Precious Metals Roth IRA: Can I Use a Roth IRA to Buy Gold?

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Understanding the benefits of a precious metals Roth IRA can give you a deeper insight into how you can hedge your investments against inflation.

With a few notable distinctions compared to a traditional self-directed IRA, it could very well be your investment of choice.

As someone interested in different types of precious metals, this smart investment can grow your retirement account over time.

How Do Precious Metals Roth IRAs Work?

When you decide to open a precious metals Roth IRA, you will be starting a self-directed retirement investment account.

You can use it to invest in several collectibles, not just precious metals like physical gold bars, silver coins, palladium, and platinum.

Aside from precious metal purchases, many seasoned investors choose gold Roth IRAs for antiques, art, collectibles, and real estate.

Like a physical gold IRA, opening a precious metals Roth IRA will require the help of a custodian.

Custodians are companies that facilitate your account opening while also managing the associated paperwork.

They can help in several other ways, including:

  • Managing complicated financial transactions
  • Finding competitive annual storage fees
  • Recommending a secure depository of choice for your investment options
  • Keeping track of owned additional transaction fees

It’s important to note that choosing a custodian is essential for every Roth IRA owner, as it’s required by the IRS.

Not only is it convenient, but these companies also help handle the IRS reporting required for each investment account.

What Makes a Precious Metals Roth IRA Special?

If you’re debating between opening a precious metals Roth IRA and a traditional gold IRA, there is one notable difference: taxes.

When you open a standard gold IRA, you will have to pay taxes on your retirement savings when liquidating your assets or withdrawing funds.

A precious metals Roth IRA isn’t tax-deferred; instead, you will make post-tax contributions. Meaning, every deposit will be taxable income before it is put into your Roth IRA.

This can be preferred, depending on how you want to invest your money.

For instance, some investors prefer to pay taxes at the time of deposit rather than being hit with a tax bill when withdrawing their retirement savings.

This option is preferable for people who expect their tax bracket to change upon retirement.

With a traditional gold IRA, your investments will be taxed based on your bracket at the time. So, if you’re in a lower bracket now, it could make sense to pay the taxes beforehand.

How Can I Open a Precious Metals Roth IRA?

This is another area where a precious metals Roth IRA is similar to a traditional IRA.

To open an account, you can use one of three methods: cash funding, an IRA transfer, or an IRA rollover.

Let’s briefly look at all three processes to help you determine which is best for you.

Cash Funding

Many investors enjoy starting retirement savings for the first time, which is where cash funding comes into play.

When starting a gold Roth IRA for the first time, you will need to put an initial investment into your account.

Most gold IRA companies require minimum payments from $20,000 to $50,000.

With this initial investment, you can begin purchasing precious metals such as gold, silver, platinum, and palladium.

Even if you are not opening an account for the first time, if you have the liquidity, this is how you’ll continue to add to your retirement savings.

Precious Metals IRA Transfer

A gold IRA transfer is one of the more popular options for transitioning your original retirement investments into a precious metals Roth IRA.

Using this method, you will transfer money directly from one retirement account to another.

It is one of the simplest options, as the existing custodian of your retirement investment account will work directly with your new custodian.

With an IRA transfer, your retirement savings will never touch your personal bank accounts. Also, all of the paperwork will be handled between the two custodians with your approval.

It helps avoid potential penalties associated with an IRA rollover, as we’ll explain in more detail below.

precious metals Roth IRA rollover

Precious Metals IRA Rollover

The third option for opening a precious metals Roth IRA is to roll your existing retirement savings into your new account.

However, this process can take a little longer and requires a couple of strict provisions.

Even so, some investors prefer this method over a transfer, as you will have a more hands-on part in rolling funds.

With a precious metals IRA rollover, you will liquidate your existing retirement accounts.

Once liquidated, you’ll take this money and roll it into your newly opened gold Roth IRA. However, you must do the rollover within 60 days.

If it takes longer than 60 days for the entire transfer to be complete, you can be subjected to two notable penalties.

Firstly, your retirement savings will be classified as income, subjecting them to income tax based on your bracket.

The second penalty applies only to gold Roth IRA owners under 59.5 years of age.

If you hold your retirement funds for over 60 days under retirement age, you will have to pay a 10% early withdrawal fee.

Depending on how much you have invested, this additional fee could be substantial.

Precious Metals Roth IRA: The Guidelines

As with any investment account, it is important to note that you will have to follow different guidelines.

The IRS designed these requirements, and you could face considerable penalties and fees if you ignore them.

