Using a SIMPLE IRA to Buy Gold

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Build Retirement Savings with Gold and Silver in Your SIMPLE IRA

A SIMPLE (Savings Incentive Match Plan for Employees) IRA is a type of retirement savings account that is employee-sponsored and offers several incentives to benefit both employees and employers, while also featuring the tax-deductible contributions and tax-deferred growth expected from IRAs.

Businesses offering a SIMPLE plan don’t have to be large. Freelancers, sole proprietors, as well as small business owners with fewer than 100 employees can offer a SIMPLE IRA.

Many experts tend to compare SIMPLE IRAs to 401(k) plans, but they differ in several important ways.

  • Mandatory employer contributions. Unlike other retirement plan options, SIMPLE IRAs require the employer to either match 3% of the employee’s salary or contribute 2% regardless of what the employee does.
  • Easier to set up and manage than other options, especially 401(k)s. All it takes to set up a plan and start contributing from the employer side is a few quick and easy forms.
  • Offer more choice of what the employee can actually own. Unlike many 401(k)s and other plans, SIMPLE IRAs a variety of investment choices, although this varies according to the individual plan administrator. As we will explore below, the widest variety of asset choices comes with a self-directed IRA, which is available as a SIMPLE type.

SIMPLE IRAs are often used by freelancers and small business owners looking to attract and retain talent. There are two common scenarios for why someone would look to set up a SIMPLE IRA.

  1. Freelancers looking to start saving can get a lot out of one of these plans. The contributions are on a pretax basis and lower their annual taxable income. While the limits aren’t as high as with some other options, the ease of setting up and keeping watch of SIMPLE IRAs makes them easy to own. With less of an administrative burden, freelancers can focus on building out their business.
  2. Small business owners are also easily attracted to these plans. Not only are the easy to set up, but they offer tax breaks on the contributions made. While the contributions—whether matching or mandatory, depending on the option employers choose—can be a headache, they require little upkeep and few resources. For businesses with fewer than 100 employees, that alone can be a huge reason to offer a SIMPLE IRA.

While these are two common scenarios, by no means is this list exhaustive. There are many different individuals and businesses who might be interested in these types of IRAs. A SIMPLE IRA is, however, typically viewed as a small business alternative to opening a 401(k).

Table of contents

Benefits of a SIMPLE IRA

We’ve already touched on a few advantages of SIMPLE IRAs. When you look further at the specific benefits, SIMPLE IRAs might seem like a sensible option for both a small business owner as well as their employees.

For Employees:
  • Works well with other plans – SIMPLE IRAs work well in conjunction with other plans—401(k)s and other IRAs included—giving individuals more room to develop their retirement strategy. If individuals have more than one retirement plan or if they’re looking to contribute to Traditional or Roth IRAs in parallel, the IRS allows for this alongside a SIMPLE IRA.
  • Offer a catch-up period – While not as large as some alternatives, SIMPLE IRAs do grant qualifying individuals a higher ceiling on their regular $13,500 annual contribution limit (up from $13,000 for the 2019 tax year). For employees over the age of 50, an additional $3,000 in catch-up contributions is allowed over that contribution limit, allowing for more savings while approaching retirement.
  • Immediate vesting – Employer contributions are immediately vested, which means that either matching funds or mandatory contributions are immediately in the employee’s control.
  • Employer contributions – Employers offering SIMPLE IRAs have the choice between contributing 2% of their employees’ salaries or matching their employees’ own contributions up to 3%. This gives the power to the employee to collect additional savings from their bosses. Some experts encourage individuals to max out employer contributions or else risk leaving “free money” on the table.
  • Easy to qualify. Employees need to have earned $5,000 from their employer in the previous two fiscal years in order to be eligible to open a SIMPLE IRA with that employer; and, they need to expect to continuing earning that much in the year they open the SIMPLE IRA.
For Employers:
  • Tax credits – The tax credits for offering SIMPLE IRAs are designed to incentivize employer participation. Eligible employers who start a SIMPLE plan can claim a tax credit. The amount of tax credit an employer receives depends on a number of factors including how employees are enrolled, and so the IRS provides detailed guidance on this subject.
  • Easy and cheap to set up and run – Just as the name indicates, SIMPLE IRAs are simple at all levels (although SIMPLE actually stands for Savings Incentive Match Plan for Employees). For small businesses, setting up a 401(k) can be excessively costly and burdensome. With SIMPLE IRAs’ low fee, two-form setup and near-zero maintenance, employers can offer a retirement benefit to their staff without having to take on a large administrative burden.

Although SIMPLE IRAs are often compared to 401(k)s, not only are they easier to administer but they also offer a wider selection of asset options. SIMPLE IRAs are available as self-directed IRAs (SDIRAs), which accommodate the widest selection of asset types.

Rules of SIMPLE IRAs

As with all IRAs, a SIMPLE IRA has several rules in place regarding eligibility, maintenance, and contributions.

