It’s incumbent on every investor to make a decision about their investment objectives.
Whatever it is they want to get from their investment activities will determine which types of investments will help them meet their goals. As an investor, you have that same obligation to yourself.
It’s important for you to remember that not all investment options will create tremendous growth opportunities without the presence of significant risks. In fact, it’s safe to say there’s usually a direct correlation between potential rewards versus the risks involved with securing those rewards. All of this knowledge should be important to you as you make investment decisions related to your Individual Retirement Account (IRA).
While some investments are intended as growth opportunities, there are some investments that are better suited for a different investment strategy. Precious metals would certainly fall into that category. Going forward, the discussion is going to center on gold as an IRA investment.
What are IRAs and how do they work
In corporate America, most employees are given access to some type of a retirement investment account, normally a 401K account. For the self-employed and employees in smaller companies, access to a 401K option might not be available. In such cases, individuals are allowed to reap certain tax benefits by investing in some type of IRA.
Almost by definition, an IRA is a retirement investment account held at a licensed financial institution on behalf of the investor. While an IRA provides several interesting benefits, it’s the tax benefits that demand the most attention. With some types of IRAs, monies can be invested on a tax-deferred basis while other options permit investment on a tax-free growth basis. As is the case with 401K account, basic tax laws are applicable as long as distributions are not taken prior to the investor being 59.5 years of age. Distributions taken prior to that age will result in ITS penalty.
Types of IRAs
There numerous types of IRAs. For purposes of the following discussion, the focus will fall on the three most popular options.
Contributions are made on a tax-deferred basis on pre-tax earnings. Taxes become applicable on contributions and related earnings when distributions are taken. Individual IRAs permit a wide range of investment options, including precious metals and real estate.
Very similar to the Traditional IRA with one major difference. Contributions are made with after-tax dollars will all investment earnings being tax-free.
Very similar to a traditional IRA with the exception of contributions being made by the individual’s employer on the employee’s behalf. This is a common alternative for business owners who don’t qualify to offer their employees a 401K option.
Investing in gold through IRAs
If you are interested in using gold as an investment in your IRA portfolio, you have two options. With the first option, you would secure a standard IRA and simply choose to place gold in the account as part of the investment portfolio. With the other option, you could actually open what the investment community refers to as a gold backed IRA account. In both cases, the IRS allows the investor to place gold in their IRA as long as the gold is stored as directed by the IRS.
Is gold a good IRA investment
The price of gold is mostly influenced by two factors: the price of oil and inflation. Should one of those two things increase significantly, gold will typically move in the same direction.
Keeping that in mind, gold is not really a good growth investment. In other words, it doesn’t tend to continue growing over time. Gold actually has more value as a hedge against the aforementioned increase in oil prices or inflation. Here’s an example for clarification.
If you are invested heavily in stocks, you can expect stocks to take a hit in an inflationary environment. If you also hold gold in your portfolio, the increase in the price of gold would help offset the loss in value from your stock portfolio. Hence, it’s a good hedge. While you could certainly take advantage of temporary increases in gold prices by actually selling at the right time, you should not go forward expecting consistent annual growth.
Dealing in precious metals like gold is a complicated process, especially if it’s going into your IRA. You can protect yourself from mistakes but reading current laws and speaking with investment experts.