When you’re considering an investment in silver, you may be wondering how to go about it. You’ve probably heard that there are two main ways to invest- physical silver and paper silver. If you’re looking into physical silver bullion bars and coins, you’ve most likely heard about lining your IRA investment portfolio with silver. What is an IRA and what does this mean?
How Do IRAs Work?
An IRA is an Individual Retirement Account and is tax-deferred. This means payment of any taxes on the assets you have in your portfolio is deferred until the time that you withdraw your funds in the future.
When you add silver to your IRA, you will create a new type called a Self-Directed IRA Account. This means that your IRA can hold precious metals as well as traditional investments. You can convert all or part of your existing assets into silver as well as purchase new silver to add.
A Self Directed IRA Account involves three parties besides you- the Custodian, the Dealer, and the Depository. You have control over the account and how you invest, as it is self-directed. The Custodian is someone who merely completes the administrative work to get your investment. They will also handle the purchase of the silver that you specify.
The Dealer refers to the mint or retailer that you choose to purchase your silver from. Once you make the purchase, they will send the type and brand of silver bullion that you’ve bought to the depository. The Depository is an insured and secured facility that you choose to store your silver. They store it on a segregated or non-segregated basis and the fees you pay reflect that. Since the depository receives the shipment of silver directly, you will not be required to pay sales tax on it.
If you are at least 59 ½ years old and have had the account for at least 5 years, you can withdraw your assets without having to pay income taxes. After 70 ½ years old, you are required to make a minimum annual withdrawal or face extra income taxes.
The only American made IRS approved silver bullion coin is the 1 ounce American Silver Eagle coin. Other acceptable coins are government-minted and include the Canadian Silver Maple Leafs and Austrian Silver Philharmonics.
Either 100 ounce or 1,000 ounce silver bullion bars are allowed, such as those made by Johnson Matthey or Credit Suisse. Make sure that you only add qualifying bullion to your IRA portfolio. If you don’t comply, you will have to pay a 10% penalty tax as well as regular income tax on your silver.
Benefits of IRAs
The benefit of including silver in your IRA portfolio is that it acts as a hedge against traditional stocks and bonds depreciation. Diversifying your portfolio gives you added security as if one investment doesn’t perform well, you still have another type to act as a hedge.
There are numerous tax benefits to owning a precious metals IRA. One of the main benefits is that a precious metals IRA allows you to convert part or all of your existing investment into precious metals without paying taxes. Regardless of how long you have had silver in your portfolio, you pay the same simple income tax rate upon withdrawal. You are not taxed at the long term capital gains tax rate.