Diversifying your investment accounts is always an excellent idea if you want to take advantage of spreading your risk by utilizing different types of asset classes. Using a gold backed IRA account may be one of those specific types of assets you should add to your portfolio. This type of IRA allows you to hold physical gold and other precious metals, which may be advantageous to have in your portfolio when the economy is going through a recessionary period.
Understanding How a Traditional IRA Works
Traditional IRAs are typically the most popular choice of IRAs used by investors. This type of IRA allows you to invest in common stocks, bonds, mutual funds, ETFs and money market accounts. Using a Traditional IRA will enable you to receive an upfront tax break as high as $6000 in 2020. Contributions for a Traditional IRA may be deductible, which can help lower your taxable income for the year. As long as you keep your funds in this type of IRA account, they are not taxed until you withdraw them during retirement.
Tax Advantage of an IRA Account
A Roth IRA provides a counterbalance to a Traditional IRA. Contributions are not deductible, which means you won’t get an upfront tax break. However, when you retire, withdrawals are entirely tax-free. The withdrawal rules for a Roth IRA are more lenient as well. You can withdraw contributions and not worry about receiving penalties. However, the earnings you receive must stay in your account to avoid being penalized for paying taxes on them. Goldco states, ‘Just like a conventional IRA that holds stocks and bonds, a gold IRA offers the exact same tax advantages. A traditional gold IRA allows you to use pre-tax dollars to invest in gold, accrue gains tax-free, and only pay taxes when you take a distribution. A Roth gold IRA allows you to use post-tax dollars to invest in gold, accrue gains tax-free, and pay no taxes on your gold investment once you retire.”
Benefits of Having a Gold IRA
A third type of IRA is a self-directed IRA, which allows you to invest in hard assets like gold. Using a gold backed IRA account can provide you with a few benefits over holding just a Traditional or Roth IRA. You’re given the ability to own physical precious metals, such as gold, silver, palladium and platinum, which can help offset inflation or downturns in the economy when stocks often begin to drop lower in price.
If you do decide to invest with a gold IRA, there is a certain amount of criteria that needs to be followed. The IRS has specific fineness standards for the precious metal bars or coins you use in the account. Also, the precious metals you use must be stored in a depository that’s approved by the IRS.
How to Put Physical Gold Into Your Account
Investing in a gold IRA involves going through a few steps. First, you’ll need to start a self-directed IRA with a custodian who creates and administers your account. Your custodian will be in charge of storing and holding your bullion, whether that’s in silver coins and gold bars or a combination of different precious metals. The second step involves using a broker to buy the types of precious metals you want to use for your account.
Having the ability to add precious metals to your investment portfolio may come in handy when the economy is going through a recession. It can act as a hedge against a falling stock market and aid in spreading the amount of risk you’re taking.