As we plan for retirement, we want to find the perfect balance between growth, safety, and peace of mind. Some of us prefer investing in alternative assets during times of instability or when our cost of living increases. A metal account might seem like a good way to invest in gold, silver, platinum or palladium, but before you move your money, here are a few things to consider.
How a Metal Account Works
The account is not as simple as purchasing a coin and putting it in a box. It is a type of retirement account that holds bullion in a safe depository and uses a custodian.
With a self-directed account, you have greater control of the assets you can own compared to a traditional employer-sponsored plan or traditional investment account. However, you cannot hold the bullion yourself in a personal safe or in your home. A metal account typically consists of multiple entities:
A custodian
A dealer
A depository
You, the account holder
This type of account may provide you with the opportunity to own a physical asset. However, it comes with its own set of complexities, unlike a traditional investment account.
Why Might a Metal Account Fit?
Some people like to add gold, silver, platinum or palladium to their portfolios to protect themselves from inflation, currency devaluation, and other market risks. It makes sense, because these metals are physical commodities that aren’t directly tied to stock prices.
But, unlike stocks, metals don’t yield dividends, interest or rent. They rely entirely on the market to drive prices up and down. Although it may provide a degree of diversification for some investors, it’s not the best core asset for retirement planning.
Physical assets aren’t always less risky.
The price of bullion fluctuates and dealers may charge different rates when buying and selling bullion. There are additional costs, including storage, custodial and trading fees, that will erode your returns.
Here’s one thing that is often overlooked. Once you start taking money out to spend, you usually can’t just go down to the depository and pick up a few coins to buy a coffee. If you’re old enough to take RMDs, you’ll likely have to withdraw cash from certain traditional accounts, even if most of your retirement savings are held in bullion.
This can mean liquidating some of your metals to get the cash, or having to do an in-kind distribution and report the value of those coins on your return. Either way, it could result in taxes. Plus, you could end up losing money on those metals if their price is low. Find out from the custodian how distributions will be calculated, how long they take, and whether you can sell small amounts.
And ask what happens to your funds if you pass away and leave them to a spouse or other beneficiary. They may have additional paperwork to deal with, along with questions about where to store your metals and any applicable tax consequences. Keep track of your purchase history and account statements, and provide clear instructions to your beneficiaries to help ease the transition.
Fees, Mistakes, and the Wider Plan
Be sure to obtain a complete list of fees before setting up an account. Make sure the fee schedule is easy to read and understand. Be careful of deals that offer low rates upfront. Those costs can include account-opening charges, yearly maintenance fees, storage fees, insurance premiums, shipping costs, and dealer premiums – more on gold IRA if you want that route.
Some companies bill fixed amounts, and some take a percentage of the account balance or choose the rate depending on the level of storage you choose. Skip this if the company will not tell you who owns your metals, where they’re kept, and what it will cost for each service.
If it takes a long time to get an answer to a straightforward question, that’s a red flag. It might also be good to know how fast you can convert your metals to cash in case you need them for an emergency. A retirement account may be long term, but life is not always so predictable.
Avoiding Common Mistakes
The biggest mistake is buying metals just because the news looks bad. Acting out of fear could lead you to put too much of your retirement into one thing. Another issue is what qualifies as eligible. Most retirement accounts have certain requirements for the paperwork and purity of bullion, and many collectibles do not meet those requirements. Just because a seller says an item is qualified doesn’t mean your custodian will agree.
Be wary of offers that promise “guaranteed protection,” claim “now or never” urgency, or say you can “easily roll over” into an IRA. Rollovers and transfers have tax implications, and doing something wrong can have real financial consequences. Take at least 60 days to review account terms, check the costs, and make sure you understand the process before you commit to a large transfer.
A Place in the Wider Retirement Picture
For investors looking toward their future, the important issue isn’t whether metals will increase next month. The issue is whether the metal complements your emergency fund, projected income needs, debts, and other investments. A small amount of metal might appeal to someone who wants an investment that doesn’t perform like a stock or bond. But it probably isn’t wise for someone with low retirement savings, high-interest debt, or no emergency fund. How much metal, if any, depends on your tolerance for risk and the rest of your household’s finances. Your plan should allow for liquid funds and investments that generate income to meet regular expenses.
Before Making the Move
Physical metals can be a legitimate part of your retirement, but they aren’t a way to dodge market risk or uncertainty. The value of the metals is in how they add to your retirement strategy, not in wild claims of what they can save you from. Review the complete fee disclosure, the custody information, and the rollover procedures before you decide whether you want that account in your portfolio.
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