For some investors, precious metals are a component of long-term investment and retirement savings strategy. Precious metals may offer potential advantages as a retirement investment, including serving as a store of value and potentially acting as a hedge against inflation, currency fluctuations, and market volatility.
Precious metals can be held in specially designed self-directed retirement accounts. Investors in precious metals IRAs direct retirement account funds to purchase IRS-approved precious metals products which are held by a qualified custodian and must be stored in an approved depository.
Before making an investment decision, it’s important to understand the following:
What role, if any, do you want precious metals to play in your overall investment strategy?
- Precious metals do not typically pay dividends or interest and don’t generate income
- Bullion may not be a good fit for growth and income oriented portfolios
- The purchase price of an investment in bullion may be different from the liquidation value, factoring in dealer spreads and transaction, shipping, handling and storage costs
- Prices for bullion can be volatile
- Additional account and storage fees may apply
How much of your portfolio do you want allocated to precious metals?
Will your investment objective be long-term or short-term?
What would the impact be on your overall retirement strategy if precious metals prices were to decline?
If you’re still working on building an emergency fund, paying off high-interest debt, or putting a retirement savings strategy in place, a self-directed retirement account invested in physical precious metals may not be for you. Skip this if you need ready access to the money; the custody requirements when you own physical gold inside an IRA limit direct access. It’s important to meet your short-term cash flow needs before investing in more specialized assets.
Understand custody, transfers, and account funding
There are typically three parties involved in a self-directed retirement account invested in physical precious metals:
- A self-directed IRA, trustee, or custodian that handles transactions, reporting and paperwork
- A precious metals dealer who buys and sells precious metals products
- A storage facility/depository where the metals are physically stored
Note: One entity may provide multiple services. Be sure to ask who performs each role and service, and what, if any, additional services and fees are not included.
Depending on the terms of your employer qualified plan, you may be able to make new contributions, transfer funds from an existing eligible retirement account, or roll-over plan assets to establish or fund a self-directed retirement account invested in physical precious metals. Keep in mind that transfers are typically conducted directly from one eligible retirement account to another.
There may be specific rules that apply to rollovers, especially if distribution proceeds are paid to you rather than directly rolled over, including requirements about how quickly the funds must be rolled over into an eligible retirement account. Failing to follow these rules could result in undesirable tax consequences. Request written instructions on how to properly complete a transfer or rollover, including where to send the funds and if any forms are required before sending your money.
Verify which products are eligible
Precious metals held in specially designed self-directed retirement accounts are subject to unique IRS rules regarding what products can be purchased. Eligible products can vary in type, form and fineness/purity. As a result, numismatic/collectible coins and other collectible and/or rare products may not be eligible.
Keep in mind that:
- Not all bullion coins and bars are eligible for purchase in specially designed self-directed retirement accounts. Your practitioner should verify the fineness/purity of a product prior to placing an order. Your practitioner should also verify whether the depository accepts the product prior to placing an order.
- Coins and bars that are highly liquid, that may be easier to value and/or sell, such as those that are widely traded, may be different from other coins/bars.
Investors should inquire about an entity’s liquidation/buy-back policy, including whether there are any minimum redemption requirements.
Compare storage costs and distribution choices
If you take delivery of the metals in your specially designed self-directed retirement account, it may be considered a distribution which could result in taxes and, depending on your circumstances, potentially additional penalties. As a result, specially designed self-directed retirement accounts invested in physical precious metals typically work with third-party storage facilities/depositories for storage of metals. Depending on the depository, metals may be stored either on a pooled basis (by type and quantity of metal) or segregated (actual coins/bars segregated from other customer’s holdings).
Depending on the depository, segregated storage may result in additional costs. Investors should ask about storage options and fees, including:
- Whether segregated storage is available and at what cost (if different from pooled storage)?
- How are metals insured?
- How/when are metals audited/reconciled?
- Are storage fees flat, percentage or tiered based on the value of holdings?
- Are there minimum purchase or account balance requirements?
- How do I sell/redeem/distribute my metals?
Fees, including storage, can significantly impact performance, especially for investors with smaller account balances.
Keep records and reassess your allocation
It’s important to keep documentation on specially designed self-directed retirement accounts invested in physical precious metals, including statements, purchase/sale/distribution confirmations, fee schedules, etc. Not only can this help with performance, cost and tax reporting purposes, it can also provide investors with important information to evaluate if the purchase/sale prices they received are competitive.
Over time, the value of metals can increase or decrease and unintentionally increase or decrease an investor’s overall exposure to metals relative to his/her other retirement savings. Rather than making investment decisions based on recent headlines or news, it’s important for investors to periodically reassess his/her asset allocation to determine if metals still make sense for his/her retirement portfolio and, if so, in what percentage.
Metals are just one piece of the retirement puzzle and can offer investors exposure different from other investments.
However, it’s important for investors to carefully consider all of the rules, regulations, storage, liquidity, tax and cost implications and how metals can or cannot fit into his/her overall investment portfolio prior to investing retirement savings in physical precious metals. Request information on what metals are permissible to purchase, all costs and fees, storage requirements, and the process to sell or distribute metals, preferably in writing, before moving your retirement dollars.
This content is provided for informational purposes only and is not a substitute for professional advice. AFP editorial staff were not involved in the creation of this content.
