Convert IRA to Gold: The Ultimate Guide

Even though a traditional IRA is a smart way to save for retirement, your account size might still shrink especially during economic downturns. This is because financial securities such as bonds and stocks are sensitive to market changes – and they tend to plummet during recessions.

On the contrary, opting for a gold IRA provides you with a much more stable way to withstand tough economic times while still getting to enjoy the tax benefits of a regular IRA.

This is why it's always a good idea to convert IRA to gold, especially when the economy is shrinking and the inflation rate is going through the roof. How do you go about that? Find out more in this piece.

What Is a Traditional IRA & How Does It Differ from Precious Metals IRA?

A traditional IRA is an investment vehicle through which you can save for your retirement. It comes with tax-deferred benefits meaning your earnings grow without being taxed. You’re only required to pay taxes upon withdrawal i.e. when you hit the legal retirement age. This can result in huge tax savings especially if you expect to be at a lower tax band when that time comes.

Both regular and gold IRAs are used to save for retirement (with tax-deferred benefits), but there is a significant difference between the two. The former hold paper assets such as stocks and bonds, while the latter category is meant for tangible precious metal coins and bars.

Why Should I Consider Moving My Funds from A Traditional IRA To Gold?

So, why convert your traditional IRA to Gold IRA? As it turns out, there are quite a few good reasons why it’s a good idea to opt for an account transfer or rollover.

You Get Extra Flexibility

Unlike regular IRAs, a gold IRA does not restrict you to paper assets. Instead, you can go for physical gold (silver, platinum, or even palladium), giving you more control over your retirement funds.

Potential for Better Returns

History shows that precious metals record excellent growth potential in the long run. So, your IRA account will grow its value as the years go by. This is unlike paper currency which tends to greatly lose value as time goes by.

Better Cushion in Times of Chaos

Gold unlike paper investments will always have value even if the government of the day is overthrown and there’s chaos everywhere. Precious metals have intrinsic value meaning their value does not have to be backed by any government.

Inflation Hedge

Hyperinflation can easily erode your wealth if you keep all your wealth in a traditional IRA account. On the other hand, gold tends to gain value even when the value of one’s local currency is declining and the prices of all goods are rising.

As such, gold provides an iron-clad alternative to paper-based assets which can easily lose value due to inflation.

Diverse Portfolio

Diversity is the name of the game when it comes to investments. Therefore, if you've only been keeping your hard-earned cash in your traditional IRA, it might be a good idea to diversify into other high-value investments among them precious metals and even real estate.

That way, you can rest assured that your wealth will be protected, no matter what.

How to Convert IRA to Gold

Is the process of converting IRA to gold complicated? What's the paperwork like? What are the challenges? As it turns out, the process is a lot easier than most people think. Let's walk you through the steps involved.

1. Choose your Ideal Gold IRA Company

This first step may be tiresome, but it is very crucial. One of the IRS requirements is that you use the services of a gold IRA company to acquire gold (or other IRS-approved precious metals). 

Some of the top gold IRA companies you could work with include Goldco, Augusta Precious metals, American Hartford Gold, Birch Gold, and Noble Gold. Take your time to research each company so that you find one that ticks all the right boxes.

You could start by checking the company’s customer reviews, BBB ratings, and independent insights posted on various consumer protection websites.

Lastly, you could rate a company by its customer support and how they respond to your queries. A reliable company is one that responds promptly and professionally to all your queries.

2. Contact the administrator of your current IRA account

After finding your ideal company, you should now call the administrator of your existing IRA account and inform them of your intention to rollover or transfer your IRA funds. It could be all or some of the funds.

Here, you have to be clear about whether you are transferring or rolling over your funds to the gold IRA. What is the difference between the two? Here it is:

Transfer

In this case, your gold IRA company will handle the entire process so that you won't have to touch your money. It will take roughly four days to two weeks for the funds to be transferred to your self-directed IRA account.

Since you won't be handling the cash, you will be safe from the early-withdrawal risk, which could attract a penalty of 10% from the IRS.

*Rollover

With a rollover, your IRA administrator will write you the cheque, but you have 60-days to re-invest that amount in a self-directed IRA. This method has its benefits and disadvantages as well. Even though you will have greater control over the entire process, you may attract a 10% IRS fine for failure to re-invest the money within 60 days.

3. Fill out the Paperwork

We understand that paperwork is not everyone's cup of tea, but it is necessary to complete the process. Once you have settled for your favorite gold IRA company, the administrator of your current IRA will send you the paperwork for transferring/rolling over the amount that you want to be converted to a gold IRA.

4. Funding your gold IRA

Once you are done with the paperwork, you provide your current IRA account manager with the correct details of your new account. And if you want the funding to be done in good time, you will have to specify the following:

  • The exact amount you want to be transferred to your gold IRA
  • How do you want to transfer the funds?
  • The type of account that you have, and so on

If you have already set up an account with one of the leading gold IRA companies, the only thing remaining is for the manager of your current IRA to send the funds to them directly. 

On the other hand, if you will be rolling over your account, you will send the cheque issued by your administrator to the gold IRA company that you set up with. 

5. Purchasing your Gold

If you have reached this point, it means that your transfer/rollover has been successful. When it comes to purchasing gold, you have to remember that the IRA requires all precious metals to be of the highest purity levels and from recognized mints. 

The purity level of gold bullion and coins for your IRA should be 99.95% and beyond. Further, for the gold to receive the tax benefits that IRAs do, it has to be produced by an IRS-approved mint. An excellent example of such is a national government mint e.g. The U.S Mint.

When it comes to purchasing precious metals, you can do so directly from your gold IRA Company or a precious metals dealer as advised by your IRA Company. Always be keen that the dealer you settle for only offers IRS-approved gold.

6. Storage

One of the IRS rules on the gold you have acquired is to store it in a secure gold depository until the time for withdrawing or selling it arrives. This depository is more secure than a bank deposit box or a safe at home, plus your custodian will be supervising it to ensure it remains safe.

Factors to Consider when choosing a depository

When choosing the ideal depository for holding your gold, there are several issues that you should put in mind. They include:

1) Location

Always go for the one that won’t inconvenience you when you want to visit the facility.

2) Fees

Since the fees are not constant from one facility to another, always go for the most affordable option available. Remember, affordability does not necessarily equate to cheap services.

3) Ratings

A reliable gold depository is IRS-approved and has favorable ratings on sites such as Better Business Bureau (BBB).

4) Audits

It would be best if you also went for a storage facility that conducts regular audits to ensure your gold is kept under the highest standards without compromising its safety.

Note That:

The IRS requires that you keep your gold in a recognized storage facility rather than at home. If you decide to keep it at home, it will qualify as a distribution, and if you haven't attained the age of 59 ½ years, you will attract a tax penalty of 10%.

In addition to that, the gold at home won't enjoy the tax benefits of a gold IRA, and you will have to pay income taxes on the distribution.

Conclusion

There you have it – a comprehensive guide on what it takes to convert IRA to gold. Remember the process is a lot easier when you get a gold IRA company involved.

You need all the experience you can get so that the paperwork is done appropriately lest you attract penalties. Fortunately, once done right this can easily be one of the biggest game-changers in your wealth creation journey.