According to reports, 41% of Americans say that it will “take a miracle” for them to be financially secure in their retirement.
If you’re part of the remaining 59% of Americans who are working consistently toward retirement readiness, you’re in a much healthier position. However, rising inflation and economic and fiscal uncertainty are causing many people to question the security of their retirement savings.
Are you worried your portfolio is going to devalue over time, and erode your lifestyle? If so, you may want to convert your IRA to a gold IRA.
Like regular IRAs, a gold IRA comes with valuable tax benefits. While giving you the chance to hedge against inflation and diversify into a safe haven asset class.
In this IRA to gold guide, we get into how gold IRAs work, their benefits, and how to convert your IRA to a gold self-directed IRA. If you’re interested to know more, read on.
What Are Gold IRAs?
Gold IRAs function in the same way that regular IRAs do. They allow for all the same tax advantages and are just as secure. However, unlike traditional IRAs, gold IRAs also allow you to invest in gold and other precious metals.
With a traditional IRA, you can invest in a wide range of assets. Including stocks, bonds, and ETFs. But you can’t invest in collectibles.
Gold, silver, and other precious metals are classed as collectibles for tax purposes. Therefore, you cannot invest in these assets with a regular IRA or 401k.
All gold IRAs are self-directed IRAs. Self-directed IRAs allow holders to invest in asset classes that are prohibited with regular IRAs, including real estate, commodities, private placements, limited partnerships, and, most importantly, precious metals.
Self-directed IRAs are designed to accommodate more informed investors. Self-directed accounts are administered by a custodian or trustee but allow for self-management by the account holder.
Other Types of Precious Metal IRAs
If you want to diversify further and invest in other metals besides gold, you can do this via a precious metals IRA. For instance, here at Allegiance Gold, we offer a custom metals IRA option.
With our custom metals IRA you can invest in the top four precious metals, which are gold silver, platinum, and palladium.
Reasons to Switch Your IRA to a Gold Self-Directed IRA
Gold IRAs and self-directed IRAs are less common than traditional IRAs, but they have some distinct advantages. While they offer all of the same tax benefits as regular IRAs, gold IRAs allow you to diversify into an asset class that has achieved ultimate safe haven status.
Here are a few reasons why you may want to convert your traditional IRA to a gold self-directed IRA.
Gold Is an Inflation Hedge
Gold is a favorite inflation hedge among seasoned investors. Simply put, when the dollar loses value, gold automatically gains value. The higher inflation rises, the more dollars it takes to buy gold. Therefore, investing in gold can be a highly effective hedge against inflation over the long term.
Inflation is the kryptonite of any retirement savings or wealth-building plan. If you don’t put your money into the right assets, their value will erode over time. Instead of building wealth, you’ll be losing a portion of your holdings each year to the insidious effects of inflation.
Over the last few decades, Americans have enjoyed low inflation rates that didn’t pose an urgent risk to retirement savings. However, even regular, low rates of inflation can have a significant impact on retirement finances.
Research shows that most retirees dial back their spending by an average of 12% over 20 years. Under normal inflation rates, study results estimate that monthly expenses increase from $1,341 to $1,993 over 20 years, and result in a shortfall of $73,376.
If inflation is at 3%, the shortfall works out to over $117,000.
This might sound like a lot, but it’s nothing compared to the shortfall that current inflation rates can cause. This year, inflation in the US hit a 40-year record, surging to 8.6% in June.
Whether inflation will continue at these levels isn’t certain, but given the Federal Reserve’s penchant for steadily increasing money supply, many Americans are concerned that higher inflation rates have become the new norm.
It Has Intrinsic Value
Another benefit of including gold in your retirement portfolio is that it holds intrinsic value. Unlike stocks that are reliant on the performance of companies, gold’s value is as old as the hills.
When you invest in stocks and bonds, you’re at the mercy of swings in the market. If assets in your portfolio plunge to near zero, there’s little you can do except get out as early as possible or hold in the hopes they’ll regain value.
Although gold does experience a certain level of volatility, there’s almost no chance of its value going to zero. If supply outstrips demand, the price will drop, but as there is only so much gold in the world, there’s a limit to how far values can drop.
New reserves of gold are still being mined, which increases the supply. However, mining costs act as a control, and the world’s gold reserves aren’t endless. According to estimates, roughly 80% of the world’s gold reserves have been mined already.
Gold Is Considered a Safe Haven Asset
Because gold has intrinsic value, it’s also one of the world’s oldest safe haven assets.
Over the last decade, there have been speculations over gold’s power as a safe haven. As markets become more diverse and refined, does gold still have the ability to protect your portfolio from disaster in times of trouble?
Recent history would suggest yes.
Soon after COVID-19 lockdown measures were enacted, the stock markets plunged into chaos. In response to plummeting prices and uncertainty many investors, fund managers, and consumers moved into gold. If you look at a recent gold price chart, you’ll see this reflected in a big price jump during 2020.
According to research, gold performed very well as a safe haven during the COVID-19 economic crash.
You’ll Gain Flexibility Over Your Retirement Savings
Although they offer significant tax benefits, regular IRAs can be restrictive. With a gold IRA, you can gain back flexibility over your retirement savings portfolio.