  • $13,500 limit on annual contributions – As touched on above, this ceiling is raised to $16,500 for employees over the age of 50. Although of these are less than 401(k) limits, which are capped at $19,500 (and $26,000 for those 50-plus), the wider range of asset types available with a SIMPLE IRA can make them the more attractive option.
  • Set up with just two forms – Employers only need to fill out either a 5305-SIMPLE or a 5304-SIMPLE (depending on where they want to deposit their contributions) to set up a plan. Then, for each employee to whom they’d like to offer a SIMPLE IRA, they need to fill out a quick 5305-S or a 5305-SA.
  • Business size must be less than 100 employees – Only sole business owners or those with fewer than 100 employees earning at least $5,000 (during the previous calendar year) can open one of these plans.
  • No Roth options – Unlike most other IRAs, there’s no option for Roth contributions. This means that all distributions from these plans are taxed, but it also means that contributions are pre-tax and deductible in the year in which they are made.
  • No loans allowed – Unlike many other retirement savings plans, SIMPLE IRAs don’t allow individuals to take out loans from them.
  • Different rollover rules – You cannot roll money out of a SIMPLE IRA in the first two years after starting a plan unless you are willing to give up a quarter of your withdrawn assets to do so, since you will incur a 25% early withdrawal fee. After those initial two years, however, it is painless and tax-free to rollover SIMPLE IRAs into a Traditional IRA—even if you are still with the small-business employer with whom you opened the account.

Your Precious Metals Specialist can help you review your existing SIMPLE to see if it is eligible for rollover into a new SDIRA, or they can help you learn about what it takes to open a SIMPLE SDIRA.

Precious Metals and SIMPLE IRAs

We just looked at the major guidelines and distinguishing features around SIMPLE IRAs, but not all SIMPLE IRAs are equivalent. There are two forms of an IRA under which a SIMPLE IRA can be opened:

  • You can open a conventional SIMPLE IRA, which is limited to traditional assets.
  • You can open a self-directed SIMPLE IRA, which gives you the widest range of asset types as long as you adhere to IRS guidelines.

Expanding the range of asset types placed in retirement savings can help provide financial security in several ways. The historical performance of precious metals speaks to the benefits they can bring to a retirement portfolio:

  • Protect against volatility – While the economy is volatile and the U.S. dollar fluctuates in value, gold and silver have consistently shown themselves to be consistent. Economists have openly cited gold as being a safe haven.
  • Shield savings from inflation Even when the value of the dollar is reduced—such as with inflation—the value of precious metals like gold tends to remain the same. As a result, diversifying a retirement portfolio by placing some of it into precious metals might help round out its value over time.
  • Retention of value — Precious metals are a tangible asset with intrinsic value, having been used not just as currency but also in jewelry and even in industry. As such, they serve as a store of wealth.

When considering whether a SIMPLE IRA is right for you, think about how precious metals might fit within your retirement strategy.

How to Buy Precious Metals with a SIMPLE IRA

We’ve already covered how simple and low-cost opening a SIMPLE IRA is, particularly compared to other retirement plans. Buying precious metals within one doesn’t have to be complicated, either; this is why Birch Gold Group has distilled the process into a handful of straightforward steps.

  1. Open the account
    First, you will set up a self-directed IRA with your new custodian, who will manage paperwork and reporting as well as carry out any transactions you request. The IRS requires the management of all plans by a custodian, and so we work with industry leaders like Equity Trust Company and STRATA Trust Company.
    You’ll then need to consider the source of funds to buy precious metals. You can move—via rollover or transfer, as applicable—funds over from eligible retirement accounts. Your Precious Metals Specialist can help walk you through this.
  2. Choose your precious metals
    Birch Gold Group offers gold, silver, platinum, and palladium metals as your options for purchase in your new SDIRA. Because you are in charge of calling all the shots regarding the assets in this retirement account, you get to decide not just which metals you want to purchase, but also what percentage of your savings you’d like to have stored in each precious metal.
  3. Make your purchase
    Your Precious Metals Specialist will review with you the choices you have made. Once you have had the chance to ask any remaining questions and you are comfortable with your selections, you will confirm the purchase. Your Precious Metals Specialist will then follow through on carrying out your order.
  4. Store at depository
    Your precious metals will not enter your physical possession, as that would negate the tax benefits of your retirement account. Instead, they are stored in a depository which is both secured and fully insured. Again, Birch Gold Group works with industry leaders like Delaware Depository and Brinks Global Services.
  5. Keep track of your assets
    The best way to get the most accurate information regarding your retirement account’s performance is to reach out directly to your Precious Metals Specialist. They will obtain your detailed buyback quote and are on-hand to help you navigate any questions you may have.

The Birch Gold Difference is evident in the level of support and transparency our Precious Metals Specialists provide you. From when you first get in touch, you receive a designated Specialist who gets to know your goals and interests, and who’s there to walk you through your options at every step of the way.

Call 800-355-2116 to get in touch today.

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