To invest in silver in an IRA, you must open a self-directed account with a custodian specifically equipped to buy and store the metal for you. You can also own silver mutual funds and exchange-traded funds that invest in the physical metal or in silver futures contracts. You won't need to pay taxes when you sell silver inside an individual retirement account, as long as the profits remain in the IRA.
Because IRA contributions must be made in cash, you can't put silver directly to your account. The Internal Revenue Service allows noncollectable silver coins and bars that are at least 99.9 percent pure in retirement accounts. This includes 1-ounce silver American Silver Eagle, Canadian Maple Leaf and Vienna Philharmonic coins. You can also buy silver bars that carry NYMEX- or COMEX-approved assayer hallmarks. Bars are typically available in weights from one to 1,000 ounces. If put money into prohibited investments in a self-directed IRA, the cash you contributed will be treated as a distribution and may be hit with income taxes and a 10 percent early withdrawal penalty.
Storage and Fees
The IRS doesn't allow you to stow your IRA silver in your safe deposit box -- the account custodian must maintain custody of the metal. Silver-IRA custodians save you the hassle of arranging storage, insurance and physical transport of your metal. They store your silver in an insured depository and make sure your metal meets the requirements for fineness and origin. Typically, you will pay a one-time setup fee of $25 to $50 and a yearly fee for storing and insuring your silver, ranging from $125 to $250 a year. This fee is unique to physical metal accounts. Typical IRA annual management fees are 1 to 2 percent of the value of your IRA assets. Metal dealers charge a spread, often 28 percent, between the prices that they will buy and sell silver. This means your investment must increase in value by the amount of the spread to break even.
When you buy a mutual fund or ETF that invests in physical silver, you own a slice of the fund's metal stockpile. Such funds may have lower fees than what you would pay for buying the metal yourself. Funds that invest in silver futures and options gain or lose money based on the price of silver. Futures funds have lower costs than metal funds, as they don’t have to pay for insurance or storage.
Returns and Volatility
Investors shaken by the 2009 financial crisis may view an investment in silver as a hedge against economic chaos. However, because metal pays no interest or dividends, you are limited to capital gains. You metal investment therefore does not receive the benefit of compounding, which can add significantly to your IRA balance over the long term. A traditional IRA forces you to begin taking minimum distributions after age 70 1/2. At some point, you would have to sell your silver to help meet this requirement. Precious metal prices can be volatile. If the price of silver happened to be low at a distribution deadline, you might have to sell your metal for less than you paid for it. Roth IRAs do not require minimum distributions.
The IRA rules that put your silver at arm's length increase the possibility of fraud. Because you never get to see or touch the metal in your IRA, you really don't know it's actually there and whether it's actually silver. The U.S. Commodity Futures Trading Commission devotes a Web page to common precious metals frauds. The commission recommends you contact it to research a metals dealer before you invest.
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