For the typical investor, and even most smarter-than-average investors, betting on the stock market has resulted in a zero gain (or worse) over the last five to ten years. Even before taking inflation into account, the stock market has trended sideways for nearly a decade. If you factor in the impact of inflation, the general stock markets have collapsed.
On the other hand, in the same period silver has risen in nominal terms by roughly 300% over the past five years and more than 900% in the last decade. Gold has risen more than 200% in the past five years and 600% in the last ten years.
It’s no wonder self-directed IRAs have become increasingly popular vehicles to purchase and hold physical bullion. These vehicles allow investors to own gold and silver held in secure vaults rather than owning paper proxies for precious metals such as exchange-traded funds.
Independent Living Bullion (ILB) is an approved dealer for a number of self-directed IRA trustees and has helped guide many clients with their gold and silver IRAs. We interviewed co-director Clint Siegner about these popular long-term retirement vehicles and how to use them for protection and profit as gold and silver rise…
Independent Living Bullion Answers Readers’ Pressing Questions about Gold and Silver Retirement Accounts
Question: Is the use of self-directed precious metals IRAs growing?
Clint Siegner, Independent Living Bullion Co-Director: As the bull market for precious metals continues and concerns increase as to the shortcomings of paper instruments such as precious metals ETFs, more and more people are turning to self-directed IRAs as a prudent way to own actual physical bullion inside an IRA. Here at Independent Living Bullion, the number of customers buying metal for their IRAs is growing exponentially. As more folks learn about the turnkey options we have to help them, we expect this growth to continue. Our precious metals specialists can explain the process in a couple of minutes over the phone and steer you to the simplest, quickest, and lowest-cost options.
Question: Even with the growing popularity, why do you think more people in the general market are not taking advantage of gold and silver IRAs?
Clint Siegner: The vast majority of the public remains totally unaware of the self-directed gold and silver IRA option. The financial market in general is totally dominated by old-line brokerages and banks. Stock brokers and bankers don’t want investors moving their accounts and buying physical bullion instead because they can’t get paid for it, and they generally remain committed to the same failed paradigm – a “diversified” portfolio of stocks, bonds, and mutual funds.
Question: What makes precious metals IRAs such an interesting option for many investors?
Clint Siegner: Precious metals IRAs make a lot of sense for investors trying to navigate the treacherous landscape as the crisis rooted in fiat money, debt, and deficits deepens. They represent the only way for investors to get options that aren’t on the traditional menu of stocks, bonds, and mutual funds. In addition to physical precious metals, investors can buy real estate and shares of privately held companies. And they can even continue to hold traditional securities within these self-directed accounts.
Question: How is privacy treated with a precious metal IRA?
Clint Siegner: Unfortunately, the same reporting rules apply to a self-directed IRA as with any other IRA. The amounts held in any type of IRA must be annually reported to the IRS by the trustee.
Question: Are self-directed IRAs complicated? Do they work the same as IRAs from a stockbroker or bank?
Clint Siegner: Self-directed IRAs follow the same basic rules and regulations as IRAs hosted by brokers and banks. However, as we discussed, the menu of investment options is more broad and flexible. And, as the label “self directed” implies, the custodian is not going to tell you what to buy or where to buy it. The IRA owner has more independence and control over the investments. This is a big plus for those who recognize the wealth-destroying flaws in the “conventional wisdom” offered by most stock brokers and financial advisors.
Question: What role does Independent Living Bullion play when a customer wants to open a precious metals IRA? Does ILB hold the metal? Where does it go?
Clint Siegner: The first steps for people opening a metals IRA are to choose a custodian, choose a depository, and fund the new account. We can help clients choose, as we have identified the best and most reliable custodians and depositories in the business. Independent Living Bullion can then act as your precious metals dealer after the new account is open. We will sell, deliver, and buy back the metal stored at a bullion depository – based on your instructions. Unfortunately, the IRS doesn’t allow investors to take personal physical possession until they’re ready to withdraw or begin taking distributions.
Question: If a new investor is considering doing this, what should he expect? Walk us through a typical example of what a client experiences.
Clint Siegner: Step 1 – Choose a custodian and open the new self-directed account. Just give Independent Living Billion a call at 1-800-800-1865, and we can tell you which firms, in our experience, have great support for new customers. We can also help investors complete the forms needed to establish an account and rollover funds from a pre-existing IRA.
Step 2 – Once their account is open, customers call us to lock in the pricing on the metals. Independent Living Bullion will quote current market prices right over the phone and lock those prices. We will deliver a confirmation to the customer and a copy of the invoice to the custodian who will send payment to us on behalf of the IRA.
Step 3 – The metal is then delivered to the depository for safe keeping.
Selling metal back, when the time comes, is just as easy.
Question: How do most clients open or fund their precious metal IRA?
Clint Siegner: Customers will complete forms to establish the new account and authorize the custodian of the self-directed IRA to transfer or roll-over funds from their existing IRA account. Customers can make their annual IRA contributions directly into these accounts, as well.
Question: Are traditional IRAs or Roth IRAs more popular for holding precious metals; is there a difference?
Clint Siegner: Metals can be held in either a traditional self-directed IRA or a Roth self-directed IRA, and the process for buying and selling the metal is exactly the same. The amount of funds held in Roth IRAs is generally less, even though, for most, this type of IRA offers greater tax advantages.
Question: Are there any minimums or maximums a client should be aware of?
Clint Siegner: Some self-directed IRA custodians do have a minimum account balance – often $5,000. Investors should expect annual fees (including secure storage fees) in the ballpark of $400 for account values of $100,000 or less. This means that for very small accounts, the fees may be a bit onerous. But annual fees for larger accounts are quite reasonable. Most customers opening new gold and silver IRAs do so by rolling-over or transferring an existing IRA or 401(k). Of course, there are IRS-imposed maximums controlling how much new money can be added to an existing IRA each year (as is the case with any IRA), however, a customer may roll-over or transfer ANY amount whatsoever.
Question: What are some creative strategies clients can use to grow their account?
Clint Siegner: Our strategy for clients is to buy physical precious metals as a hedge against overwhelming debt and deficits and devaluing fiat currencies worldwide. This is certainly unorthodox, but very simple. You won’t likely hear your stock broker or financial advisor making this recommendation.
Also, some customers choose to make occasional trades within their IRA accounts on the gold:silver ratio – opportunistically switching some gold for silver and vice versa. We’ve written about this in the past, but trading on the ratio is a way to increase your overall precious metals gains without ever losing your physical position. IRAs are a good place to employ this strategy because there would be no capital gains taxes on each trade. Right now, we feel it makes sense to switch gold into silver, for example, but earlier this year – when the price ratio dropped into the low 30s – the opportunity to switch silver into gold presented itself.
Question: When should someone use these IRAs? Should everyone who’s eligible go out and open one right now?
Clint Siegner: Self-directed IRAs are the best option for investors who want to own physical precious metal and other assets that aren’t on the menu of options in traditional IRAs. We believe investors need to have a meaningful position in physical gold and silver. If your investable cash is in an IRA, and the tax and penalty (for those under 59-1/2 years old) associated with withdrawing the funds is too painful, we definitely suggest moving a chunk of your retirement funds into a self-directed account (tax and penalty-free) and building a physical precious metals position. We feel it is wise to hold at least 20 percent of one’s assets in physical gold and silver.