If you have not started your retirement savings yet, you have to do it now. Some are not as interested in investing as they think that they do not need it. Actually, if you want to have an independent and comfortable senior year, you have to consider investing, particularly in IRA. IRA stands for Individual Retirement Account; it is a form of pension being given by some financial institutions. It offers tax advantages for your retirement savings.
IRA is a kind of trust that holds assets invested and purchased by a taxpayer’s earned income for his/her eventual benefit as he/she reaches his/her old age.
Actually, more people are familiar with the traditional IRAs where aspiring retirees open an account at a brokerage firm. When you choose this investment, the money you invest will buy bonds, mutual funds and stocks.
Meanwhile, the less familiar self-directed IRA investment option, is the more recommended option, especially if you want to manage your own investment. Self-directed IRA lets you get the same tax advantage as the traditional IRA and it also has the same guidelines as the latter. The only difference in self-directed IRA is you can manage your investment and your investment options are not only limited to what the brokers can offer.
The investment options you have when you choose a self-directed IRA are broad, and this includes assets that you can touch and see like business, cash flow real estate, business and other precious metals, like gold, platinum, palladium and of course, silver.
A silver IRA is just like an IRA that comes with some kind of silver investment included in the account.
Self directed IRA offers investors with a great dispense of investment flexibility. The only investment that is not allowed by the Internal Revenue Service (IRS) regulations are collectibles and life insurance. This means that you can buy silver or any other precious metals of your choice with a self-directed IRA.
The limitations on the collectibles include coins that are being collected because they are made. The IRS only allows a certain type of silver bar and coins whose values are highly dependent on their metal content.
Also, it is your responsibility to follow the regulations set by the IRS for storing and purchasing physical silver.
The prohibition on collectibles includes collectible coins. The IRS allows only certain types of silver coins and bars whose value depends entirely on their metal content. In addition, you must follow IRS regulations for purchasing and storing physical silver.
Providers of self directed Individual Retirement Accounts impose a few restrictions, compared to a managed account that will limit your opportunity to just bonds and stocks or even restrict you just to bank CDs.
Brokerage firms and banks may offer self directed Individual Retirement Accounts, you just have to choose wisely which of them to trust. Apart from the ones mentioned, there are also custodian firms that offer this type of account.
Moving on, under the rules of the IRS, you cannot take possession of precious metals you purchased using an IRA, and neither your account custodian can do that. Most of the time, account providers that grant IRA investment in silver or any precious metals have created an arrangement with a depository to where you can keep your precious metal.
You can fund your IRA by giving contributions. You are allowed to deposit up to five thousand five hundred US dollars every year, and when you reach the age of fifty, your limit goes up one thousand US dollars more because of the program they call “catch up contribution” where you can add up $1000 more from your current maximum contribution per year.
You can choose the type of silver bullion to invest in with your self directed Individual Retirement Accounts (IRA). The IRS allows the Canadian Maple Leaf, Austrian Philharmonic and American Eagle silver coins. You are also allowed to buy silver bars that adheres to the standards for purity of IRS.
You can instruct your IRA custodian/trustee to buy the silver of your choice using the money you have shared to your self-directed Individual Retirement Accounts. As per the rules of IRS, you are not allowed to deposit investment to your Individual Retirement Account. You have to initially deposit cash, then let the account custodian carry out the particular transaction.
Some Good To Know Information
There is a lot of information you need to know about IRA before you can consider yourself as a guru, to help you start with valuable information, read through the terms you can encounter in this type of investment:
IRS Publication 590 summarizes the rules for Individual Retirement Accounts, it states that the Investment Internal Revenue Service does not allow investment in collectibles in the IRA. Included in the items they prohibit are gemstones, antiques, rugs, metals and artwork. Also, included on the items they prohibit are coins, but only coins that are collectible, like coins that are rare or old that have high interest to coin collectors, not people who are interested with the coin because of the precious metal content of it.
Allowable Gold Coins
The tax law was very clear in terms of the coins that are allowed in the IRA. Allowable are one tenth ounce, one quarter, one half and one US gold coins and one ounce silver coins that were made by the US Treasury Department, these are American Eagle silver and gold coins.
Other Metal Investments
Apart from silver, you can also invest in specific platinum coins in your IRA, also palladium and platinum bullion. These metals come with more industrial value as they are being used in stimulus converters for autos, but their price has the tendency to follow the activity of gold.
Silver and gold bullion are allowed. Bullion is the metal that was made in bar form, instead of a coin.
If you want to invest in silver or gold in your Individual Retirement Account, you need to hire an IRA trustee or custodian. The trustee you will hire should be willing to handle the investment on your behalf.
