Retirement accounts will be among the greatest casualties in the wake of this financial meltdown.
American retirement funds have already lost an estimated total of $2 trillion in value since summer 2007. By that measure, the average retirement account held in the United States has lost tens of thousands of dollars, erasing a full decade of savings and investment gains in some cases.
A tiny group of savvy investors, however, have managed to keep their nest eggs safe and sound throughout this whole mess with an infrequently exercised tax law enacted by former President Bill Clinton and the 105th Congress. Here's exactly how they did it...
Gold: The Secret to a Safe Retirement Fund
In 1997, President Clinton signed the Taxpayer Relief Act into law. The new tax law made over 800 changes to the massive US tax code including:
- a cut in capital gains tax from 28% to 20% on assets held at least 18 months;
- tax exemption on profits from home sales up to $500,000 for married jointly filing taxpayers, and exemption on profits from home sales up to $250,000 for single filing taxpayers;
- tax exemption on estate inheritance up to $1,000,000;
- the creation of a tax-free individual retirement account alternative, known as a Roth IRA today;
- an increase in child tax credits; and
- the creation of a new educational IRA.
The Taxpayer Relief Act of 1997 also made it permissible for physical precious metals-including gold, silver, and platinum-to be added to IRAs.
The new tax law allowed physical bullion bars and some coins to be directly added to IRAs beginning January 1, 1998. Retirement account holders that began putting gold bullion into their IRAs since then have seen significant gains, while those who only held stocks have not. Consider this...
Since January 1, 1998 gold prices have increased 171%. Compare that to the performance of the three major US stock indices over the same time period.
|Performance from January 1, 1998 to close of October 20, 2008|
It's clear that those who allocated a large portion of their IRAs to gold still have very healthy retirement funds.
Stocks have a relatively high level of volatility and can fluctuate wildly. This has been evident over the past several weeks. Currency is even more volatile. But gold has proven itself to be stable over the past several hundred years in terms of its purchasing power. This makes gold ideal for a long-term investment such as an IRA.
How to Put Gold Into Your IRA
Putting gold into an IRA does not require a complicated process or monotonous set of procedures.
The first step is to consult with your IRA custodian. Ask them first if you are allowed to add gold to your current IRA. Even though the Taxpayer Relief Act of 1997 allows gold to be put into an IRA, not every plan has this capability. If your plan does not allow you to contribute gold to your current IRA, you'll have to open a new account, which your IRA custodian can help you with.
The next thing you'll want to ask about are annual storage fees. These fees are generally low, usually much less than 1% of your IRA's total asset value. There may be other annual fees associated with putting gold into your IRA including renewal and safekeeping fees. Make sure to ask your IRA custodian about these additional fees.
After filling out some paper work, putting gold into your IRA is as easy as instructing your account custodian which bullion to buy.
Gold Allowed in an IRA
The Taxpayer Relief Act of 1997 permits all gold bullion bars with a minimum pureness of 0.995% fineness and NYMEX- or COMEX- approved refiner/assayer hallmark to be added to an IRA. However, only some gold bullion coins are allowed.
Only gold coins that are legal tender with 0.9999 fineness are allowed in an IRA, with the exception of the American Gold Eagle, which has a fineness of 0.9167% fineness. Other gold coins allowed to be put into an IRA include the American Buffalo, Canadian Gold Maple Leaf, and Australian Gold Nugget. The popular South African Krugerrand is not permitted to be included in an American IRA because it's fineness is only 0.9167%
Gold bullion bars sell at smaller premiums than gold coins. So gold bars are ideal for IRAs. Although the regulations that govern gold contributions to IRAs call for a minimum purity of only 0.995%, most gold bullion bars are 0.9999% pure.
The most common gold bullion bars come in weights of 1 ounce, 10 ounces, and 1 kilogram. Investors with large IRAs should consider the 10 ounce and kilogram gold bars because the larger bars carry smaller markups over spot.
With the ever changing and uncertain economy gold is the best choice for investors looking to keep their wealth safe. Whether you keep gold in your IRA, safe deposit box, or buried in your backyard, it's wise to have at least some exposure to gold right now. The precious yellow metal will help ensure a safer and more secure future down the track.