The following is a guest post. Enjoy!
There’s a growing trend where many people are adding precious metals, mainly gold, to their IRAs. It’s quite a literal way to turn your retirement nest egg into gold. The IRS does allow so-called “gold IRAs,” where owners can include precious metals in place of assets like stocks or bonds. Gold is, of course, included along with cash assets.
Not all gold is eligible to be included in IRAs. For example, if you come by a very rare gold coin, it may be considered precious among collectors, but is rather useless when it comes to being included in an IRA. The IRS has a strict category for types of gold that can be included in the forms of bars or coins. There are many other requirements as well.
Reasons to Add Gold to Your IRA
Before getting onto the intricacies of adding gold to an IRA, it’s important to consider why. If you have ever paid attention to gold prices, you would know that it’s extremely volatile. It may not make sense to include gold in an IRA right away. But, it’s important to consider how gold is valued. The value of gold is measured in an inversely proportional manner to paper currency. Meaning, when the price of the dollar goes up, price of gold comes down. But when the price of the dollar stumbles, gold value picks up.
Think about this scenario: In 2001, an ounce of gold cost $271. In 2010, the same ounce was worth $1,896, which is an increase of about 700 percent. That remarkable value can be attributed to the Great Recession. Assets like gold are most important during time of economic crises. When the dollar plunges as it did during the recession in 2008, physical gold can hedge an investment portfolio against devastating losses. In this sense, many people add gold to diversify their retirement investment portfolios. No one can predict what the market will be like in decades when you retire. So, gold assets can protect your lifelong savings in case of an economic calamity.
Add Gold with a Self-Directed IRA
You can only add gold to your IRA if it is self-directed. Investments in traditional IRAs are usually made up of currency-based assets like stocks, mutual funds, and certificates of deposits. If you want to diverge from such assets and add gold, then you need to exercise a certain amount of control over your account. This is what a self-directed IRA is. The owner of a self-directed IRA can tell the bank or another trustee what to invest in. Trustees do not usually say no to gold investments as long as there are plenty of cash investments as well.
You cannot have an entirely gold IRA. That makes little financial sense. Rather, you can add a small amount of gold to your IRA to protect cash assets in case of another economic downturn. When you have gold in your IRA, you will have to keep up with gold news and price charts. It’s very important to check gold prices today on a daily basis when adding this precious metal to your IRA.
Choose a Good Trustee
You are required to entrust your IRA to a custodian or a trustee you can rely on. There are certain federal requirements these trustees have to meet. You can get a bank, an investment firm or a certified gold dealer company to be the trustee of your IRA as long as legal requirements are met. You may have to spend some time searching for a firm that allows gold in IRAs.
Once you get through all the requirements, having gold in your IRA will protect your future wealth no matter what the political climate is.