There are trustees who are not willing to hold gold investment because it requires storage. Moreover, the silver should be stored under the trustee’s control to avoid the owner of the IRA from selling and accessing the gold or silver outside of the tax free structure of the Individual Retirement Account.
As per the law requirements, it is the trustee that needs to control the investments in your Individual Retirement Accounts. This is to make sure that the assets invested won’t be used outside their tax deferred or tax-exempt purposes.
The trustee or the custodian you will choose should provide a physical storage for your silver or gold coins, under his/her control. This can either be through a bank deposit box or a safe.
Expect that the trustee you will hire will bill you for the administrative expenses to your IRA. The expenses will not have a contribution on the maximum allowable Individual Retirement Accounts contribution for both Roth or a traditional account.
For instance, the maximum investment allowed per financial year in Roth account is $5000, and that amount you invest in a custodian in gold coins.
The custodian/trustee will bill you $200 yearly for storage and administration of the coins. The $200 will not be deducted on your maximum investment, hence, the amount you can invest in a year is still $5000.
Now that you know more about a lot of IRAs, the next things you need to know are the pros and cons of working with silver IRA companies.
The Pros And Cons Of Silver IRA
A self directed Individual Retirement Account can either be a Roth IRA or a traditional IRA. With the usual IRA, the account is being funded with pretax US dollars. You only have to pay income taxes when you want to take the money from your account at your retirement age.
So as the Roth, it is funded with post tax US dollars, so there is no immediate tax saving, yet, you can decide on taking your money any time on your retirement without paying any tax.
For both of the IRAs mentioned, your investments will grow without tax while they are in the IRA. Even if you decide to sell the silver, you will not be taxed as long as the gains are kept in the silver IRA.
The IRS decides on the limit of contributions you can make every year. Beginning 2018, the yearly limit for Individual Retirement Accounts is five thousand five hundred US dollars across all IRAs, and once you reach the age of 50, the limit will increase by thousand dollars.
To give you more specific explanation, below are the pros and cons of silver IRAs
Safety against inflation and chaos
Silver has a safeguard against economic volatility and inflation. While the values of currency may devalue and fall over time, the value of silver has been growing over time. Over the last century, a silver dollar has delivered a tenfold return, compared to the value of dollars which unfortunately fell 90% in comparison.
Investing in silver is like protecting your savings for your retirement in the event that the currency declines.
Diversify your portfolio
Most of the Individual Retirement Accounts are made up of paper assets like bonds and stocks, meaning, they are prone to extreme markets. Meanwhile, silver is sought after and it holds its price very well over time.
Investing in silver is like keeping yourself away from the volatility of paper investments. In case the market crashes, the value of the metal remains and can be stronger.
A good diversified portfolio contains investments that are not related to each other, for example silver coins and stocks. So, one asset won’t get affected with the market condition of the other.
Returns of silver investments are limited to capital gains
Investing in silver won’t give you dividends, interest or rent. For example, in stock investing, you can credit the yearly dividend check to your Individual Retirement Account, which is growing without any tax until the time you retire.
You also have the liberty to reinvest the money and get to enjoy the benefits of compounding, wherein the interest you earn will also earn interest. Compounding helps a lot in growing your retirement funds quickly.
Compared to silver, the only return you can enjoy from it is capital gain from higher silver value. Just like with any investment, higher value in the future is not 100% guaranteed.
Limiting of holding your silver
One of the reasons why you want to invest in silver is because you can get to own a tangible and real asset. Unfortunately, this is only partially true in this type of investment. Yes, you can invest and buy silver, but the IRS does not allow you to bring it home.
When you invest in silver, you need to hire a custodian or a trustee to hold the silver on your behalf. Actually, hiring a custodian takes you away from the headache of arranging insurance, buying silver, storage of the bullion and physical transport of the silver. They will be the one to find a safe or a third party storage to keep your silver.
But since you are not physically holding the silver, and you do not actually see it, you cannot confirm whether there is real silver in your possession until it is time that you need to sell it to someone else in the future.
To avoid yourself from getting scammed, it is highly recommended that you do your research before hiring a custodian to manage your silver IRA.
It comes with fees and costs
Once you have found a custodian to hire, the application or filing to buy silver will come handy. But you have to be ready as you will not only pay for the service of the custodian but you also need to pay for the storage fee which most of the time ranges from about $250 up to $500 yearly.
To enjoy interest, you have to wait for the silver’s value to increase so it can cover all the fees you have paid and you can also get investment returns in the end.