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An important reason to consider starting a self-directed gold IRA is the opportunity for better diversification that it offers. In addition to investing in a wide range of industries with mutual funds or public stocks, you should look for investment alternatives that don't rely on the same markets. That's where buying gold bars and coins becomes more desirable. In many cases, the value of gold fluctuates in opposition to paper stocks. This helps you protect a percentage of your savings in almost any situation.
Once you decide to invest in gold directly by buying bars and coins, you'll need to decide how much of your wealth to roll over into a self-directed gold IRA. Even before you look into the specifics of setting up this type of account, you should know how to divide your retirement savings. While every situation is different, this guide will go over the basics to allow you to follow some general rules of thumb for investing your money in physical gold.
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How Much of Your Retirement Savings Should Go Into a Gold IRA?
Deciding how much of your retirement savings to roll over into a self-directed gold IRA will depend on your age and on the amount of savings you have already amassed. For instance, if you have just started saving for your retirement, you may not have enough to qualify for the initial purchase requirements for some companies. In that case, look for a gold IRA company with lower requirements and transparent fees. You can use this type of company to buy a small number of gold coins just to get your inventory of gold assets started. Later, you can devote more of your wealth to gold investments.
In your 20s or 30s, you can start investing more of your savings in gold bars and coins. At this time in your life, you should have enough money saved in your 401k or traditional IRA to put a more substantial amount towards a gold IRA. Roll about 15% of your savings over into your gold IRA. This will give you enough to start making bigger purchases of gold products while still leaving the majority of your money for a more aggressive investing strategy. Realizing you have 15% of your savings protected in gold will help you feel more confident in pursuing high-risk/high-yield investments in stocks, funds, and other paper investments.
As you reach your 40s and 50s, it will be time to roll over more of your savings into your self-directed gold IRA. You should devote a minimum of 30% of your savings to your gold IRA at this point in your life since you should be closer to meeting your retirement savings goal. This still leaves you some money for other types of investments, and you'll also be able to buy more gold with the funds in your gold IRA. Rolling over a higher percentage of your money will give you more protection, so you can keep pursuing an aggressive investing strategy that will help you grow a substantial amount of wealth for your retirement. If you suffer losses with your paper investments, you'll still have 30% of your wealth stored in your gold bars and coins.
As you near retirement age, it's important to keep in mind that it won't be long before you're ineligible to initiate rollovers. This is the time to prepare for retirement and, since you should have enough savings to fund your retirement, you'll be more concerned with protecting your wealth. Many senior adults prefer to roll their remaining savings over into their gold IRA for the maximum protection that precious metals provide. Alternatively, store up to 70% of your wealth in a gold IRA and use the remaining 30% to continue pursuing other investments. If you're not confident that you'll have enough for your retirement, keeping your investments diversified may be the better option. Remember that your gold holdings will also increase in value over time, so the money you have stored in gold won't be sitting idle.
Know the 3 Types of Gold IRA Accounts
Before you begin the process of setting up your self-directed gold IRA, you should familiarize yourself with the three options open to you. Below, you'll find a brief description of each type to help you determine which one best fits your needs.
Traditional Gold IRAs
This is the type of self-directed gold IRA account most people choose since it's the simplest. Keep track of the money you contribute to your gold IRA because you'll be able to deduct those contributions when you file your income taxes each year. Upon taking distributions at retirement, you'll pay taxes on those payouts.
Roth Gold IRA
When you choose a Roth gold IRA, you'll pay taxes on the contributions you make each year. Once in the account, those funds and growth they generate remain tax-free. Even when you begin taking disbursements at retirement age, you won't pay taxes. Another benefit of the Roth IRA is that distribution amounts aren't limited. The annual contribution limits for both types of accounts are the same. Currently, those limits are at $6,500 for people under 50 and $7,500 for those over 50 years of age.
SEP Gold IRA
This is an option for self-employed individuals and small business owners. It allows you to set up a self-directed gold IRA for your employees. As the employer, you can contribute to your employees' accounts or to your own. When contributing to your employees' gold IRAs, you would be limited to $66,000 annually. When contributing to your own account, you cannot contribute more than 25% of your net self-employment income.
Tips for Investing in Gold
When you're new to the gold market, you might feel a little overwhelmed by all you'll have to learn. While you should take time to learn how the market fluctuates, following a few tips from experienced precious metals investors can help you learn the ropes.
