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Can you buy precious metals in a self-directed IRA (SDIRA)?
Yes, you can.
This article looks at using your SDIRA to invest in precious metals.
We talk about how to set up a SDIRA and what types and forms of precious metals you can buy in a SDIRA.
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Key Points
What is a Self-Directed IRA?
A SDIRA is a type of Roth IRA. It differs from a traditional IRA and a standard Roth IRA. A traditional IRA allows you to make tax-deductible pre-tax contributions that grow and generate tax-deferred earnings until you retire. A standard Roth lets you make post-tax contributions that grow tax-free.
You can make post-tax contributions to a SDIRA also. The SDIRA is slightly different from a standard Roth IRA in that it's self-directed. That means you perform the fiduciary duties of a trustee, investing your funded IRA according to your own research. An IRS-approved custodian then carries out your investment choices.
SDIRA Trustees and Custodians
When you open an IRA with a brokerage firm, a bank, or a credit union, the firm, bank, or financial institution functions as both a trustee and a custodian.
The trustee helps manage, protect, and grow assets in a portfolio. The custodian handles the administrative duties, such as IRS reporting.
While you can perform the function of a trustee for your SDIRA, you cannot be the custodian. Custodians are even more critical to an SDIRA since they work directly with the SDIRA's owner.
How to Open a Precious Metals SDIRA
The first step to investing in precious metals with a SDIRA is finding a custodian. The custodian must be IRS-approved and associated with an IRS-approved depository.
When you purchase precious metals with an IRA, you can't physically store the precious metals on your own.
The IRS requires you to store your SDIRA's precious metals in an IRS-approved depository. Most SDIRA custodians have established relationships with such depositories. Notable IRS depositories include those in Delaware and Texas.
Attempting to physically store precious metals invested in with a SDIRA counts as a distribution (an IRA withdrawal) to the IRS, and you'll be taxed. Whatever precious metals you purchase with your IRA must remain in the depository. You can start making tax-free withdrawals at age 59.5 via cash (bank wire) or physical metals.
Fund Your Precious Metals SDIRA
Your SDIRA custodian can help you with all the paperwork necessary to open and fund your precious metals SDIRA. There are several easy ways to fund your SDIRA. You can do it with cash via bank wire, a custodial transfer, or a rollover.
A custodial transfer involves transferring custodial management of your employer-sponsored IRA or SDIRA to a custodian who handles precious metals SDIRAs. A rollover entails rolling funds from one retirement account over into another retirement account. You have the option of a direct rollover or an indirect rollover.
To complete a direct rollover, an IRA plan administrator pays all of the funds in your existing retirement account directly into your newer precious metals SDIRA. To complete an indirect rollover, withdraw all of your IRA's funds in the form of a check, then use the check to fund your new precious metals IRA.
Most rollovers are tax-free when completed in 60 days or less. Some IRS stipulations apply, like the once-per-year restriction on indirect rollovers from a SEP or a SIMPLE IRA to a Roth IRA (SDIRA). Your precious metals custodian can discuss the specifics.
Including Previously Purchased Precious Metals in Your SDIRA
Can you add precious metals you've already purchased to your SDIRA? Unfortunately, you can't. The IRS considers this a prohibited transaction that carries tax penalties. You also must purchase precious metals with a minimum purity value that makes them IRA-eligible by the IRS.
The IRS regards precious metals as collectibles, items you cannot legally purchase with an IRA.
Collectibles invested in an IRA before 1982 enjoy grandfathered status and aren't subject to IRA penalties. What precious metals and forms can you invest in with an IRA?
You can use your SDIRA to invest in gold, silver, platinum, and palladium. To be IRS-compliant and IRA-eligible, gold must have a purity value of 99.5%, and silver a purity value of 99.95%. Platinum and palladium must be 99.95% pure. Gold bullion products must also have a refiner/assayer hallmark confirming NYMEX or COMEX approval.
Gold You Can Invest in with a SDIRA
In addition to purity values, IRA-eligible precious metals come in specific forms: coin, round, and bar. Most are IRA-eligible if they have a minimum purity value of 99.5% to 99.95%. The word "bullion" often refers to bullion vs. proof coins.
