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How Precious Metals IRA Work And Important IRA Rules To Know

Dec 6

A precious metals IRA, popularly known as a gold IRA is essentially a Self-Directed Individual Retirement Account used for holding in custody physical gold and other precious metals like silver, platinum and palladium, for the benefit of the owner of an IRA account. It is designed to function much the same way as the traditional IRA but it holds physical precious metals bullion bars or coins instead of paper assets. While precious metals IRAs come with higher fees than traditional IRAs limited for investing in stocks, bonds, mutual funds and such securities, what makes the Precious Metals IRA or gold IRAs a good idea for IRA investors is serving as a hedge against inflation in addition to other benefits.

Certain rules apply with IRAs that need to be taken into account when trying to transfer a 401k to gold in order to avoid a penalty. The best option is normally to do a direct rollover where funds are going to be transferred from one account to the other. IRA withdrawals before the age of 59½ years attract a 10% penalty. Normal income tax rates will also apply to such early IRA withdrawals. If the 401k is from a company where you no longer work, the funds can be rolled into a self-directed IRA. Once the funds are deposited into the IRA, they can be used to purchase gold, silver or other preferred precious metals. 

According to the IRS and IRA rules, physical possession of precious metals holdings is prohibited. But at the end of an IRA term, the account owner can take possession of the precious metals. That’s after the age of 59½ years when the precious metals in the self-directed IRA can be liquidated or physical possession is allowed without penalty. 

The conversion of an IRA to physical gold or other precious metals is summarized into these steps:

  1. Opening a new self-directed IRA account
  2. Initiating the funds transfer or rollover
  3. Finding  reputable dealer of precious metals 
  4. Choosing the preferred 3rd party depository
  5. Buying physical gold, silver, or other precious metals