As your financial situation changes in life, you may find that your current IRA model no longer best suits your needs, and you would like to convert your traditional IRA to a Roth based investment. You may also choose to make use of the skyrocketing value of hard commodities such as gold in your investment strategies and decide to convert your savings account into a gold IRA. Read further to understand how to convert any IRA into a gold IRA.
Different Types of IRAs
Traditional IRAs are tax protected retirement savings accounts. Deposits are not taxed until funds are withdrawn, which means all interest payments and capital gains are compounded each year based on pretax income. Traditional IRA deposits are also tax deductible for most account holders. However, this additional perk is phased out after reaching a certain income bracket, leading some investors to convert their traditional IRA to a Roth based model.
Roth IRAs contributions must be taxed before funds are deposited. While this option does not allow for any tax deductions, once the policy holder reaches retirement age, funds can be dispersed tax free. Roth IRAs are generally more flexible with fewer regulations than traditional IRAs. For example, traditional IRAs oblige policy holders to make a minimum annual dispersal of a certain percentage of savings after the age of 70 ½, known as a Required Minimum Distribution. Roth IRAs do not require any withdrawals, and are often used as a way to grow an account with minimal taxation that can be passed on to the account holders beneficiaries. This increased flexibility is another reason some choose to convert a traditional IRA to a Roth IRA.
Most IRAs are held by a financial institution which invests funds in stocks and mutual funds as it sees fit. Self-Directed IRAs, which can be either traditional or Roth, are controlled entirely by the account holder. This is a popular option for those who would like to invest in hard commodities such as gold, silver and other valuable precious metals.
A gold IRA can be either a Roth or a traditional, but is almost always a self-directed IRA. A gold IRA is typically held by a gold IRA brokerage who acts your IRA custodian. By working with a brokerage to convert any kind of IRA to into a gold IRA, investors can choose to invest anywhere from five to 100 percent of their savings account into physical gold or precious metals ownership.
Benefits of Converting a Traditional IRA to a Roth IRA
Owning a traditional IRA is typically best for those who are currently in a higher tax bracket than they will be when they retire. Because Roth IRA contributions are taxed as funds are placed in the account, they are the best option for those who expect to pay fewer taxes now than when they retire. Although converting a traditional IRA into a Roth IRA will involve extra fees, for some, the potential benefits will outweigh the initial losses.
Roth IRAs have many advantages over Gold IRAs, such as an increased ability for use as an inheritance vehicle. Because Roth IRAs do not have a Required Minimum Distribution, funds can be held in this low tax, high growth account indefinitely, regardless of the age of the account holder. This is a particularly attractive situation for those who have also invested in gold and precious metals with their IRA. Not only do these hard commodities offer a strong protection to your savings account from high levels of market volatility, the steadily increasing value of gold over the last decade can be tapped into to notably increase the value of the account that you would like to pass on to any non-spouse beneficiaries.
Converting an IRA into a Gold IRA
Partnering with a high quality gold IRA brokerage company is the best option for investors who are looking diversify with a gold investment. The first step is using a direct transfer to transfer your IRA from your current custodian to your gold IRA broker, who will invest the funds into a self-directed gold IRA in your name. In this process, the funds are transferred directly from your current custodian to a new custodian.
A direct transfer or rollover can be completed with little work on the part of the investor, and involves no tax liabilities or extraneous fees, and takes anywhere from seven to 14 days to complete. If you choose to work with a highly rated brokerage that uses electronic balance transfers such as Regal Assets to convert your IRA to gold, your Self-Directed gold IRA will most likely be set up and activated even faster.
However, rollovers are restricted by the IRS to one occurrence annually. If you have rolled over your account within the last twelve months, you may choose to do a direct transfer of your funds instead. In a direct transfer, your current custodian will issue a check for your funds to you, and you will supply those funds to a gold IRA brokerage company who will act as your new custodian. With you working as the middle man, the balance transfer is no longer considered a rollover. Although using a direct transfer to convert an IRA to gold involves a little more work on the part of the investor, an investor can use as many direct transfers in a twelve-month period as needed.
If you choose to utilize a direct transfer, you want to minimize the amount of time the funds are in your hands as much as possible. If more than 60 days passes after a check was issued to you, the funds will be counted as income. Not only will they be heavily taxed, if you are under retirement age, you will also be charged a ten percent early withdrawal tax, which altogether can eat up over a third of your balance. If you find you need to use this direct transfer loophole to convert your IRA into a gold IRA, it is particularly important to pick your new account custodian with care. A knowledgeable and experienced gold brokerage will be able to assist you in quickly transferring funds, ensuring that you avoid the substantial negative consequences that come with any delays.