Instead of being confined to asset classes that are susceptible to market crashes, you can diversify into precious metals. Diversification is key to any well-formulated asset portfolio, but it’s especially imperative for retirement savings.
Retirement savings need to be hedged in a way that counteracts inflation and achieves a low-risk profile. Some financial advisors will tell you that the only way to keep your risk profile down is by investing in low-risk, low-return assets.
While this might protect your portfolio from volatility, it won’t safeguard it from inflation. By hedging low-volatility assets such as bonds, with assets that have more volatility, but also inherent value, you can protect and grow your portfolio at the same time.
Why Choose a Gold IRA Over Buying Gold Directly
If you’re considering investing in gold, you might be wondering, why should I choose a gold IRA over buying gold directly? Here are a few reasons why a gold IRA can be a more advantageous option.
You’ll Enjoy Tax Savings
The first and most obvious benefit of gold IRAs is they afford you the same tax savings as a regular IRA. The portion of your income that you divert to your gold IRA is tax-free.
The tax on growth is also deferred. If you’re likely to be in a lower tax bracket after retirement, deferring taxes until this stage is beneficial.
If you invest in gold without the tax benefits that come with an IRA vehicle, the amount you invest won’t reduce your taxable income.
Gold IRAs Are More Convenient Than Regular Gold Investments
Besides lowering your taxable income, gold IRAs can also be more streamlined than regular gold investing. If you buy gold bars or coins, you will need to arrange for secure storage.
Gold IRA providers facilitate streamlined precious metal purchasing and guaranteed secure storage.
Gold IRAs Are More Secure Than Gold ETFs
Besides investing in gold bars and coins, you can also choose to invest via gold and precious metal ETFs. Although gold ETFs offer a fluid and convenient way to get into gold, they have similar vulnerabilities as stocks.
If the ETF company runs into trouble, its shares will drop in value.
How to Switch to a Gold IRA
Gold IRAs offer a convenient, tax-optimized way to diversify your retirement portfolio. They are also simple to open and manage, and you can easily rollover an existing IRA to a gold self-managed IRA.
Find a Reputable Gold IRA Administrator
If you want to diversify your holdings via a gold IRA, the first step is to find a trustworthy provider. The financial institution you choose should have a long track record of administering precious metals IRAs and be affiliated with reputable precious metals storage facilities.
Allegiance Gold is an industry-leading gold IRA administrator, having achieved the highest possible rating verified by third-party consumer protection agencies. Our extensive experience has helped thousands of clients secure their financial futures.
We partner with a number of leading precious metals custodians to ensure the security of your investments, including Equity Trust, Strata Trust, IRA Innovation, GoldStar, and Entrust.
Open Your Gold IRA Account
Once you have identified a reputable gold IRA provider, the next step is to open a self-directed gold IRA account.
If you elect to open a gold IRA with Allegiance Gold, our representatives and management teams will assist you with your account. We will also work with you to select the commodities you want. If you just want to invest in gold, we will facilitate the opening of a gold IRA.
Alternatively, if you wish to diversify into other precious metals as well, we will walk you through opening a custom precious metals account.
Once you have created a gold IRA account, your provider’s order desk will engage with its administrator and broker the precious metals purchase.
Besides brokering the precious metal purchases, your gold IRA administrator will also be responsible for ensuring your account is compliant with IRS requirements. They will keep a record of all transaction details and are responsible for submitting your account statements to the IRS.
Theoretically, you can start a gold IRA with any amount of capital, and there isn’t a minimum threshold. However, most reputable providers will encourage you to contribute enough to render your transactions worthwhile.
Authorize a Rollover From Your Existing IRA
If you wish to convert an existing IRA to a gold IRA, you can choose between doing a direct rollover or an indirect rollover.
During a direct rollover, the capital from your existing IRA will be sent directly to your new IRA custodian. The gold IRA administrator can assist you with all the necessary documents and communications with your existing IRA administrator.
During an indirect rollover, the funds from your existing IRA will first be transferred to you. After this, you will then transfer them to your gold IRA provider.
Indirect rollovers involve more paperwork to prove that you did in fact transfer the funds on to your new gold IRA and not take them as an early payout. Because of this, direct rollovers are usually the recommended option.
Can You Convert a 401k to a Gold IRA?
Not only can you rollover an existing IRA to a gold IRA, but you can also rollover a 401k account. The process is the same as for an IRA account.
Once you have opened a gold IRA, you will then need to contact your 401k provider and request a rollover. Once you have completed and submitted the necessary forms, the funds will then be transferred to your new gold IRA account.
Are You Considering Converting Your IRA to a Gold Self-Directed IRA?
Gold IRAs offer a tax-advantaged, secure avenue for investing in precious metals. Diversifying into tangible assets can protect your portfolio from swings in the market, and safeguard your wealth from the insidious effects of inflation.
If you are considering converting your existing IRA to a gold IRA, Allegiance Gold is here to help. With over 50 years of combined experience, we specialize in helping our clients secure their wealth through diversification into precious metals.
If you want to learn more about investing in precious metals or how gold IRAs work, contact us to book a free consultation with one of our senior portfolio managers.