The key word floating around currently when it comes to safeguarding one’s assets is: Diversification. Gold IRAs offer individuals the chance to diversify their investment portfolio by including precious metals that retain their value through economic downturns and periods of inflation.
These qualities have made gold and other precious metals a highly valued commodity in today’s uncertain economic climate. Having said that, there’s one common misconception floating around about the gold kept in gold IRAs. That misconception being that the retirement account holder can take charge of their precious metal assets whenever they desire. When in fact they can’t, at least not until they reach retirement age.
However, that begs the question, who actually does hold the gold in your gold IRA? Let’s find out in this post.
Understanding Gold IRAs
A gold IRA, also known as a precious metals IRA, functions quite like a traditional IRA. The only difference being that it allows individuals to invest in physical gold, silver, platinum and palladium instead of traditional investment options like stocks and bonds.
There’s plenty of confusion between self-directed IRAs and gold IRAs as well, so let us clear that up for you too.
Self Directed IRA
A self directed IRA is a retirement account that allows you to invest in alternative investments including real estate, private equity and precious metals. That is in addition to traditional investments like the ones we’ve just mentioned.
Gold IRA
A gold IRA on the other hand is a type of self-directed IRA that only allows you to invest in precious metals like gold, silver etc. So, in short, a gold IRA is a self-directed IRA, but not every self-directed IRA can be a gold IRA.
Like traditional IRAs, gold IRAs offer potential tax advantages. Contributions to a gold IRA may be tax deductible, which reduces your overall taxable income in the year of the contribution. Plus, investments made in a gold IRA can grow tax deferred until you start making withdrawals after reaching retirement age.
In any case, opening and investing in a gold IRA can greatly help diversify your investment portfolio. Mainly because gold acts as a hedge against inflation and economic uncertainty due to its low correlation with traditional assets like stocks and bonds. In short, when the value of fiat currencies fall, having gold in your portfolio can help maintain your purchasing power.
The Custodian's Role in a Gold IRA
Having a gold IRA is all well and good, but if you can’t assume control of the account directly, then who can? Well, that role falls to the custodian of your retirement account. Just until you’ve reached retirement age, after which distributions from the account cannot be penalized. Retirement age in most states in the US is 59 ½.
As an IRA account holder you have the right to pick your own custodian who’ll manage your account until it's time to hand it over to you. For that service most custodians charge a fee.
Any potential custodians you look at should be properly registered with relevant financial authorities. These include the Securities and Exchange Commission (SEC) and state security regulators. Next, custodians should be approved and registered with the IRS (Internal Revenue Service) to offer self-directed IRAs or more specifically, gold IRAs. In short, they should comply with all IRS regulations. That’s just the bare minimum.
To pick out the best custodians for your account you need to check their financial stability as well, and whether or not they have proper insurance coverage. Lastly, you need to carefully read over the custodial agreements they send to check if they clearly outline the terms and conditions of your gold IRA. Read my article on the top recommendations for gold IRA custodians, where you will find the best options such as Goldco and Augusta Precious Metals.
Selecting a Custodian for Your Gold IRA
Having shortlisted a few top custodians that fulfill the criteria mentioned above, the next job is to select the one that’s going to manage your account. A decision like that will require further due diligence.
Knowledgeable Staff
For one, you’ll need to contact each custodian on their registered phone number and ask them questions about the service they offer. Ask the staff member questions about the intricacies of gold IRAs and how they function. For that you’ll have to do some homework of your own.
Ask them about how you can invest in a gold IRA and about the storage option they can provide to store your precious metals. Ask them how they handle IRA rollovers and how they overcome hurdles associated with the process. Also, they should be aware of all IRS rules regarding the investment and storage of precious metals within a gold IRA.
Transparent Reporting and Record keeping
What really separates the great custodians from the good ones though is the timeliness and transparency of their reporting to account holders. Any and all custodians that satisfy that criteria are a good fit for you and your gold IRA.
Your custodian should be regular and transparent when reporting the spot market value and condition of your account’s holdings. Each statement produced should be incredibly detailed and should signify how much your assets will be worth in the future.
Apart from that, the custodian should keep track of all transactions related to your gold IRA. This helps ensure that your account is complying with IRS regulations and creates a clear audit trail.
