Precious Metals IRAs are fairly unique in that you are actually able to hold physical gold, silver, platinum, and palladium within these structures. While this is a terrific advantage of these accounts, it would be easy to make the mistake of thinking that every little detail of such an IRA is fantastic. In fact, while there are considerably more good points to a Precious Metals-backed IRA, there are also some negative factors which are good to know before you rollover your traditional IRA to a Precious Metals IRA. Being aware of the downsides will help you to avoid being a victim of them when you make the big switch.
Pros of a Precious Metals IRAs
Precious Metals IRAs provide an impressive and lengthy list of advantages that are hard to find in other types of investment choices where you might sink your retirement funds. Investing in gold delivers unequalled stability and safety which the beloved yellow metal has delivered to individuals and investors for literally thousands of years now, all the while allowing for the very real possibilities of future gains in value and obtaining substantial tax advantages. This physical gold has historically always been deemed a storehouse of tangible value. The benefits of these precious metals IRA include:
- Investment and Risk Diversification – There are few alternative investments that better diversify an investment portfolio and simultaneously protect it against volatile markets risk more effectively than gold, silver, platinum, and palladium.
- Protection Against Inflation – Nothing safeguards against currency devaluation through inflation better than the precious metals complex. As U.S. Dollars decline in value, the gold, silver, platinum, and palladium values rise apace. This prevents your retirement standard from declining alongside the ongoing deterioration of the U.S. dollar, which has literally dropped over 90% in value against hard tangible assets like precious metals over the last less than forty-five years.
- Potential Asset Appreciation – Precious metals generally rise over the long term, giving investors an opportunity to realize capital gains when they decide to sell their metals.
- Preserve Wealth – Nothing maintains its purchasing power better over time than gold, along with its little brothers silver, platinum, and palladium. A $20 gold piece bought an excellent tailored suit a hundred years ago and that same piece, now worth over $1,200, still buys at least one world class designer brand suit, if not more.
- Tax Benefits – All taxes on the precious metals and their subsequent gains are deferred so long as the metals stay inside the IRA. Even when sold, if the proceeds remain in the IRA, any capital gains from precious metals are not taxed until they are taken out as distributions.
- Intrinsic Value – Precious metals are their own basis of value and are not dependent on any government, outside investment, or individual or business to hold their own worth.
- Purchasing Power – Gold and the precious metals complex maintain their purchasing power over time and the long term consistently, as they have for more than 5,000 years of recorded human history.
- Resilience and Stability in Uncertain Economic Times – Gold, silver, platinum, and palladium tend to hold their value or even gain when stocks, mutual fund, and bonds are in free fall or just plain decline. The precious metals thrive on bad news, instability, and inflationary concerns as well.
- Hold Physical Assets – These Precious Metals Backed IRAs greatest strength is that they do not require you to hold paper precious metals such as futures contracts, gold miner stocks, or ETF shares, but actually allow you to hold a variety of IRS approved coins and bars as bullion.
- Low Set up Fees and Numerous Gold Dealers – Rolling over into one of these IRAs is not administratively expensive. There are a great number of precious metals dealers in the world who help to keep each other honest on their pricing and commissions for selling your IRA these precious metals.
- More Control Over Your Own Retirement Account – You are actually in a self-directed IRA with these precious metals, meaning that you can directly control the investment in which you participate. Besides precious metals physical holdings, you are able to invest in real estate, businesses, franchises, and other non-traditional investments that provide you with true strength, depth, and diversity in your portfolio.
Cons of a Precious Metals IRAs
• Difficulties in Funding with Precious Metals – You are not permitted to simply go to the local coin shop, purchase gold and silver, and then mail it into your IRA custodian or administrator. The administrator has to purchase them for you. Besides this, you are restricted to which gold, silver, platinum, and palladium coins and bars you are allowed to purchase and hold in the account. Gold coins must be 24 Karat (except for the odd gold American Eagles 22 Karat exception) while silver coins and bars have to be minimally 99.9% fineness in order to qualify. Bars have to carry COMEX or NYMEX approved assayer markings. Where these rules are violated, you will have to pay both taxes and penalties on these assets.
• Storage and Fees – Many individuals will be disappointed to learn that while you are able to acquire and hold such precious metals bars and coins in your Precious Metals Backed IRA, you can not keep these beautiful items at home in a safe. The IRS makes all of the rules, and their stringent regulations state that you must hire an account custodian who takes custody of all the metals all from the point when they are purchased to the point when they are either sold or distributed out in kind. The good news is that these custodians do take on all of the hassle of acquiring, insurance, shipping, storage, and transport for your metals. The bad news is that you lose this important element of control and have to pay one-time setup fees, annual administration fees, and annual storage fees that will amount to at least $250 per year to as much as $500 per year. These fees are particular to Precious Metals IRAs, and must be overcome by price appreciation alone in order for your precious metals to break even or to make money.
• Returns and Volatility – The returns on precious metals are unfortunately limited to capital gains as they do not ever pay dividends or interest or collect rent as with a rental property. This means that metals do not benefit from the miracle of compounding that often adds significantly to the IRA value over time. The prices of gold and silver can sometime be volatile on a day to day basis as well. If you need to sell your precious metals urgently for distributions, then you could be forced to sell at a temporarily lower price than you deserve or want. Gold boasts impressive long term results, although it can experience significant and sometimes eye-watering price dips on a daily or even weekly basis.
• Fraud Considerations – Because your precious metals are not where you can physically see and keep an eye on them personally, there is always the danger that your custodian and/or vault are defrauding you. You can not go in and lay hands on the metals to be sure they are physically present and are available for you to withdraw with a single phone call. For more information on the different types of precious metals frauds that can befall you with this type of account, see the United States Commodity Futures Trading Commission website and spend some significant time researching any precious metals dealer and custodian before you invest with them.