Let’s look at the most common provisions when opening a gold Roth IRA.

IRS-Approved Precious Metals

The most important thing to note when opening a precious metals Roth IRA is the quality of your investments.

Like a standard gold IRA, Roth IRAs require your invested metals to be of a certain quality.

The IRS sets these requirements and ensures your savings are invested into the highest quality materials to protect their value.

A few examples of the requirements IRS-approved precious metals must meet are:

  • Silver bullion must have a 99.9% purity
  • Gold bullion must have a 99.5% purity
  • Platinum bullion must have a 99.95% purity
  • Palladium bullion must have a 99.95% purity

Along with purity and fineness ratings, IRS-approved precious metals must be purchased from specific entities.

The manufacturers must be accredited or a government mint organization to ensure their validity and quality.

Additionally, certain coins and bullion are not acceptable to be used as assets in your retirement portfolio.

Fortunately, when working with a reputable custodian, you’ll only have access to precious metals that you can invest in your Roth IRA.

This helps take the guesswork out of determining what metals are allowed and which should be avoided.

Precious Metal Storage

One of the largest requirements for all precious metal retirement plan owners is establishing reliable storage for their investments.

As mentioned, these investment accounts are used for collectibles, such as stamps, metals, gems, and even alcoholic beverages. As such, you will only be able to invest in collectibles.

According to the IRS, precious metals kept outside a custodian’s possession lose their collectible status.

So, if you have physical ownership of your precious metal coins, they cannot be invested into your gold Roth IRA.

This is where storage comes into play, as it helps maintain your precious metals’ validity.

Your custodian will recommend different storage solutions for you to review.

These facilities boast state-of-the-art security and insurance to ensure your investments are protected.

You will be responsible for storage fees, depending on the number of precious metals you’ll be keeping.

Contribution Limits

Having a long-term plan for your retirement investments is essential for every individual.

As such, you will be glad to know there have been some improvements to your precious metals Roth IRA contributions.

In the past, contributions would be phased out past 70.5 years of age. Today, you can continue contributing to your Roth IRA well beyond 70.5 years of age.

That said, the total amount of contributions hasn’t changed from 2021 to 2022, only allowing an annual $6,000 worth of contributions.

However, if you are over 50.5 years of age, you can contribute up to $7,000 annually.

You must calculate the total amount you are allowed to deposit into your Roth IRA to avoid penalties.

Each individual will have their contribution limits determined by their modified AGI. You can use this guide from the IRS to help you get started.

No Tax Advantages

One of the largest detriments to a Roth IRA is that you cannot use it as a write-off on your taxes like traditional IRAs.

Considering the money has been taxed before being deposited, they aren’t classified as deductible.

A precious metals Roth IRA might not be the best option for all investors.

Penalties and Fees

The last important guideline is the list of fees and penalties you will be responsible for while owning a precious metals Roth IRA.

Like a traditional gold IRA, there is an assortment of fees you’ll face, including:

  • Storage Fees

Fee for storage will vary depending on your chosen facility and the number of precious metals you own.

Some custodians even waive storage fees for their most affluent account owners, helping you save a couple of hundred dollars annually.

Typically, the more you have invested, the more benefits you will get when it comes to storage.

  • Maintenance

It’s important to note that plenty of work goes into maintaining your metal Roth IRA. As such, you are likely to be responsible for maintenance fees.

Also known as custodian fees, these include payments for handling reporting and paperwork.

  • Seller

When buying these alternative assets from sellers, you could encounter different seller fees.

A markup fee is one of the most popular, meaning you’re paying more than market value for your gold. This is a cost you should factor into every investment purchase.

  • Minimum Deposit

Most gold IRA companies require a minimum deposit before opening your account. Some companies have a $0 minimum deposit, while others are as high as $50,000.

  • Early Withdrawal Penalty

Penalties are another important guideline to help preserve your investment’s integrity.

Fortunately, there’s only one massive penalty to consider when it comes to your gold Roth IRA ownership.

The early withdrawal penalty is applicable to account owners under 59.5 years of age.

If you liquidate your assets before retirement, you’ll be responsible for paying 10% of the total amount you withdraw.

Depending on your situation, the withdrawn amount could also be considered taxable income.

Roth IRA vs. Standard Gold IRA

A precious metals Roth IRA’s ins and outs are similar to a standard gold IRA.

The main difference is that you pay your taxes at the time of deposit rather than when withdrawing.

You may find this account preferable to others, depending on your financial situation.

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