Even if you have no plans ever to retire, it can be reassuring to know that you could do so if you changed your mind. If you do choose to keep working, you can always use your retirement savings for some other purpose. It really does make sense to take retirement planning seriously and a Precious Metal IRA could play a key role in your strategy.
The role of IRAs in retirement planning
Individual Retirement Accounts (IRAs) provide a tax-advantageous way to invest for their retirement. IRAs support a wide range of investment options ranging from stocks and bonds to precious metals and even real estate. As with all forms of retirement savings, it's best to start using an IRA as early as you can. If, however, you're later in your working life, an IRA could still benefit you.
What is a Precious Metal IRA?
Technically a Precious Metal IRA is a vehicle where investors can hold physical precious metals and/or investments related to precious metals (e.g., ETFs). In practice, investors are far more likely to hold investments related to precious metals in a regular IRA. They would generally use their Precious Metal IRA for holding the actual, physical metal.
The types of metal that can be held in a Precious Metal IRA
Precious metals held in a Precious Metal IRA must meet specific purity and quality standards set by the Internal Revenue Service (IRS). The standards for each metal are as follows:
Silver: Must be at least 99.9% pure.
Gold: Must be at least 99.5% pure.
Platinum: Must be at least 99.95% pure.
Palladium: Must be at least 99.95% pure.
In addition to meeting the purity standards, the precious metals must also be in the form of bullion coins or bars produced by a recognized government mint or refiner.
Here are some examples of bullion coins or bars that are commonly held in a Precious Metal IRA:
Gold coins: American Gold Eagles, Canadian Gold Maple Leafs, Australian Gold Kangaroos, South African Krugerrands, and Austrian Gold Philharmonics.
Silver coins: American Silver Eagles, Canadian Silver Maple Leafs, Australian Silver Kangaroos, and Austrian Silver Philharmonics.
Platinum coins: American Platinum Eagles and Canadian Platinum Maple Leafs.
Palladium coins: Canadian Palladium Maple Leafs.
Benefits of a Precious Metal IRA
The benefits of a Precious Metal IRA can really be divided into two parts. There is the benefit of the metals themselves and the benefit of the IRA.
Benefits of investing in precious metals
The benefits of investing in precious metals are much the same regardless of whether you hold the physical metal, or a product related to it (e.g., an EFT).
Diversification of your investment portfolio
For many people, the natural route to investing is to start with saving and then move into the stock market and then, possibly, real estate. There is a lot to be said for this route. Saving builds up a cash cushion and then creates investment funds.
The stock market is fairly easily accessible to new investors. These days, many brokerage platforms have apps that allow you to run your account from your phone. They also allow people to invest with minimal capital.
Real estate is not necessarily as easily accessible to new investors. It is, however, a fairly mainstream form of investment and, hence, an obvious route to progression.
Once investors have covered those bases, it can be helpful to open positions in more niche areas such as precious metals, cryptocurrency, and collectibles. Precious metals are often the first (and sometimes only) choice, due to their specific combination of benefits.
Protection against inflation and economic downturns
This is probably the headline benefit of precious metals. Its value tends to go up in periods of high inflation and economic downturns. The flip side of this is that the reverse is also true.
With that said, when inflation is low and/or the economy is good, life is usually relatively easy for everyone (including investors). This means that investors are more likely to be able to tolerate the downswing in the value of precious metals. It will probably be counterbalanced by an upswing in the value of other investments.
Precious metals can be volatile in the short term. Over the long term, however, their value tends to keep pace with inflation. In fact, precious metals have the distinct potential for long-term growth.
Holding a physical asset
This is somewhat subjective, but some investors do like the fact that Precious Metal IRAs allow them to hold physical assets (safely).
Benefits of investing through an IRA
As their name makes clear, IRAs were created to enable (and encourage) people to invest for their retirement. Understandably, their benefits reflect this purpose.
The specific tax benefits of IRAs depend on what type(s) of IRAs you use. With Traditional, SEP, and SIMPLE IRAs, contributions are usually tax deductible. Tax on earnings is deferred until qualifying withdrawals are made. Withdrawals are taxed in the same way as any other standard income. With Roth IRAs, contributions are made post-tax but qualified withdrawals are not taxed.
Again, the specific forms of protection offered by IRAs depend on various factors. These include the type of account, the custodian, and the state in which the account is held.
In general, however, investors can expect FDIC protection plus at least some level of protection from creditors. This may include protection from legal judgments and/or bankruptcy. Investors may also be able to pass on any unused retirement savings, possibly without the beneficiaries having to go through probate.
As before, the level of flexibility offered by an IRA depends on various factors. It’s also somewhat qualified. The whole point of IRAs is for the holders to save for their retirement. This means that doing anything that runs against that principle (e.g., making early withdrawals), is likely to be either impossible or heavily penalized.
On the other hand, if you accept the nature of IRAs as what it is, they are very flexible products. You can have all kinds of permutations of them and hence use them as the foundation of highly customized retirement plans.
Joe Pannu is the Managing Director of Wall Street Metals IRA, specialists in Precious Metal and Coin Investments, and has decades of knowledge in the investment market.