In other articles, we’ve gone through the advantages that precious metals can bring to a retirement account. They can offer everything from a hedge against market volatility to inflation protection. But along the way you may encounter plenty of terms with which you are not familiar, and which might prevent you from getting involved.
In order to fully understand financial literature, retirement planning guides, and economic data—and make the best decisions for your financial future—you need to be able to understand the terms and definitions they contain.
To help remedy this, we’ve put together a glossary of the most important terms you might see when looking at precious metals. We’ve also included a separate list of terms related to Precious Metals IRAs.
We urge you to bookmark this page. It is a resource you might want to refer to as you trade or save precious metals, and as you place savings into your retirement accounts.
Precious Metals Terms
- Actual Value – The value at which a coin may be bought or sold. For example, while a pre-1965 dime is legal tender for ten cents, its actual value may be much higher depending on its melt value, mint year, grade/condition, rarity, and other design features.
- Bullion – A form of precious metals that is valued primarily by its metal content, measured both by weight and purity. Bullion is generally is formed into bars or coins, with no collectible value.
- Coin – Mint-stamped metal with specific fineness and weight for exchange, trade, or collection.
- Depository: Secure, third-party facility that stores precious metals. These are required for any Precious Metals IRA.
- Face Value – The printed currency value of a coin. A pre-1965 silver dime has always had 10 cents of purchasing power; a dime’s face value is ten cents. In reality, its silver content pushes up its actual value to as much as $1.22.
- Fineness – The purity of precious metals, which is denoted in parts per thousand. For instance, a gold coin with a fineness of .995 is comprised of 995 parts gold out of 1,000, meaning that it has a purity of 99.5% gold.
- Fine Weight – The weight of the precious metal in a coin excluding alloying metals, calculated by multiplying the gross weight by the purity. For example, a gold coin with a gross weight of 1.1 oz may have a fine weight of 1.0 oz, since alloy metals are excluded.
- Futures Contract – A legal agreement between a buyer and seller on the purchase and delivery of a commodity or precious metal at a future date. The agreement notes the particular price for the transaction as well as established when the transaction will occur.
- Gross Weight – The total weight of a coin itself, including alloying metals. Gross weight is measured on a scale. For example, a one-ounce gold coin might have a gross weight of 1.1 ounces.
- Ingot/Bar – An amount of metal pressed into a specific shape, usually for the purpose of stackability and storage. Both terms—“ingot” and “bar”—are often used interchangeably. Additionally, ingot may refer to the process used to form the bars, pressing as opposed to pouring the metal.
- Intrinsic Value – The value of the metal itself. This is often also called a coin’s melt value, as it would be the price one would receive if the coin was melted down into its core metals.
- Karat – A measure of purity specifically applied to gold jewelry, describing how much gold is present per 24 parts of the alloy. Pure gold is 24 karats.
- Luster – The sheen or reflective qualities of a coin. More luster is associated with uncirculated coins and proofs.
- Mint Mark – An identifying mark stamped into a coin to note where it was minted. These are usually a symbol or letter.
- Numismatic Coins – Coins whose value is derived mostly from rarity, mint, and condition than from their metal purity and weight. These coins are viewed almost exclusively as collectibles.
- Precious Metals – This term refers to metals that are found in nature and have properties that make them considered to be of high economic value. In the financial world, the core precious metals are: gold, silver, platinum, and palladium.
- Premium – The difference between the amount a coin sells for and its intrinsic or melt value. This can be either described as a percentage or dollar value.
- Proofs – Coins that are usually stamped multiple times with specially designed dies and are hand polished. “Proof” refers to the mirror like finish.
- Restrike – The reproduction of a coin that had previously stopped circulating.
- Rounds – Coin-shaped precious metals pieces that do not carry face value or a date stamp. They are minted at private mints, not government mints.
