Precious metal IRA: How to invest in gold and silver

What is a precious metals IRA?

A precious metals IRA is a type of self-directed individual retirement account (IRA) that allows you to invest in physical metals such as gold, silver, platinum and palladium. Standard IRAs don’t let you buy alternative assets such as precious metals, real estate or crypto, but you can invest in these assets within a self-directed IRA.

“Within an IRA, you can hold precious metals such as gold and silver bullion or indirectly through precious metal ETFs [exchange-traded funds],” said Nathan Mueller, financial planner and financial coach at BlackBird Finance in Pagosa Springs, Colorado. “You may additionally have precious metal coins that meet specific criteria.”

Precious metals IRAs enjoy the same tax advantages as standard IRAs but have a few extra rules for investing, such as that any physical metals you buy be stored with an approved custodian. This ensures your investments are insured in case of loss or theft. There are also specific requirements for the type of precious metals that you are allowed to invest in within your IRA.

» MORE: What is a gold IRA?

What precious metals can you invest in an IRA?

Self-directed IRA accounts let you buy precious metals, but there are some limitations to be aware of:

• Only four different metals: You can only invest in gold, silver, platinum or palladium within an IRA. Other precious metals are not allowed.
• Bullion only: Precious metals can be owned in a self-directed IRA in the form of coins, rounds or bars that meet certain requirements. You cannot own precious metals in the form of jewelry or with other gems or valuables attached.
• Purity requirements: There are purity requirements for the precious metals within an IRA. Gold must be 99.5% pure, silver must be 99.9% pure, and both platinum and palladium must be 99.95% pure. The only exception to this rule is the American Gold Eagle coin.
• Other requirements: Precious metals held in an IRA must be produced by an accredited manufacturer or be directly from a government mint. Coins and other forms must be in excellent condition, with most requiring proof of authenticity.

» MORE: Is gold a good investment?

Pros and cons of precious metals IRAs

Investing in precious metals within your retirement account offers a way to diversify your holdings into alternative assets. You can also buy and sell precious metals without a massive tax bill each year.

“It can act as a hedge against economic uncertainty and a hedge against inflation,” said Mueller. “Another pro is that taxes change when precious metals are held in an IRA compared to a non-retirement account. Precious metals will be taxed at a 28% capital gains rate, much higher than the 20% long-term capital gain rate that most Americans would pay on other investments.”

But there are also risks of investing in precious metals. Prices may not keep up with the stock market, and there is often more volatility than other investments.

How to open a precious metals IRA

There are quite a few gold IRA providers online, but you’ll want to find one that also offers other precious metals. These IRA providers help you open a self-directed IRA account and walk you through setting up your account to purchase precious metals.

Precious metals IRA companies are licensed and work with an approved custodian to store your metals.

Once you’ve chosen a company, here’s what you’ll need to do to set everything up:

1. Open your account. You’ll need to provide your personal and financial information, including your name, address, email and Social Security number. Some precious metals IRAs also require paying a one-time setup fee.
2. Transfer funds. You can deposit cash (up to the annual IRA limits) or roll over funds from another IRA. If you choose to roll over, you’ll need to sell investments into cash first because your old investments can’t transfer to a precious metals IRA.
3. Purchase precious metals. You can choose which precious metals to purchase within your account. You can purchase physical coins, rounds and bars, which will be securely stored with an approved custodian. You can withdraw them in retirement starting at age 59½.

Bottom line

Investing in precious metals can offer diversification, but there is a hefty tax when selling them, as the IRS sees them as collectibles. Investing in a precious metals IRA can help you avoid those larger tax rates while owning a physical asset for retirement.

Precious metals are more volatile than traditional investments and may not outperform the stock market, but they can be a great hedge in an inflationary environment. Just make sure to do your research before investing a large chunk of your portfolio into precious metals.