When looking for a retirement plan, you must consider all the options available to you before you make your choice.
This is because, there are so many plans to choose from (you can visit https://www.dol.gov/ to find out more), and just any plan may not suit your individual need. Since you are here, we believe one of the options you are considering is a silver individual retirement account.
Historically, silver has been considered a safe-haven asset for investment. This has made it and other precious metals like gold a go-to for investors who want to protect their savings from inflation and market volatility.
Yet, does this mean that investing in silver is the best choice for you? Well, we hope you would be able to answer that question by yourself at the end of this article.
In this article, we will be looking at the major benefits and drawbacks of silver individual retirement accounts. Knowing these would help you decide whether or not this is an investment path you want to take. But, first, let us explain what silver IRAs mean.
Silver IRA – Meaning
A lot of us know more about traditional individual retirement accounts which are set up with brokerage firms. With regular IRAs, money invested in the account is used to purchase assets like mutual funds, bonds, and stocks (paper assets).
However, not everyone knows about self-directed retirement accounts. Accounts that fall under this category are just like traditional ones, which means they are also tax-advantaged and are governed by the same rules.
But, the major difference between self-directed IRAs and traditional ones is the assets that can be invested in. With self-directed accounts, the investor can invest in some unconventional assets like precious metals, real estate, cryptocurrency, and so on.
Silver IRA falls under this category because, with one, you can set up a silver investment.
Even though you can hold unconventional assets with self-directed IRAs, you still get to enjoy the advantages of traditional IRAs with it. Your self-directed retirement individual account can either be Roth or traditional.
Hence, your investment will grow free of taxes while it remains in your IRA. Furthermore, if you even choose to sell the asset, the profit you get won’t be taxed so long as it stays in the IRA.
However, based on IRS rules, you are still subjected to contribution limitations. Meaning, there is a limit to how much you can invest annually. You can click here to find out more about what silver IRA entails.
Benefits of Silver IRA
Below are some of the benefits of silver IRA:
1. Helps to Diversify the Portfolio
Regular retirement investment plans are often paper assets-based. Due to this, the volatility of the market tends to influence them a lot. Diversifying your portfolio is among the best ways to guide yourself against this volatility.
While you can diversify your portfolio with different paper assets, this is not often enough. The reason for this is that these assets are almost the same when it comes to how susceptible they are to volatility.
However, this can’t be said about precious metal investment because this asset class does not correlate with conventional ones. Having precious metals and stocks or any other paper asset will ensure your portfolio’s diversification is properly balanced. This way, each of your investments will perform differently in different conditions ensuring you are protected at almost all times.
2. Hedge against Inflation
Right from time, precious metals have been known to serve as a hedge against economic volatility and inflation.
Fiat currencies are known to devalue with time, but with silver, the value keeps going up. So, if you invest your retirement funds in silver, you would be protecting it against the devaluation of currency and storing the value of your wealth.
Drawbacks of Silver IRA
Below are some of the drawbacks of silver IRA:
1. You Can’t Store the Asset by Yourself
One reason some investors are interested in silver IRA is that they get to own physical and tangible assets. However, this may not fully be the truth.
While you get to buy physical precious metals with your retirement funds, you are restricted by the IRS to hold the asset by yourself. So, if the appeal of stashing the precious metal in your home is a major reason you are considering this investment plan, then you may need to reconsider.
For you to set up this account, you need a custodian. The custodian will be in charge of purchasing the asset, setting up insurance, and transporting and storing the physical asset. The precious metal is usually stored in a 3rd party depository that is IRS-approved.
Hence, you won’t even get to see your asset or touch and feel it, which brings us to the second drawback.
Because the custodian is the one in charge of the entire transaction, the chances of getting swindled are higher.
However, this can be avoided if you ensure to take out time to make proper research before choosing the custodian. You need to be sure of how trustworthy they are. Ensure the custodian you choose is IRS approved. Also, you can read up reviews and what the firm’s past customers have to say about them before you choose them.
3. You Only Get Capital Gains
When you invest in paper assets, you most likely get dividends and interest for your investment. However, these are not gotten from silver investments, so you can’t compound and get interested upon your interest.
All you get from this investment is capital gains. So, if growing your retirement savings is important to you, then this may not give you what you want.
Deciding on the retirement plan for you can be quite the task. While considering which to choose, you need to properly consider both the advantages and disadvantages. In this article, to help you make the right choice when it comes to silver IRA, we have listed some of its benefits and drawbacks. We believe at this point, you know whether or not it is an investment choice you want to make for your retirement.