A number of investors choose to purchase gold or other precious metal coins and bars as an investment because of the metals’ track record of historically retaining value over time, says Kevin DeMeritt, founder and chairman of Lear Capital.
Sometimes referred to as a safe harbor asset, gold has tended to be less affected by economic, political and other upheavals than other assets, such as stocks.
For the past 200 years, gold prices have primarily remained steady or increased — at times, significantly, according to National Mining Association records. Between 2008 and 2012, for instance, the producer price index for gold rose 101%.
“Gold typically has an inverse relationship to stocks and other types of assets,” Kevin DeMeritt says. “In times of war or terrorism, usually you’re going to find the markets become extremely volatile; nobody knows what’s going on from day to day. The asset that gives you some stability while all of those uncertainties are happening typically is gold.”
If you’re thinking about obtaining precious metals as part of an individual retirement account, such as a Lear Capital Precious Metals IRA — or to retain at home — there are a few things to keep in mind.
Precious Metal-Backed IRAs
Physical precious metal assets can be held in a self-directed IRA — a type of account where instead of a plan trustee making all the decisions for the involved assets, you control how the associated funds are invested.
You can choose to invest in items such as stocks and bonds, certificates of deposit, real estate, and other alternative assets, including gold and other physical precious metals.
Like a conventional IRA, self-directed IRAs provide tax advantages. Contributions are made on a pre-tax basis; the associated taxes are deferred until you retire and take distributions from the account.
You can also choose to hold precious metals in a traditional Roth IRA, which is funded with after-tax funds; you won’t be taxed when you make a withdrawal.
After setting up a self-directed IRA, you just need to roll funds over from another retirement account — such as a traditional Roth, SEP or SIMPLE IRA; 401(k); 403(b); 457(b); pension plan; or Thrift Savings Plan account. You can then use the money to purchase physical precious metal assets like coins and bars.
The precious metal items you hold in your self-directed IRA need to meet certain requirements,
Gold items, for instance, must have a purity level of 0.995; silver assets have to possess a fineness of at least 0.999.
While you retain ownership of the items, the Internal Revenue Service also requires assets that are part of an IRA to be held in an approved facility, which can offer secure storage and insurance capabilities.
Lear Capital works with the Delaware Depository, an IRS-sanctioned, state-of-the-art vault facility that backs its storage services with a comprehensive insurance policy underwritten by London Underwriters, one of world’s oldest insurance providers.
You can opt to sell items from your precious metals-backed IRA at any point, if you’d like to adjust the proportion of precious metal assets to other investments. Because precious metals like gold have generally risen in value, some investors view those assets as a long-term portfolio component, compared to items like stocks that may be more volatile.
You’ll be able to have the precious metals shipped to you, or you can liquidate them and receive cash for their value when you reach the eligible age to take a distribution.
Another Precious Metals Approach
While numerous investors make their precious metals part of a self-directed IRA, some choose to invest in gold, silver, and other metals by buying coins and other items and keeping them at home, because they want the items to be available at any time for themselves or their heirs, or another reason.
If the metals aren’t associated with an IRA, you can legally retain possession of them and aren’t required to place them in an IRS-approved facility. You will need to prepare to securely store them at home, though, and may want to consider insuring the items to prevent losses if theft, a fire, or another issue occurs.
Lear Capital suggests that owners of precious metals consider installing a high-quality, fireproof safe that is in a concealed location, anchored or bolted to a wall or other permanent fixture to reduce the risk of theft. Storing your assets in multiple safes, or a safety deposit box, can also be helpful.
You may want to let someone trustworthy know where the items are located, in case something happens to you and they need to be accessed.
Maintaining a spreadsheet that contains information about your precious metals inventory, such as item quantities and purchase dates and prices, can also be beneficial.
If your precious metal items are not part of an IRA, you will still be able to sell them and potentially earn a profit, based on how much they’ve appreciated over time. You will not be able to take advantage of the tax benefits that a self-directed IRA provides, however, because of the way the IRS classifies collectible
As a result, a number of investors choose to hold precious metals in a self-directed IRA. Lear Capital can help guide you through the process.
“Simply give us a phone call [to] establish an account,” Kevin DeMeritt says. “We use one of the largest self-directed IRA custodians in the country. One of our representatives will get you the paperwork to transfer whatever portion of that IRA, 401(k), or 403(b) you would like to roll over to a physical precious metals IRA — it’s a pretty easy process.”