If you’re looking to diversify your Individual Retirement Account (IRA) beyond simple mutual funds filled with stocks and bonds, consider how investing in gold may help diversify your portfolio.
With all that has happened over the last few decades, investors are rightfully skeptical about the overall health of the stock market. Even though stocks have outplayed gold for several decades now, the risk of inflation is always present.
This is the reason why investing in the precious metals market is becoming more appealing to people who are looking to hedge their investments and protect their savings for the future
If you personally take care of your own retirement plans, then you’ll find it beneficial to understand the gold IRA rules and how they can work in conjunction with your other investments.
The Gold IRA Rules:
To help you understand how the rules of an IRA funded by gold works, here are a few points to take note:
- First you can add to an existing IRA or open a new one with a custodian. A custodian is a certified-third party who will hold the investment for you. The IRS dictates that there must be a custodian to maintain the account. For example, simply keeping US gold coins in your house under your own watch would not qualify for an IRA. In other words, the IRA (not the individual) would be the owner of the gold.
- US minted gold coins are allowed as long as they are one, one-half, one-quarter, or one-tenth gold. However non-US minted gold coins are not. Some forms of bullion are accepted, but you would need to see the IRS’s official IRA contribution rules for exact details.
- Contributions must be made in cash to the custodian for the direct purchase of the gold.
Beyond these differences, the rules of a gold IRA are pretty much the same as a traditional IRA. A tax deduction is given when you file your income taxes and the gold investment grows tax-free until you retire. Once you retire, you would pay taxes on your income from the gold.
Why Consider Gold for an IRA?
Of all the things you could invest in to fund an IRA, why would you pick gold?
Gold has a lot of redeeming qualities that can help you protect against the fluctuations of common stock market investing. Gold is always a top choice for investors looking for diversification. Here’s what makes investing in gold a good choice for IRA funds:
Gold Returns are Generally Very Consistent:
Gold prices can increase over time.
In 2001, the precious yellow metal was priced at around $250 per ounce. Fast forward, 13 years, and it is now at $1,900 per ounce. Gold investments saw higher returns ($2,300 per ounce) several months ago, but just because gold recently lost several hundred dollars in value doesn’t mean that its prices won’t increase again.
Remember, gold is a highly-volatile commodity. There will always be a right time to sell the precious yellow metal.
International Demand for Gold is Usually Very High:
India and China are two of the world’s biggest consumers of gold, buying a combined total of 1,500 tons in 2013 alone. In addition, Russia’s president Vladimir Putin has been on a gold-buying spree for several years now. Demand for gold will always be there since the precious yellow metal is a part of many countries’ culture and traditions.
In India, it is customary for families to give gold to the bride, which is why jewelry prices skyrocket in the country during the wedding seasons, yearly. In China, the practice of amassing gold jewelry and then passing them down from generation to generation has been customary since ancient times. This is the reason why even if U.S. investors are bearish on gold, the commodity can always be traded elsewhere.
The need for gold is constantly rising and its supply will reach a point where it can no longer meet the world’s demand. When this happens, gold investments will be more profitable than paper-based stocks. To understand the gold IRA rules better and how you can diversify your retirement funds with other precious metal investments, please read our article Consider a Precious Metals IRA to Diversify Your Retirement Savings.
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