About Precious Metals IRAs
Gold and other precious metals have long provided a hedge against inflation and stability in difficult economic climates. This tendency to retain value under adverse economic circumstances makes precious metal IRAs attractive to many investors seeking to safeguard their retirement savings. Before you decide to make precious metals a part of an IRA, make sure you know the risks and the IRS rules governing this type of investment.
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Identification
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In 1997, Congress passed the Taxpayer Relief Act which, among other things, allows people to include precious metals in IRAs. A precious metal IRA is simply a self-directed IRA in which part or all of the investment is in the form of precious metals. However, collectible coins are not allowed by the IRS---the metal must be in the form of bullion (certain kinds of investment grade coins or bars). Check with the custodian of an existing IRA to see if the rules allow precious metals. If not, you must open up a separate IRA for precious metals.
Types
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Under the IRS rules gold bars must be 24K (pure gold) and carry a COMEX or NYMEX approved authentication hallmark. Only some types of 22K and 24K coins are allowed. As of 2008 these were the American Eagle, Canadian Maple Leaf, Austrian Philharmonic and Australian Lunar or Kangaroo-Nugget series coins. For silver, the metal must be certified .999 fine. There are comparable standards for other metals. Which forms of precious metal are allowed is subject to change and you should get IRS Publication 590 and check the current regulations (see Resources below).
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Function
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Having a precious metal IRA or including this type of investment in an IRA can serve as a way of diversifying your portfolio. Historically precious metals, particularly gold, often retain their value when stocks decline---and may even go up in price. When you open up an IRA for precious metals, you can roll over cash from other IRAs and then use it to purchase bars or investment coins. You can also do this with funds from a 401(k) account, although usually you will only be able to do this if you leave the employer where you have the account.
Features
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There are some specific criteria that have to be met to satisfy IRS rules (beyond the types of precious metals you can put in an IRA). Like any self-directed IRA, you must have a custodian for the IRA---normally this will be the bank or brokerage firm with whom you have the account. You must store the metal with an approved depository which is separate from the custodian and you will have to pay both custodial and storage fees from funds in the IRA.
Considerations
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Although buying precious metals is a relatively safe investment, it is not without risk. If you buy gold or other bullion when the price is unusually high, you are not likely to earn much profit. There is no guarantee the price will rise in uncertain economic times. For example, although the price of gold rose in 2008, the prices of silver, platinum and palladium all declined, despite the economic turmoil at the time. Before you open a precious metals IRA, discuss your investment needs with a financial adviser who is experienced with precious metals investing. To ensure you comply with IRS regulations, choose a custodian who is thoroughly versed in the correct procedures for handling this type of IRA.
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