Bullion coins circulate among the general population. They might have a low face value and high intrinsic/perceived value. Proof coons undergo a special minting and packaging process. The process helps showcase and protect the coin through many generations of collecting and selling.
The following is a short list of IRA-eligible gold products:
The American Gold Eagle coin is the United States' official gold bullion coin. Much beloved and sought after, it is a top IRA-eligible purchase. Surprisingly, the coin does not meet minimum IRS purity values, consisting of gold that is 92% pure. Nevertheless, it's IRA-eligible.
Each type of coin has its own unique obverse and reverse sides. Many of the images minted on the obverse and reverse sides of these coins change annually. The Royal Canadian Gold Maple Leaf coin typically contains a maple leaf on the reverse and the reigning British sovereign on the obverse.
Similarly, the Australian Gold Kangaroo coin showcases the British sovereign on its obverse and one or several kangaroos on its reverse. When a new British sovereign gets crowned, the mint begins striking coins containing the new sovereign's profile. Some IRA-eligible coins remain unchanged.
The Austrian Gold Philharmonic coin presents an image of the philharmonic's great organ on its obverse, and a handful of orchestral instruments on its reverse. The design is a product of the Austrian mint's master engraver. It hasn't changed since the coin's debut in 1989.
IRA-Eligible Silver
IRA-eligible gold is an attractive investment, but don't forget IRA-eligible silver, platinum, and palladium. Other IRA-eligible precious metals boast affordable prices and great resale value. Take a look at silver products you can invest in with a SDIRA.
IRA-Eligible Platinum and Palladium
To further diversify your precious metals SDIRA consider purchasing an American Eagle coin or a Canadian Maple Leaf coin in platinum. The latter also comes in palladium. The palladium Russian Roubles Ballerina coin is another. Prized for its purity, it also has one of the most unique designs.
Can You Change Asset Allocation in a Precious Metals SDIRA?
Yes, you can change asset allocation in a precious metals SDIRA. As people age, many tend to shift portfolio assets from stocks to bonds and cash equivalents (like gold). Speak to your SDIRA custodian.
Called rebalancing your portfolio, you can complete the transaction by selling an asset for another asset or by allocating more funds to the purchase of certain precious metals. You can convert portfolio assets to cash as gold prices rise and fall. You can also adjust portfolio assets according to your risk tolerance, financial circumstances, and financial goals.
What Else Can You Invest in With a SDIRA?
A SDIRA is a highly flexible Roth IRA. Since you're the trustee, you can invest in a wide range of assets with your precious metals SDIRA. Diversifying your portfolio by yourself requires diligent, careful research. Luckily, there's plenty to consider. You can use your SDIRA to invest in:
Real Estate: rentals, fix/flips, undeveloped land, commercial property
Crypto: cross-border payments, 24/7 liquidity
Promissory notes: passive, tax-advantaged income
Private equity: buy into private companies
A SDIRA can also contain investments associated with traditional and Roth IRAs: stocks, bonds, mutual funds, and exchange-traded funds (ETFs). Precious metals ETFs are a basket of investments (possibly stocks and bonds) associated with companies deriving most of their profits from precious metals. You can buy and sell ETFs daily, so a return on investment is potentially immediate.
How Much to Invest in Precious Metals
How much of your total portfolio should you devote to precious metals? Experts recommend a threshold of 5% to 20%. This applies to a more standard portfolio containing roughly 60% stocks and 40% bonds.
You can decide for yourself how much gold you want to invest in with your SDIRA. Most people give preference to gold. The amount you invest in today can impact your retirement.
Granted, all precious metals have their own allure and cash value. However, gold remains atop the list of the world's most desirable precious metals. On the whole, investors tend to put more money into gold than into other precious metals.
How to Locate IRA-Eligible Gold
Many sellers of precious metals segregate their IRA-eligible inventory from everything else that they sell. With the rise in popularity of precious metals IRA investments, finding reputable sellers is easier than ever. Typically, sellers' websites contain a special menu link that leads to IRA-eligible precious metals.
Some sellers only feature gold and silver. Others sell gold, silver, and other precious metals that meet IRS criteria for purchase with an IRA. SDIRAs have associated custodial and depository fees. There is no uniform fee structure or schedule, so be sure to ask your custodian for all of the details.
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