December 6, 2021

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Forms of Precious Metals IRAs: Advantages and Disadvantages

There are several ways that IRA accounts can be set up with precious metals. Be sure to visit raremetalblog.com/why-are-more-americans-choosing-precious-metal-ira-account to learn more about Precious Metal IRAs. 

Different Forms of Precious Metals IRAs

The first is for an IRA to buy actual coins and bars of gold, silver, platinum, or palladium held in the account on your behalf by a third-party custodian. This can be done with any type of IRA: Traditional IRAs (which allow you to claim tax deductions on contributions), Roth IRAs (which don’t let tax deductions in the contribution year but do provide significant advantages on withdrawals), SEP IRAs (for small businesses), and SIMPLE IRAs (a newer type of retirement plan for self-employed persons setting up a business).

Another way to have an IRA consist of precious metals is to buy shares of gold or silver mining companies. These shares are traded on the stock market, so they come with the same risks and rewards as regular stocks.

Another way is to use a gold or silver exchange-traded fund (ETF) to hold precious metals in an IRA account. The ETF works similarly to mutual funds, except that it buys shares of companies who deal in precious metals, not companies who mine them.

Advantages:

One significant advantage of a gold or silver ETF is that it can be traded like other stocks and funds on the stock market. This means you could potentially sell your shares at any time to get cash for emergencies or simply because you want to invest in something else. It also means that if the price of gold or silver goes down, the value of your shares will decrease. But, of course, if the market price goes up, you’ll get more money when you sell.

An advantage of an IRA that holds actual physical gold or silver is that it has no “counterparty risk.” This means there’s less chance your account will be affected by what happens to a company in which you’ve invested (like fraud, bankruptcy, etc.).

Disadvantages:

One disadvantage is that you don’t own physical metal with an ETF such as this; instead, it’s a share representing ownership in one ounce of gold or silver multiplied by how many times that share has been traded on the market. This means that much like any other security sold on the stock market, you don’t possess that share or own physical metal when it is in your IRA.

Finally, you could buy shares or bonds through certain companies that hold precious metal bullion on your behalf. These are similar to buying gold and silver mining stocks because they trade on the stock market just like any other security, but they are different because there’s no physical metal involved.