Inflation can diminish the USD purchasing power, but the value of gold and silver or other precious metals sustains or can even grow when there is a financial crisis. That said, due to the market’s volatility, many investors find it beneficial to include a physical commodity like silver in a retirement portfolio that can hedge that potential for a turbulent economy, one that can stand the test of time.
With a silver individual retirement account, clients invest in IRA-approved silver bars and coins in a special sort of retirement account that allows alternative investments, including physical commodities like precious metals. These are known as self-directed IRAs.
The rules applied to these accounts follow the same guidelines as the conventional retirement accounts, except in a standard IRA, the focus is on paper assets like stocks.
The primary difference between a regular account and the self-directed option is the owner of the self-directed IRA manages the holdings.
In the example of precious metals, the owner will have the help of a precious metals dealer, custodial services that specialize in these accounts, and a depository where the commodity will be held until retirement.
There are also more stringent regulations applied by the IRS (Internal Revenue Service) with which the client needs to remain compliant. See here reasons why it’s wise to invest in a silver IRA.
Rules When Investing In Silver IRAs
When investing in silver IRAs compared to conventional individual retirement accounts, specific rules apply since these hold alternative investments, specifically precious metals.
The Internal Revenue Service approves what can and cannot be held in these IRAs down to the minimum fineness and the specificity of the coin itself. There are comparables between regular IRAs and self-directed; basically, they’re relatively the same with few variations.
Let’s go over a few of the rules that apply to a self-directed silver account which will show which coins (see this https://www.metal-res.com/gold-ira/american-silver-eagle-coins/ for a coin example) and bars are acceptable according to the Internal Revenue Codes.
- Fineness guidelines and specificity of selections
When investing in a silver individual retirement account, the precious metal must meet fineness at a level of .999, equating to a purity of 99.9%, dictated by law. Because of the stipulation, few silver coins worldwide are IRA-approved. Some that investors can consider:
- American Eagle Silver & Proof American Eagle Silver Coins
- Chinese Silver Panda
- Australian Koala Silver
- Mexican Libertad Silver Bullion
- Australian Kookaburra
- Canadian Maple Leaf
- Austrian Vienna Philharmonic
- Varied Rounds & Bars with adequate fineness
- IRS-approved custodial services
The IRS instructs that these investments must be administered and managed by approved custodial services and stored by an approved depository until retirement.
Silver coins or bars in an IRA cannot be stored at your own home. Attempting to do this without the express knowledge of the IRS deems distribution. That will bring tax consequences and the possibility of penalties as substantial as 10% for anyone under age 59.5.
- Learn “numismatic” coin and “bullion”
- Bullion: Investors buy silver and gold bullion coins for a few reasons, one of which is to provide stability in a portfolio. A bullion coin’s weight is measured in equal amounts, such as a “troy” ounce like half an ounce, or it can also be an even gram.
Bullion bars are most commonly sold in grams. A bullion coin, for example, is the “U.S. Silver Eagle.”
- Numismatic: Most of these fall into the collectible classification, with most mining companies stopping production. These are less valued for the metal content as their worth depends more on the rarity. These are typically not approved for IRA investments.
- Silver storage will cost more for storage because of its bulk
This isn’t necessarily a regulation, but it is something to be aware of when investing in the beautiful metal. While you could easily store your gold in the depository with relatively reasonable charges, the same quantity in silver could prove quite a bit more expensive due to the bulky nature of the metal.
That’s one of the reasons investors turn to gold when opting for significant investments for an extended term and choose silver for the median.
Is Investing In Silver Right For You
If you have a standard retirement plan, perhaps a 401k, your investing possibilities are limited to merely paper assets. A 401k for a company with whom you’re employed can further limit these paper options to a select few.
When you opt for an individual retirement account, even a conventional option will broaden your reach in the paper class if that’s where you want to focus. But, because paper, like stocks, correlates heavily with the market, you will be at high risk for loss when there are economic crises.
Investing in a precious metal like silver has become a precautionary measure for many pre-retirement individuals hoping to protect their wealth for the future. While the metal doesn’t offer dividends, the value sustains even when the market creates loss all around it since it doesn’t correlate. It withstands the test of time.
That doesn’t mean you want to fill your basket with silver. The suggestion is to keep the commodity conservative, roughly 10% or less, since it doesn’t grow in the same capacity as other classes.
It’s kind of a give-and-take. Paper is insanely risky and volatile, but it snowballs in time. Silver offers minimal volatility and risk but is slow with no dividends yet stable and constant. Should you invest in silver or a better question: why shouldn’t you invest in silver?