One potentially advantageous way to begin investing in physical precious metals is by using an Individual Retirement Account, or “IRA”. An IRA offers certain tax benefits that make the investment vehicle quite attractive, especially considering that the USA allows IRA contributors to invest in physical gold, silver, and platinum.
Contributions and Withdrawals
Although IRA contributions are limited annually depending on your age bracket, all contributions are tax-deductible, meaning that any money you invest into your IRA can be deducted against your income taxes. So, an investor who falls into the 25% tax bracket and puts $4,000 into their IRA is able to save $1,000 on their income taxes for the year ($4,000 deducted from their income, times the 25% tax rate).
Once your money is in the IRA, you are free to buy, sell, trade, etc without incurring any tax liabilities. The only tax-event that can be triggered is upon withdrawing money from the IRA, at which point you pay ordinary income taxes on the withdrawn balance.
Precious metals IRAs have specific rules governing exactly which types of gold and silver are acceptable. We will go over each metal below:
Silver IRA Products
All American Silver Eagle and America the Beautiful coin products are approved for IRA contributions. Beyond that, .999 fine silver bars and rounds produced by NYMEX- or COMEX-approved suppliers are also acceptable. This includes the Canadian Silver Maple Leaf, Austrian Silver Philharmonic, and silver bars and rounds from reputable producers like Johnson Matthey and Engelhard.
Gold IRA Products
All American Gold Eagle and Gold Buffalo products are approved for IRA contributions. Beyond that, 24k (.999+ fine) gold bars or coins produced by NYMEX- or COMEX- approved suppliers are also acceptable. This includes the Canadian Gold Maple Leaf, Austrian Gold Philharmonic, and gold bars and rounds from reputable producers like PAMP Suisse and Credit Suisse.
How to Set Up a Precious Metals IRA
An investor must complete three steps to set up a precious metals IRA: find an IRA custodian who allows precious metals/fund the account, purchase precious metals, and select a depository.
Precious metals IRAs are still far from a mainstream product, so you typically have to work with a specialty custodian who allows self-directed precious metals IRAs. Once you find a custodian that is acceptable, you will open an account with them and fund your account with your IRA contribution.
Once your account is funded, you can begin searching for a precious metals dealer. We recommend JMBullion.com, or Silver.com once our retail website is live in early 2013. Make sure to contact the retailer to notify them of your IRA contribution, and you can typically negotiate preferable rates if you are bulk purchasing.
After locking in your pricing, you will complete a Buy Direction Letter allowing the dealer to invoice your IRA custodian. Once the dealer sends and invoice and the BDL over to the custodian, they will receive the payment and ship your products.
A specific rule surrounding precious metals IRAs is that the investor cannot actually take physical delivery of the precious metals. The products must be physically stored in a third-party depository, so you need to find a preferred depository and instruct your dealer to ship the metals there on your behalf. Upon receipt of the metal, the depository will notify your IRA custodian that the transaction is complete, and from there you simply watch your investment mature over time.