What Is a Gold IRA, and How Does It Work?

November 15, 2022 (Investorideas.com Newswire) In addition to traditional IRAs, which typically contain a mix of stocks, mutual funds, and bonds, investors can opt to invest in a gold IRA - which Kevin DeMeritt, founder and chairman of Los Angeles-based Lear Capital, describes as a self-directed individual retirement account that involves ownership of a physical precious metal asset, such as a gold or silver bar or coin.

While gold IRAs are, in some ways, similar to traditional IRAs, key elements differ.

The Internal Revenue Service, for instance, has certain requirements for gold-related investments. Only specific types of metals qualify for use in a self-directed IRA; and a number have to possess a certain fineness, measured as parts per thousand, according to the American Institute for Economic Research. For gold bars and rounds, the minimum fineness is 0.995; for silver, it's 0.999.

"The government has made these rules that it has to have a fineness to it," Kevin DeMeritt says. "If it has that quality, then you can add it to an IRA; if it does not, then you cannot - with the one exception being an American Eagle [coin], which does not have that fineness, but the government made an exception [for]."

To find out what other parameters factor into gold IRA-related investments - and what advantages they can potentially provide - read on.

Why Would a Gold IRA Be Useful?

The components in a traditional IRA can be highly susceptible to market fluctuations that occur in response to world events, inflation and other social and economic changes. Due to factors that are often out of investors' control, the performance of those assets can vary - and, at times, they may provide lower-than-anticipated returns.

Physical gold asset-related investments, though, tend to be less reactive, according to Kevin DeMeritt. During a number of challenging economic periods in the past, gold prices actually went up - rising 50%, for example, from September 2010 to September 2011 in the midst of the 2009 recession, according to the U.S. Bureau of Labor Statistics.

In general, National Mining Association data indicates prices for precious metals like silver and gold have grown steadily over the past 20 years. Lear Capital research has found premium coins performed well during past recessions.

"Gold has an inverse relationship to stocks and other types of assets," Kevin DeMeritt says. "In times of war or terrorism, usually you're going to find the markets become extremely volatile. Nobody knows what's going on from day to day. What's the asset that gives you some stability while all of those things are happening? Typically, that's gold. [Its] volatility is not going to be the same as what we've seen with the war, 9/11, or this inflation situation with the stock market."

In addition, a concrete investment item can offer security, according to DeMeritt.

"If you have physical possession, it's a bear type of investment, basically," the Lear Capital founder says. "For an exchange-traded fund, if I said, 'If you purchase this $10,000 worth of gold, I'm going to ship [it] over to [a] bank in England, where they're going to hold 80% in physical gold and 20% in an options contract that is paper' - most people would [say], 'No, I want my gold here with me.' Because if something goes wrong with the bank holding your gold, how do [you] get the gold back?

How Do I Set Up a Gold IRA?

While the steps involved in establishing and transferring funds into an account can, at least initially, seem complicated, an external provider can help walk you through the process.

Lear Capital, for instance, which has successfully processed more than $1 billion IRA-related transactions, appoints a dedicated account team member to guide investors through the application procedure for one of its precious metals IRA accounts.

Once completed, the new IRA account is established within 24 hours, and Lear Capital can help arrange for your retirement funds to be rolled over to the new account, typically via bank wire, which can take up to five business days.

Investors can choose from two tax- and penalty-free options to transfer money from one retirement account to another: the direct trustee-to-trustee transfer or the 60-day rollover option.

In the trustee-to-trustee process, money is moved from your current IRA provider directly to your new precious metals IRA provider.

The 60-day rollover method involves having your current IRA account provider mailing a check to your home, which you then mail directly to your new precious metals IRA provider. No taxes or penalties will be incurred if the check is given to the new IRA custodian and deposited into the new IRA account within 60 days.

What Types of Investments Can I Roll Over Into a Precious Metals IRA?

Typically, IRAs and other qualified retirement accounts are eligible - such as a Roth, SEP or SIMPLE IRA; 401(k); 403(b); 457(b); pension plan or Thrift Savings Plan account - to be rolled into a precious metals IRA.

Will I Physically Own the Coins I've Invested In?

Yes. When you open a precious metals IRA with Lear Capital, for example, you are the assets' owner. However, until you reach the eligible age when you can take a mandatory distribution, the items must be kept at an IRS-approved, insured private storage facility; you can't have them in your home or at another location.

Lear Capital securely sends all metal assets directly to the IRS-approved depository vault at the Delaware Depository, which has been the industry leader in safeguarding precious metals since 1999. Its storage services are backed by a comprehensive insurance policy that's underwritten by Lloyds of London, one of the world's oldest insurance providers. If physical loss or damage were to occur due to fire, flooding, or another issue, metals held at the depository are insured for their full value.

How Do I Access My Precious Metals Investments When I'm Ready To Retire?

After letting your Lear Capital IRA team member know whether you'd like to have the physical items shipped to you directly or instead receive cash for them, Lear Capital can arrange for the metals to be securely sent from the Delaware Depository or liquidated.

The cash distribution from a liquidation takes about a day to process and can be wired to a specific bank account or sent via check.

Retirement may seem like it's still far off in the future - particularly with the effect recent economic conditions, like the currently high inflation climate, have had on investments, potentially reducing the amount people were hoping to save.

However, even if your exit from the workforce is still a number of years away, reexamining what monetary reserves you've acquired to date can be important to ensure your saving plans are still on track, according to Kevin DeMeritt.

"I don't think people don't spend enough time to figure out how to grow their retirement account," DeMeritt says. "[Some think], 'They put it away, and get a monthly statement, but retirement is 20 years [from now].' People should really take a look at their strategy every year. How you protect that retirement plan is more important today as you get closer to retirement than it was 10 or 20 years ago."

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