While some people look forward to their retirement, others are scared of it. Of course, there are reasons for this. People who can’t wait for retirement are excited because they’d have little to worry about when it comes to money.
As you may have guessed, this group of people has invested in several investment products like stocks, ETFs, real estate, and so on. Approaching retirement, most of their investments are now mature, yielding huge returns.
Aside from investment products like stocks, ETFs, bonds, and so on, people also prepare for retirement using a 401(k). A 401(k) is a retirement savings plan that allows employees to send a portion of each paycheck to a long-term investment account.
This investment instrument and individual retirement accounts (IRAs) are popular among employees because there are tax advantages attached to them. We’ll talk more on IRAs shortly. Visit https://www.nerdwallet.com/ to learn more about the 401(k) savings account.
Realistically, not everyone will amass an insane amount of wealth and attain billionaire status. However, those who make financially prudent decisions and invest strategically can be financially independent.
Being financially prudent when it comes to investing is incredibly important. One thing anyone looking to go into any type of investment must know is that each one comes with its own risks.
No matter how well an instrument has done in the past, its performance in the future still isn’t guaranteed. Also, we should establish that most investments with high yields and returns have the highest risks. This is another fact new investors may want to take note of.
What are Individual Retirement Accounts?
They are savings accounts with tax advantages that individuals can take advantage of to save and make long-term investments for retirement. Just like a 401(k), IRAs are designed to encourage people to save for retirement. While both these options are similar in that they have tax advantages and are primarily for retirement, they are different as both are administered under different rules.
What is a Gold IRA?
Like a conventional IRA, gold individual retirement accounts have tax advantages. But unlike the conventional IRA, a gold IRA allows investors to hold gold as a retirement investment. Individuals with this account can hold physical gold and other approved precious metals in bars or coins. We should also mention that this account must be held separately from normal IRAs.
While most people typically hold physical gold in gold IRA accounts, funds from the account can be invested in gold-backed or gold-related paper investments like ETFs, precious metals mutual funds, and precious metals commodity futures. A gold IRA is a type of self-directed IRA that allows investors to invest in not only precious metals but also in a wide range of investment products. For example, an individual can invest in real estate, art, and even cryptocurrencies, among other options.
How Much Should go into a Gold IRA?
Historically, gold has proven to be a safer asset than most others like stocks, bonds, and mutual funds. However, regardless of how safe an asset is, no one is advised to pour their entire retirement fund into one asset. As a matter of fact, experts advise that to minimize risk and increase one’s chances of turning a profit, investment portfolios should be diversified.
This means that individuals should spread risk by investing in different assets. The logic here is pretty simple. If one fails, the return on others could make up for the failing or failed asset. Therefore, individuals are advised to allocate only about 10% of their retirement fund to gold or any other precious metal like silver, palladium, and platinum. That said, this number isn’t absolute and how much one decides to set aside depends on their unique circumstance and risk tolerance level.
Opening a Gold IRA Account
This account cannot be set up with conventional brokers. To open one of these, one would need a specialty custodian who can handle all the reporting for tax purposes and the necessary documentation required to maintain the account.
Once you’ve found a reputable custodian to work with, one of the things they’ll draw your attention to is the contribution limit. The Internal Revenue Service (IRS) set a contribution limit of $6,000 which means that the maximum amount individuals are allowed to contribute to this account is $6,000. However, people who are 50 and older are allowed to contribute an extra $1,000, placing their contribution limit at $7,000. Click here to learn more about the IRS.
Your custodian will most likely also recommend a few government-approved depositories for the storage of the asset. This is because investors aren’t allowed to personally store the gold obtained through their gold IRA account. While investors aren’t obligated to work with the depositories recommended by their custodian, doing so may be in their best interest.
Finally, you’ll learn through your custodian that only withdrawals made when you’re 59 ½ and older are tax-free. Withdrawals made before this age are subject to a 10% tax. It is worth noting that a gold individual retirement account costs more to manage than a conventional IRA account as you’d be paying custodian and storage fees.
Final Thoughts
While investment in gold may not bring as much returns as other assets like high-growth stocks, it remains a much safer option. Doing so through a gold IRA makes it a lot better thanks to the tax advantages attached to this account. Individuals should also consider investing in real estate as buildings generally tend to appreciate over time. Depending on the location of the property, one could get huge returns investing in real estate.
