Investing for retirement has traditionally been done by utilizing stock and bond asset classes. Diversification is always an important aspect of a balanced portfolio that can help reduce risk during economic downturns. Adding a gold IRA to your portfolio can provide the balance and risk reduction you need to hedge against recessionary periods.
What is a Gold IRA?
While traditional and Roth IRAs are two popular investment vehicles you’re able to use to take advantage of specific tax breaks, you aren’t allowed to own any physical precious metals in these types of accounts. Using a self-directed IRA will enable you to hold hard assets like gold. Adding this type of account to your portfolio allows you to purchase and hold Gold American Eagle coins or other eligible precious metals, like palladium, silver and platinum.
How to Open a Gold IRA
Opening a gold IRA requires you to utilize both a custodian and a broker. The custodian aids in creating and administering your gold IRA account. The job of the broker is to assist you in purchasing the gold you’re adding to your account. The custodian keeps the bullion you buy safe by securely storing it for you.
Rolling Your Funds Over Into a Gold IRA
If you already have a 401(k), Roth or traditional IRA, you’re able to roll over all or a portion of its funds into a self-directed IRA. Initiating this process usually requires you to complete an application. Understanding how to move 401k to gold without penalty is crucial. If you receive funds out of your 401(k), you have 60 days to put them into an alternative investment, like a gold IRA, without receiving a penalty. Gold Co states, “There are some rules that apply, like the withholding rule that can cost the individual 20% of the amount to be transferred. This method should only be used if you absolutely need your money during those 60 days. You also are allowed only 1 indirect rollover per 12-month period.” Once you’ve added funds to your new gold IRA account, you’re able to work with a broker to purchase any of the eligible precious metal options available.
Risks Associated With Holding Physical Gold
Like any investment class, holding physical gold does come with a certain amount of risk. Its value can rise and fall and become volatile at times. Predicting its future is not possible. However, gold has a 5,000-year history of being a store of value. While companies can go bust and not have to pay shareholders a dime for the stocks they hold, gold has never lost some type of value.
Placing paper gold vs physical gold in a self-directed IRA also comes with the risk of theft. If a depository where your gold is being held is robbed, you could lose part of your investment. It’s vital to make sure you don’t store more gold in your account than the allowed value that’s protected by insurance. Choosing a trustworthy custodian is also essential to help ensure you don’t end up on the wrong side of a fraudulent transaction.
Choosing to invest in a gold IRA can help reduce your risk during specific economic periods. Just be sure to understand the pros and cons associated with this type of investment if you’re considering using it in your portfolio.