How Does a Precious Metals IRA Work?
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Introduction
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Individual retirement accounts, or IRAs, are a popular way for individuals to set aside money for their eventual retirement. These accounts offer investors the opportunity to defer or avoid taxation on income and capital gains, but are often subject to strict penalties for early withdrawal. Precious metal IRAs allow individuals to store their money in the form of bullion, which many consider a safe hedge against inflation or other financial risk.
Opening a PM IRA
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Unlike 401(k) plans, which can only be rolled over on separation from an employer, IRAs are not linked to an employment situation and can be transferred at any time. This means securities in an existing retirement account can be reassigned and liquidated to fund a precious metals IRA. Starting a precious metals IRA usually involves contacting a reputable custodian or trust company experienced in handling such matters, as the bullion must be held by a third party to qualify as an IRA. This means there will be custodial fees associated with storage and maintenance of the account.
Once an account is opened with a trust company, the physical metal is shipped to its vaults where it is held for the full term of the IRA. When a 401(k) plan is eligible for rollover, the funds can also be transferred and used in a precious metals IRA. Upon distribution of the precious metals IRA, most custodians will either ship the physical bullion or send a check for the equivalent value, which is treated as taxable income for that fiscal year. A penalty of 10 percent applies if withdrawal occurs prior to age 59 1/2. -
Selecting Bullion
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Prior to 1997, only Gold and Silver Eagles were permitted in precious metal IRAs. These are coins of 1 oz. or less minted by the U.S. government. After the law was changed, bars with a recognized assay mark in larger weights were permitted, and this was especially helpful for investment in silver, which carries considerably less value per ounce. It also opened precious metal IRAs to investment in popular foreign bullion such as those minted by the governments of Canada and Australia, though gold Krugerrands, being 22 karat, and other U.S. gold coins, still do not qualify. To be eligible for inclusion in precious metals IRA, bullion must be 99.5 percent pure. Another key change from 1997 was the inclusion of platinum, palladium and other platinum group metals to the list of approved bullion. Private assayers, like Pamp Suisse, Johnson Matthey and Englehard, also offer investment-grade bullion in gold, silver and platinum, though some trustees will limit their precious metal IRA accounts to legal tender coinage.
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