Choose a Reputable Depository
One reason the IRS requires investors to use one of their approved U.S. depositories is to protect those investors. There are some depositories that may have unethical or undisclosed business practices, such as loaning out the gold stored in their clients' vaults. If you need your gold in a financial crisis, you'll want to make sure it's in your vault. A government-approved facility won't engage in these practices. You own your vault and its contents, and no one else can access your gold or other precious metals.
Buy a Wide Range of Gold Products
When using a self-directed IRA to buy gold or other precious metals, you will have to meet the government's purity requirements. Other than that, you're free to buy any products that interest you. Try to avoid only buying gold bars. When it comes time to start taking disbursements from your self-directed IRA, liquidating an entire bar can be problematic. Unless you need the full value of the gold bar, liquidating it will leave those funds sitting idle in your account. You should also buy a wide range of gold coins. The coins will still meet purity requirements, and you can liquidate your gold in smaller increments.
Own Your Gold
A mistake many first-time gold investors make is using their credit cards to buy gold. When you use your credit to make gold purchases, you don't really own that gold. You'll be paying high interest rates and it's unlikely that your gold will mature enough to pay for itself within a single billing cycle. Instead, use your personal savings in your self-directed IRA to buy gold. You will own those bars and coins outright, and you'll enjoy the more immediate benefits of owning gold as a result.
Give Your Gold a 5-Year Lead
When rolling money over into your gold IRA to make gold purchases, be sure you won't need that money for a minimum of five years. This is why it's a good idea to only roll 15% of your savings over into your gold IRA as you start out. While gold matures fairly consistently from year to year, you won't see a substantial return for five years or longer. If you try to sell your gold sooner, you may not see the returns on your investment that you anticipated. While there are sometimes exceptions to this rule when gold values spike, it's better to plan on holding onto your gold for that minimum period of time.
3 Top-Rated Gold IRA Companies
If you’re starting your first self-directed gold IRA, you may need help with the initial process. A good gold IRA company can help you choose a custodian, select a depository, and initiate your rollover. The following companies offer these services and maintain high satisfaction ratings with the majority of their customers.
Every gold IRA company stands out for excellent service in a different area, and Augusta is known for their transparent fees and modest pricing. While they do require a higher initial purchase than some other companies, their level of service makes the required initial investment worthwhile. They will provide dedicated assistance with every aspect of your IRA setup as well.
They have some educational materials that will help you learn more about their services and investing in precious metals. If you have any questions throughout the process, the representative assigned to you will be there to assist with your needs. In addition to gold, they sell a wide range of silver, platinum, and palladium products.
There are some gold IRA companies that are primarily interested in selling their products. Other companies, like Goldco, have built success on their dedication to quality customer service. They want to encourage informed investors to work with them. To meet that objective, they send out free startup kits to anyone interested in opening an account with them. Once you become one of their customers, they will grant you access to an extensive library of educational materials.
From videos and webinars to blogs and other textual materials, you’ll have full access to the information you need to make knowledgeable decisions in buying gold with your IRA. They also sell a wide range of precious metals and offer guidance in choosing the best metals to meet your investing goals. Their rollover assistance is similar to the startup assistance offered by the other companies, ensuring you can set up your gold IRA quickly and in accordance with the IRS’ rollover requirements.
If you’re looking for a low initial purchase requirement and a wide range of precious metals, American Hartford Gold offers what you need. They will provide help in rolling over from your 401k or any other retirement investment account. Their educational resources are created by financial analysts with Harvard educations to ensure their customers can rely on the information in those materials. Similar to the previously mentioned companies, they can recommend IRA custodians and government-approved depositories to simplify the startup process.
American Hartford Gold is also known for their generous buyback guarantee. They want to ensure their customers can liquidate their gold purchases quickly without sacrificing value. They offer lifetime assistance for their customers, so help is just a phone call away for as long as you maintain an active account. While they don’t list their fees on their website, you can call them anytime to inquire about fees, products, prices, and the other services they provide.
You can modify these suggestions to suit your own preferences or situation, but keep in mind that most gold IRA companies do have minimum purchase requirements. As long as you can meet those startup requirements, you can determine how best to divide up your retirement savings. In addition to helping you protect the money you have already saved, buying gold will help you grow more wealth gradually through the appreciation of gold. When you're ready to retire, you'll have the physical assets to fund your lifestyle.