IRA, your investment options are practically limitless.
Investing in precious metals is one of the many investment options you have with a self-directed IRA. Unlike the typical stocks, annuities, bonds, and mutual funds, precious metals like gold and silver don’t pay you any interest, but they have historically grown in value over the long term.
Including precious metals into your retirement portfolio may help in the following ways:
>> Minimize investment volatility and risk
>> provide a tax-efficient shelter for potential gains, and
>> Serve as a hedge in the event of an economic downtown.
However, you cannot hold the physical precious metal in your regular individual retirement account (IRA); there are specially designed precious metal IRAs for that.
If you are interested in using your IRA to invest in precious metals, this article is for you. Read on…
What Is a Precious Metal IRA?
A precious metal IRA is a form of self-directed individual retirement account specially designed to allow you to invest in a wide variety of unconventional assets, including real estate, art, and precious metals.
What Precious Metals Can You Invest in for Retirement?
You can invest in gold, platinum, silver, palladium, and other precious metals, but IRS has set specific purity standards that the precious metals have to meet:
>> Gold (99.5% pure)
>> Silver (99.9% pure)
>> Platinum (99.95% pure)
>> Palladium (99.95% pure)
Options for Using IRA to Invest in Precious Metals
>> Physical IRA investments in precious metal coins and bullion
IRAs are allowed to own certain precious metals, but you’ll need an IRA trustee or custodian for that. You will have to find an IRA trustee who is willing to set up a self-directed IRA and facilitate the physical transfer and storage of precious metal assets.
>> Indirect IRA investments via precious metal ETFs
If you don’t want to deal with the issues surrounding the physical ownership of precious metals, you can consider buying shares of an exchange-traded fund (ETF) that tracks the precious metal’s value.
>> Indirect IRA investments via precious metal mining stocks
Another option of investing in precious metals is to buy common stock shares of mining companies with your IRA. This idea doesn’t attract any federal-income tax-law problem.
How Much of Your IRA Should Include Precious Metals?
It depends on your financial situation. However, most financial experts recommend investing not more than 5% to 10% of your retirement funds in precious metals. Why so low? That’s because experts believe that:
1. The portfolios with diversified assets minimize the risk associated with market fluctuation. Investing more in one type of asset (precious metals, in this case) makes you vulnerable to market volatility.
2. Precious metals are easily accessible to you in times of trouble. In a way, they are as volatile as stocks. Also, when prices rise during market fluctuation, their value may fall once stocks recover.
3. Although precious metals are known to have historically held their value over the long term, they are not as dynamic in performance as other asset classes, such as stocks. If you invest too much in precious metals, you may restrict the growth of your retirement fund.
How Do You Make a Withdrawal From a Precious Metal IRA?
You have 2 options:
>> Depository Purchase: In this option, you can choose to have the depository purchase the precious metal from you and give you the value of the investment.
>> In-Kind Distributions: In this option, you have the actual physical precious metal shipped to you after you make the distribution.
Whichever option you choose, you’ll need to have a custodian initiate the transaction for you. And always remember that the same rules apply to your precious metal IRAs as normal IRAs.
About the author:
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He regularly writes for blogs at MoneyForLunch, Biggerpocket, SocialMediaToday, NuWireInvestor & his own blog for Self Directed Retirement Plans. If you need help and guidance with traditional or alternative investments, email him at or visit www.sdretirementplans.com.