Traditional IRA

Traditional IRA

If you own a traditional IRA, then the odds are good that you know how important it is to have retirement savings as well as diverse investment choices. The question is, have you thought about taking it to the next level and adding some physical assets such as gold and silver bullion in your portfolio? In this article we’ll discuss many of the differences between a traditional IRA and a self-directed IRA account, how investing in precious metals works, and the best way of safeguarding your savings against a fluctuation stock market or currency collapses.

Traditional IRA Defined

gold and taxesTraditional IRAs, or Individual Retirement Accounts, became possible in 1974. This was established under the ERISA (Employee Retirement Income Security Act). An IRA is a tax-advantages investment vehicle specifically designed to be used for retirement savings. The money you contribute to an IRA will not be taxed and it can grow tax-free until you make withdrawal.

Contrary to how 401ks work, a traditional IRA isn’t employer sponsored. Instead, individuals must qualify before they can open up and contribute to an IRA of their own. These qualifications can be fairly simple –

  1. Be under age 70 ½ and earning a taxable income.

That’s all there is to it. However, you might have, or might not have, deductible contributions. It will depend on the level of your income and your access to any other retirement accounts.

One negative aspect of an IRA when compared to other types of retirement accounts, is how they carry pretty low contribution limits. In 2015 any individual under age 50 may only contribute a sum of $5,500 annually, and individuals age 50 or above may contribute $6,500. Like other qualified plans they carry a tax penalty of 10% if any withdrawals are made prior to age 59 1/2 (retirement age). There are exceptions for cases of hardship. A withdrawal can become mandatory when you reach age 70 1/2, at which age you will no longer be eligible to make contributions.

Plan Type Sponsorship 2018 Contribution Limit Roth Option? Allow Gold Stocks? Allow Gold ETFs? Allow Gold Bullion
401(k) Private Employer $18,500 / $55,000 Yes Maybe Maybe No
Solo 401(k) Self-employed $18,500 / $55,000 Yes Yes Yes Yes
Keogh Plan Self-employed or Unincorporated Employer $55,000 No Maybe Maybe No
403(b) Government or Non-profit Employer $18,500 / $55,000 Yes Maybe Maybe No
457(b) Government or Tax-exempt Employer $18,500 / $55,000 Yes Maybe Maybe No
Simple IRA Private Employer $12,500 / $55,000 Yes Yes Yes Maybe
SEP IRA Business Owners & Self-employed $55,000 Yes Yes Yes Maybe
Profit Sharing Plan Private Employer $55,000 No Maybe No No
Money Purchase Plan Private Employer $55,000 No Maybe Maybe No
Annuity Individual None No Maybe Maybe No
ESOP Private Employer Varies Yes Maybe No No
SARSEP Private Employer $55,000 No Yes Yes Maybe
Self Directed IRA Individual $5,500 / $6,500 Yes Yes Yes Yes
Traditional IRA Individual $5,500 / $6,500 Yes Yes Yes No
Precious Metals IRA Individual $5,500 / $6,500 Yes Yes Yes Yes
Thrift Savings Plan (TSP) Government or Military $5,500 No No No No

The choices for investment into traditional IRAs are generally larger for employer-sponsored accounts. However, your IRA custodian may still limit your choices. Furthermore, the IRS will not allow any traditional IRA money to be used for investing in physical assets such as precious metals bullion or real estate.

You ARE NOT allowed to take out a loan from your IRA.

Rules & Limitations Governing Traditional IRA Rollovers

You can rollover IRA money or transfer it between financial institutions without any threat of tax penalties. However, you are limited to one rollover per year. You may also use your existing traditional IRA money to help fund your own self-directed IRA.

You do incur penalties for taking distributions out in cash before you reach retirement age. Furthermore, if you’re attempting a rollover, it’s a good idea to choose to do a direct rollover as opposed to an indirect rollover. An indirect rollover carries withholding requirements and is at risk for incurring penalties for early distribution.

Transfers from IRA to IRA are the most popular ways of establishing a self-directed IRA that carries exiting qualified funds. New accounts are established with your IRA custodian, who must be IRS approved, and who will with your consent request a transfer of IRA assets to come out of your Traditional IRA.

What Kinds of Gold Can be Invested via Traditional IRAs?

As previously mentioned, a traditional IRA has plenty of options for investing. However, they can be a bit limited by both IRS rules and your IRA custodian. Here are some investment types that standard IRA owners should be able to partake in –

  • Options

  • ETF (Exchange Traded Fund) Shares

  • Money Market Fund Shares

  • Individual Stocks

  • CDs (Certificate of Deposit)

  • Individual Bonds (Government & Corporate)

  • Mutual Fund Shares

What this means is that you can’t invest in any physical gold bullion (as well as any other types of approved metal investments) via a traditional IRA. The easiest way of investing in gold via your traditional IRA would be to buy stocks in certain gold mining companies or purchase yourself a mutual funds that also includes mining company stock. The is a strategy commonly called ‘buying paper gold’. Gold ETFs (GLDs) along with mining ETFs provide you with ‘indirect’ access to investing in gold.

Physical Gold Investing Compared to Paper Gold Investing

These ‘paper gold’ stocks are merely shares from companies that either produce, explore, or mine gold ore. You can find hundreds of gold stocks to invest in. The larger companies that you may see listed on the major gold indices are companies like BUGS Index (HUI) or Gold Miners Index (GDX).

Gold stocks can be a bit more risky than actually owning physical gold. That’s because gold stocks ten to appreciate more quickly when the gold spot prices go up, but fall off a lot more dramatically whenever gold prices decline.

With gold stocks also comes a few additional types of risk. These are –

  1. Management Risk – Companies that are overly leveraged or mismanaged can and will declare bankruptcy or even close up shop altogether.

  2. Regulatory Risk – Companies involved with mining and exploration are also subject to increases in taxes and regulations.

  3. Cost of Productions Risk – Things like the depreciation of mining equipment, increases in labor cots, and rising land values, all have a negative impact on the value of mining companies.

  4. Fiat Currency Risk – Whenever securities like gold stock or gold mutual fund shares are sold, you will receive your compensation via paper currency. That means, if there is a currency collapse, you could be holding an asset that is worthless.

Physical gold’s value has never hit the ‘zero’ mark, and it has retained its value for over thousands of years. When it comes to staying power, having physical gold will beat having paper gold hands down. This is part of the reason people love a Gold Backed IRA. By dedicating from 5% to 20% of your current retirement portfolio to savvy precious metals gold investments, you are exercising a simple and safe way of diversifying your retirement portfolio. Gold and investment metals like palladium, platinum, and silver, can help to protect assets against the volatility of the stock market as well as inflation.

Gold is more than just a great hedge, it also offers lots of potential for growth. It is actually this growth potential that draws many investors to investing in gold, and most of the analysts are predicting gold to continuously see gains on into the future.

Selecting a Gold IRA Company over a Traditional IRA Rollover

On this site we have reviews of gold companies for you to investigate. Because this website that is independently owned, we don’t work for nor do we own any shares in, any gold IRA companies. We are however compensated by some of the companies we recommend. That being said, we do conduct totally impartial reviews based on ratings and reports from reputable online sources like the BBB, BCA and Trustlink.

Rank Company BBB
(Rating A+ to F)
(Rating AAA to F)
TrustLink Storage & Admin Fees
#1 Regal Assets
0 Complaints
0 Complaints
(587 reviews) $250 per year
#2 Capital Gold Group
1 Complaint
10 complaints
(142 reviews) $250 per year
#3 Rosland Capital
7 Complaints
7 Complaints
(21 reviews) $225 per year
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