How Much Should You Invest in a Gold IRA?

1/2 OZ AMERICAN GOLD EAGLE COIN

For many investors, the idea of investing in gold is quite appealing. For one, it’s an effective means of diversifying your portfolio. Additionally, gold is often seen as a hedge against market volatility and inflation because its value tends to move in the opposite direction compared to stocks, bonds, and other paper assets when instability hits.

When opening an IRA, you can choose to go with the conventional account, in which you’ll invest in bonds, stocks, ETFs, and other securities, or you can go with a gold IRA, also known as a self-directed IRA. With the self-directed IRA, you can invest in special assets such as precious metals, art, collectibles, and cryptocurrencies. A gold IRA specifically enables you to invest in physical precious metals, provided that they are approved by the Internal Revenue Service.

Historically, many investors have considered gold to be a safe-harbor asset, protecting their purchasing power against inflation. It tends to hold and even increase its value over time despite market fluctuations. This is perhaps why it remains a strong retirement investment option. As of March 2022, the price of gold per ounce sat at roughly $1932, a significant increase from roughly $1889 per ounce in March 2020.

With the price rising, gold is bullish, and it’s arguably one of the safest investment options for growing your nest egg.

Why You Should Diversify Your Portfolio

Portfolio diversification is one of the most important principles of investing. Diversification simply involves spreading your capital among different investments so that you don’t have to rely on a single investment for your returns. The key aim behind portfolio diversification is to minimize the risk of loss.

Some of the major benefits of diversifying your portfolio include:

Minimize the risk of loss: When you put all of your capital into a single investment, your risk exposure is substantial. If that investment does poorly over a certain period of time, you will potentially lose your asset value. On the other hand, having several investments, including gold, in your portfolio can reduce your potential losses. Even if one investment does poorly, the rest might perform better – helping protect your wealth.

Generate returns: Sometimes, investments don’t perform how we expect them to. When you diversify your portfolio, you won’t have to depend on one investment or asset to generate returns. Gold is an investment that is predicted to only continue to grow in value return, as it has over its long lifespan.

Preserve capital: If you are close to retirement, then you are past your accumulation phase. You’re probably more concerned about preserving your capital. Diversification is one of the best strategies for protecting your savings in volatile markets.

Although investing in a gold IRA is a great way to diversify your portfolio, it would be imprudent to invest all of your capital in gold and precious metals. Alternative assets are great as an addition to your traditional IRA, but not necessarily as your primary investment.

One of the key reasons why you shouldn’t put all of your money into gold or other precious metals is the unpredictability of their prices. Another major drawback with this type of investment is that it doesn’t pay any interest or dividends. The only way to secure capital gains would be to sell the asset at a profit. If you’re looking to open a gold IRA, some experts recommend investing at most 10% of your capital to minimize the risk of loss.

How Does a Gold IRA Work?

A gold IRA works much like a standard IRA account in that it allows you to invest your retirement funds based on specific tax treatment, whether it’s with pretax contributions or after-tax contributions. Gold IRAs follow the same rules as other IRAs when it comes to contribution limits, tax benefits, and withdrawal rules. However, there are additional rules and requirements for self-directed IRAs because of the complicated nature of the assets they hold.

Types of Gold IRA Accounts

Just like with conventional retirement accounts, there are several types of accounts with distinct tax benefits. The three types of gold IRAs include:

Traditional gold IRA: Traditional gold IRAs work like other traditional IRAs in terms of taxes. Your contributions and gains will not be taxed with a traditional gold IRA until you withdraw them. The contribution limits for a traditional gold IRA are $6,000 for those under 50 years old and $7,000 for those over 50 for the 2022 tax year.

Roth gold IRA: This is an after-tax savings account that works like a normal Roth IRA. The main advantage with Roth IRAs is that you won’t pay any taxes later on when taking your distributions during retirement.

SEP gold IRA: This type of gold IRA is available to self-employed individuals and business owners. It works like a pretax, traditional IRA in that your contributions won’t be taxed until you withdraw them, but you get higher contribution limits. With a SEP gold IRA, the contribution limit is 25% of your income or $61,000, whichever amount is less, for 2022.

How to Open a Gold IRA

If the idea of having gold in your retirement portfolio sounds appealing, here are three steps to follow to open a gold IRA account:

1. Find a custodian

The first step you’ll have to take when opening a gold IRA is finding the right gold IRA company. The IRS has rules against people personally storing the metals they own via a gold IRA. As such, you’ll have to look for a custodian whose specialty is gold IRAs. In most cases, your gold IRA company will also act as your custodian. Here are some of the IRA custodians Wall Street Metals has built a relationship with over the years: Strata Trust Company, Gold Star Trust Company & Equity Trust

There are several gold IRA companies to choose from, so you need to conduct a little research into each company to ensure you get the best services and benefits. The following are some of the green flags you need to look for in a gold IRA custodian:

Licensing: You need to ensure that the company you hire to handle your assets is qualified for the job. There are several IRS requirements that need to be met, and gold custodians must be licensed.

Insurance: You should also choose a company with insurance to protect your gold. A company with insurance is dedicated to keeping your assets safe in the event of theft.

Experience: You need to choose a custodian with experience handling gold and other precious metals. This way, you know they can answer any questions you have about the metals or market issues. Additionally, experienced custodians will give you expert advice and help you avoid pitfalls and mistakes that you might be prone to.

Before you open a gold IRA, make sure you take a careful look at the company’s fees, both up-front and additional charges. This way, you’ll pick a custodian that fits your budget and needs.

2. Deposit funds

After opening your gold IRA account, you’ll need to fund it just like with a normal IRA. You can choose to make cash contributions or go with a rollover. Cash contributions are pretty straightforward, as you can pay with cash, write a check, or do a wire transfer. Rollovers are for those who would like to transfer contributions from their existing retirement accounts to the gold IRA.

3. Choose your metals

Once you’ve deposited the funds, you can purchase your gold or any other precious metals. You should keep in mind that there are IRS standards the metals must meet in order to be included in a gold IRA. Some gold IRA firms will allow you to buy directly from them, whereas others require you to buy from a separate precious metals dealer.

After you’ve bought your metals, you can monitor their performance from time to time. If you prefer to get regular updates, you should ask your custodian about online dashboards where you can easily access information on your investments.

What Amount Should You Invest in a Gold IRA?

The best way to determine the amount you should invest in your gold IRA is to take time to consult with your financial advisor. This way, you get access to expert advice regarding your investment options and current market trends. Moreover, your financial advisor can help you set goals that will inform your investment choices.

You should also get in touch with a precious metals dealer who will guide you and help you determine the investment size that will best fit your portfolio. For example, many experts would recommend investing about 10% of your total portfolio in a gold IRA. According to some experts, you can go as high as a third of your retirement funds. The bottom line is that you should work with your financial advisor to make an informed investment decision.

Start Your Gold IRA With the Help of Wall Street Metals

Acquiring gold and other precious metals such as silver helps you create a diversified and well-rounded portfolio. A gold IRA can also help boost your wealth and protect you from inflation. Wall Street Metals is a top choice among gold IRA custodians as a precious metals dealer. Check out our selection of products, and discover how we can help you fund your gold IRA today!

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