Precious metal rollovers refer to the process of moving funds from a retirement account to a precious metal IRA. You might initiate a gold 401(k) to IRA rollover, for example, when you want to use funds from a 401(k) to invest in gold, silver, platinum, and palladium. You can also leverage physical metals, stocks, precious metals mutual funds, or exchange-traded precious metals funds to fund an IRA.
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History Of Precious Metal IRAs
Traditional and Roth IRAs only hold cash, bonds, and stock. The Taxpayer Relief Act of 1997 broadened the types of investments allowed in individual retirement accounts to include certain types of precious metals. These IRAs, referred to as “self-directed” or “alternative-asset” IRAs, are usually limited to gold, silver, platinum, and palladium.
As gold and silver continue to outperform the stock market (historically) and rise in value, more and more people are interested in diversifying their retirement portfolio with precious metals by executing a gold 401(k) rollover.
Is A Precious Metals Rollover Safe?
While rolling over some of your retirement savings from another IRA or a 401(k) to a precious metals IRA is generally a safe practice, you should remain wary of scams that prey on investors looking into this type of transaction.
Because self-directed IRAs are managed by the investor, it’s easier for scammers to have a presence in the market. The U.S. Security and Exchange Commission warns against precious metals IRA custodians that promise unrealistic returns using bait-and-switch tactics.
Only open a self-directed IRA through an IRS-approved custodian, such as a bank or other financial institution.
Scams Regarding Precious Metal IRA Rollovers
The Gold IRA Investor’s Guide by Chris Thomas notes five scams that investors fall prey to when setting up a precious metals IRA rollover.
- Advertise Bullion, Upsell Numismatics: Numismatic coins are collectors’ coins with their condition based on their rarity and mint, not the value of the precious metals out of which they are made. They are not eligible for inclusion in a precious metals IRA. Scammers will try to sell investors these coins instead of precious metal bullion. Coins that are eligible for inclusion in a precious metal IRA rollover are the American Eagle Silver and Gold coins, to name a few. JM Bullion has a good list of IRA-approved metals you can use to guide your investments.
- Higher Prices for Graded or Certified Coins: Some scammers will try to sell American Eagle coins that have been graded or certified for a higher price. They convince investors that graded coins are superior to ungraded coins. This is a false claim.
- Converting All of Your Retirement Nest Egg to Precious Metals: A knowledgeable and respectable investment professional would recommend that you devote between five and 25% of your retirement nest egg to precious metals, depending on your appetite for risk. Precious metals can serve as a hedge against inflation and a vehicle for diversification. They can be a risky investment. If an investment professional recommends converting all your money to precious metals, go elsewhere.
- Opening a Leveraged Account: If any bullion salesman tries to talk you into opening a leveraged account, do not consider it. A leveraged precious metals IRA is one where the salesman loans you the money to buy more precious metals for your IRA. If you do that, you will owe interest and commission on the extra, plus you will eventually have to pay the loan back.
- Excessive Commissions and Costs: A financial advisor will charge you a commission for advice on your precious metals rollover. Talk with a few brokers to determine a reasonable fee for your needs. All brokers should find IRS-approved metals for a reasonable fee. If it feels excessive, look elsewhere.
How to Rollover a Precious Metal IRA Safely
To make a safe precious metal IRA rollover, start by opening a self-directed IRA through an IRS-approved custodian, such as a bank or other financial institution. Next, find a broker to locate the precious metal bullion for you.
It is essential to find a broker with impeccable credentials and an excellent reputation to ensure you make safe, smart investments. Ask your custodian for referrals and check the broker’s reviews and standing with organizations like the Better Business Bureau. The brokerage must understand that the IRS has purity standards for the precious metal IRAs and they should locate bullion that will meet those purity standards.
After the company purchases the metals, it can fund the IRA and store your assets at a secure facility.
Avoid pitfalls when rolling over your investments into a precious metals IRA by employing the right broker and custodian to manage your account. This ensures approved IRS procedures are followed and will keep you from making a costly mistake. If you’re considering a precious metals IRA, check out our Gold IRA guide.