Individual Retirement Accounts (IRAs) came into existence in the year 1974 when the Employee Retirement Income Security Act was passed by Congress. These accounts allowed people to save up for their retirements tax-free.
However, holding precious metals like silver, gold, palladium, and platinum in these accounts was not allowed until the year 1997. This was the year they passed the Taxpayer Relief Act of 1997. Click here for a PDF version of this Act.
The accounts where these assets can be held are known as precious metals (or gold) IRAs. Since 1997 when people were permitted to hold these precious metals in their accounts, several precious metals IRA companies have sprung up. This is because individuals need these companies to act as custodians for their accounts as they aren’t allowed to be in charge of the accounts themselves.
If you are new to the world of gold IRAs and you are considering setting up an account with any of these companies, then there are some things you need to know. In this article, we will be discussing some important things to know before and when setting up a gold IRA.
Choosing Your Gold IRA Company
The first step to getting a golden egg nest for your retirement is choosing the company that would be handling the account for you. As we have said, the company you choose will be the custodian of your account and will oversee the transactions done with it.
Now, while holding precious metals in an Individual Retirement Account is legally allowed, this service is not offered by all custodians. Hence, for you to get set up your precious metal IRA, you would need to look for custodians that specifically provide this service.
Now, you need to be as meticulous as possible while selecting your custodian. Make sure you do your homework properly before you settle on one.
When you have selected the company, they will walk you through setting up the account. But while you do this, be sure to keep the things that will be discussed below in mind.
Beneficiaries
If you are familiar with regular retirement accounts, then you would know that when opening the account, you would need to provide beneficiary/beneficiaries. When opening accounts with gold IRA companies, the same also applies. People who have their primary residence outside community property states can designate anybody or institution as their beneficiary.
For people living within community states, their spouses would have to give their consent via a waiver if they decide to make anyone else other than their spouse their beneficiary.
When a spouse is a primary beneficiary, then children, favorite charities, or grandchildren would typically be contingents. Contingent beneficiaries become primary beneficiaries if the owner of the account, as well as their primary beneficiary, passes away close to the same time.
When setting up the account, you would need to supply the full name, DOB, and other relevant data of each beneficiary selected. You can decide to change your beneficiary at any point in time. However, you would need to submit a form (usually one-paged) to do this.
On the application to set up the precious metal IRA, you’d be asked to either designate your Interested Party or Representative. Designating a Representative means that they can carry out any transaction on the account without your permission (solely at their discretion).
On the other hand, your Interested Party can speak to your custodian about the account freely. Making the metal dealer which you choose your Interested Party might be helpful as this would save you the stress of being in on every conversation the dealer needs to have with your custodian.
Moreover, your Interested Party cannot make any transaction on your IRA. Your signature will still always be needed before any sale or trade is authorized. So, making your dealer your Interested Party is completed harmless.
But, if a dealer suggests or even gladly accepts the offer of being your Representative, you should take this as a warning sign and avoid them as best as you can.
Storage
Another thing that you need to know about precious metal IRAs is that you would not be allowed to hold your physical precious metals by yourself. The IRS strongly opposes this and anyone that breaks the law will pay penalty fees. Visit https://sdirahandbook.com/ to learn more about Gold IRA and IRS rules against home storage.
Hence, after setting up your account, you would need a 3rd-party (usually a non-bank) IRS-approved depository to store the asset.
There are two types of storage available to you, commingled and segregated. When you fill out the account application, you’ll need to pick one of the two.
Segregated
When you pick segregated storage, your asset will be put together, and then your name, as well as the account number, will be marked on it. Afterward, it will be stored in your custodian’s part of the storage.
When it is time to cash out your investment by either selling off the asset or having the asset sent to you, you will get the exact bars or coins that you bought and stored. Silver can’t be stored in segregated storage because of how bulky it is.
Commingled
Here, the asset will be stored in your custodian’s part of the storage, however, it will be mingled with the precious metals of your custodian’s other clients. When you take out your investment, you will get the exact type of bars or coins that you stored. But, it most likely won’t be the exact bars or coins that you bought and stored.
Commingled storage is typically more affordable than segregated.
Conclusion
Having a gold retirement plan is one sure way to financially secure one’s retirement. If you have decided to take this investment path, then you need to be well aware of certain things to prevent you from making a costly mistake. In this article, we have discussed some very important aspects of setting up your gold IRA.