Previous Track Record and Customer Feedback
For additional security, you can look at feedback from existing customers of your shortlisted custodians for some feedback on their services. Most reputable custodians display customer feedback on their official website.
Having said that, do make sure to go through the reviews your potential custodian has received on third party platforms, as organizations often only present positive testimonials on their website.
While you’re at it, also make sure to check if there’s any mention of an instance where your potential custodian lost or misplaced a customer’s assets.
Storage Options for Gold IRA
One of the key responsibilities of your gold IRA custodian is to select a secure storage facility for your precious metals. Each custodian comes with their own list of depositories for your precious metals. The choice then is yours to pick the storage option that best suits you. It also falls on you to check if the list provided by your custodian is of IRS-approved depositories that have a proven track record of handling precious metals.
All IRS-approved depositories are specialized facilities designed to store precious metals held in gold IRAs. In other words, there is no correlation between them and regular bank vaults. Previously, gold IRA holders also had the option of storing their precious metal assets at home. However, the IRS has since prohibited home storage, due to homes being considerably less secure than specialized depositories.
Additionally, you also have the option of deciding whether you want to keep your precious metals in either commingled or segregated storage. Usually, segregated storage is the more preferred option as it means that your assets will be kept separate from the assets of other gold IRA holders. The fees for segregated storage are considerably higher though.
In commingled storage, your assets are kept with the assets of other gold IRA holders, which can result in your assets being misplaced. However, the most reputable depositories take great care to ensure that your assets are kept safe even when kept in commingled storage.
Access and Control Over Your Gold IRA Assets
We’ve gone over this before in the article, but since it's such a huge part of being a gold IRA owner, let us tell you once again the level of access you’ll have over your gold IRA assets.
IRA Access Distinctions
Plenty of individuals confuse gold IRAs with regular accounts, where you're the only one who can access your account and its funds. An IRA by definition is a retirement account that you can only access after you’ve reached retirement age. That definition stays the same for every type of IRA, whether it be a self-directed IRA, gold IRA or traditional IRA.
Early Access Considerations
Technically, it is possible to access the precious metals in your gold IRA before retirement age. However, that comes with various tax penalties and can sometimes lead to the tax-deferred status of your account being revoked by the IRS.
Penalties for Early Access
The primary repercussion of withdrawing or distributing funds from a gold IRA is an early withdrawal penalty of 10% of the distribution amount. In addition, any funds withdrawn early from a gold IRA are generally also subject to regular income tax. That’s because the withdrawn amount is added to the individual’s total taxable income for that year.
Custodial Responsibilities
Your account’s custodian is the only one who has physical access to your assets before you reach retirement age. Your custodian in fact is responsible for providing you with regular status reports on your invested precious metals, along with their current market value.
Hopefully this explanation should clear up any common misconceptions among potential gold IRA holders about the physical possession of their assets.
Risks and Considerations
As we near the end of this article, we’d like to stress once again the importance of choosing a reputable custodian for your gold IRA. For that you’ll have to take some key risks into consideration.
Firstly, you must ensure that the custodian you choose is financially stable and won’t go out of business until your retirement age. That’s because if your custodian does go out of business or experience financial instability it could impact the safety and management of your precious metal assets. Secondly, you need to make sure that your chosen custodian is complying with all IRS regulations, as non-compliance can lead to tax penalties for account holders.
You’ll have to do the same amount of due diligence when selecting a storage option for your assets as well. Especially since theft, fraud or any other security breaches could result in you losing your precious metals. Thus, you have to make sure that you verify all security measures implemented by the storage facility you’ve chosen.
Yes, the fees associated with choosing a reputable custodian and storage facility will be considerably higher, but that’s worth it if your assets will be protected to the highest degree.
Conclusion
To summarize, while you are the primary holder of your gold IRA, you cannot access any of your precious metal assets until you reach retirement age. Your account’s custodian is responsible for managing, storing and accessing your precious metals during that time.
Your custodian is also responsible for organizing the storage of your precious metals. The only input you have in the matter is selecting an IRS-approved depository from the list provided to you by your custodian.
Hence why it is incredibly important that you choose your account’s custodian and the storage facility for your assets wisely. For guidance on choosing a gold IRA custodian, see my top recommendations here.