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How To Invest In Gold With Part of Your Retirement Fund
Certainly, saving property for retirement is one of the smartest decisions you can make for your future. However, how to save and/or how much to save can be puzzling. A recent survey showed that only 44% of Americans have calculated how much money they need to live comfortably in retirement, and only 18% of workers feel they will retire comfortably. You can change your fate for the better by taking the time to layout your savings plan, and diversifying your portfolio. The safest fixed-income investments usually pay tiny returns, and the inflation risk is still worrying. Hence, as a responsible saver you should think of investing some of your IRA money in precious metals especially gold. Here is how you can do that.
Physical IRA Ownership of Gold and Bullion
Did you know that the Internal Revenue Code permits Individual Retirement Accounts (IRAs) to own certain gold coins, as well as gold bullion that meet quality standards? For instance, an IRA can own Canadian Gold Maple Leaf Coins and American Gold Eagle coins that are nearly 100% pure. Some famous gold coins such as the South African Krugerrand are off limits, and so are gold bars that are not sufficiently pure. The gold coins and bars must be held by a trustee not the IRA owner. This means, you cannot buy gold coins or bars with your IRA and bury them in your backyard or stash them in your safe. These tax regulations apply equally to traditional IRAs, Simple IRAs, Roth IRAs and simplified employee pension (SEP).
The biggest challenge with IRA ownership of gold is locating a trustee that will be willing to setup a self-directed IRA, take care of the fund transfer to gold dealers and handle the physical transfer and storage bullion or coins. The major brokerage firms are unwilling to play, leaving you with just a handful of choices including American Estate & Trust, Sterling Trust Company, GoldStar Trust Company, Entrust Group and the LLC. Most trustees will facilitate the physical storage of bullion or coins with the Delaware Depository Service Company.
Normally, your trustee will charge a onetime IRA setup fee of $25-$50, annual management fee for handling paperwork and providing account statements perhaps $75-$250, and an annual storing and insuring fee of $125-$250. You may also have to pay additional fee for various transactions such as account contribution and distribution. As an IRA owner, you are normally on your own when it comes to locating a gold dealer to buy coins or bullion from the account or to sell bullion or coins to the IRA. An example of such dealer is USAGOLD-Centennial Precious Metals.
Indirect Gold Investment Through Mining Stocks and ETFs
Physical ownership of gold assets by IRAs has become popular in the last few years primarily because of the high demand of gold and the surging prices of this precious metal. Still, it is not for everyone. According to recent estimates, only about 5% of IRAs own gold coins or bullion. If you are uncomfortable in having your IRA own bullion or coins, you still have other safer options to invest in gold with your retirement fund.
One such excellent option is purchasing shares of an exchange trade fund (ETF), which tracks the value of gold. Some years back, tax advisor were concerned that acquiring such share with your IRA would be for tax purposes considered as purchasing collectibles since under the tax law metals and coins are considered as collectibles. Since IRAs are not permitted to own collectibles, that would mean a taxable distribution from your IRA, and then you using that cash to purchase the forbidden ETF shares. Thankfully, the IRS in 2007 ruled that IRAs could purchase ETF shares that are categorized as grantor investment trusts, with no tax issues. The most popular gold ETFs is GLD, +1.31%. Ignore people who mistakenly still think IRAs are not permitted to own precious metal ETFs.
Another indirect but great way of investing in gold with your IRA is to purchase stocks in a mining company. For instance, you could use your IRA to buy a few shares in ABX, +3.34%, which is the largest company in the world for pure gold mining. You will not have any tax concerns with this option.