- Spot Price – The current price at which a metal officially trades, meaning at which it is bought or sold. Spot price is also referred to as melt value, or what the metal product (coin, bar, etc.) would be worth if it were melted down into just the raw precious metal. Physical products will almost always trade at a premium above spot price.
- Troy Ounce – Common unit of weight for a precious metal. A troy ounce weighs more than a regular ounce. 1 troy ounce = 1.097 ounces.
- Uncirculated: Usually refers to the condition a coin is in, in terms of whether it was ever used as currency. Uncirculated coins are graded and judged based on rarity and imperfections. With less wear and tear, an uncirculated coin often fetches a higher price.
Precious metals are a type of asset, but selecting an asset is only half the story when trying to build your nest egg. When it comes to the actual accounts in which you might purchase these metals, you might find yourself struck by an entirely new set of terms.
Below, you’ll find the important terms that pertain to retirement accounts, just in case you might come across with a Precious Metals IRA.
Retirement Account Terms
- Annual Contribution Limits – The maximum amount you are allowed to contribute to an account in any one year, as determined by the Internal Revenue Service (IRS). These vary by IRA type and can be determined by age and modified adjusted gross income.
- Beneficiary – The person designated to receive the funds or benefits of a plan after the owner’s death.
- Contribution – Any fund given over to an IRA or similar 401(k) plan. Usually contributions are made annually, with contribution limits varying based on the account type.
- Custodian – The person or group that manages the transactions of assets within a plan. A custodian makes sure the account complies with all IRS regulations, which includes any taxes owed.
- Defined-Benefit Plan – Any plan that determines assets the participant will receive, usually in retirement.
- Defined-Contribution Plan – Any plan where the benefits are based on contributions. These can be funded by either the employer or employee.
- Distribution – Any funds taken out of a retirement account as directed by the law. Distributions taken before retirement age are often called withdrawals and can come with penalties.
- Individual Retirement Account (IRA) – A tax-advantaged account aimed at helping individuals save for their retirements. These can be either conventional, with a trustee making asset decisions, or Self-Directed, offering the account holder the widest range of options to select from.
- Modified Adjusted Gross Income (Modified AGI) – Amount used to determine contribution limits for Roth accounts. It is determined by the IRS.
- Plan Administrator – Manages the administration and management of a qualified retirement plan.
- Qualified Plan – Any IRS-approved retirement plan, including 401(k)s, 403(b)s, 457s, and Thrift Savings Plans (TSPs).
- Required Minimum Distributions (RMDs) – At the age of 72 (or 5 if you turned 70.5 on or before January 1, 2020), all non-Roth accounts require individuals begin taking a certain amount of their account funds each year. The amount depends on account size. Roth IRAs don’t have RMDs until they are passed on to spouses.
- Rollover (Direct/Transfer): A direct rollover or transfer occurs any time you move funds from one qualified retirement account into another. One example would be moving funds from a 401(k) into a new IRA upon leaving your job. These are direct because the money doesn’t touch your hands and are often called transfers.
- Rollover (Indirect): An indirect rollover is any movement of funds where you physically take possession of them during the transfer, since this can have tax implications with the IRS. If you receive a check for account funds—even if it’s after closing the account—you have technically withdrawn funds. This movement of funds only becomes an indirect rollover (and therefore a tax-exempt event) if you contribute those funds into another qualified account within 60 days.
- Self-Directed IRA (SDIRA): Any IRA that allows the saver to choose exactly which assets to buy and sell. This comes in contrast to conventional IRAs, where the assets offered are determined by the firm offering the IRA.
- Trustee: The person or group that controls the assets within a plan.
- Vesting: The amount of ownership of the plan’s assets. A fully vested account belongs solely to the saver.
- Withdrawal – A removal of funds from a retirement account, made at the request of the account holder before they are aged 59.5.
Trading precious metals or placing them in your retirement savings can be like learning a new language. Even experts can use slight variations of these terms or use them to mean slightly different things (i.e. uncirculated coins). But that’s part of the job of being a better and more informed saver.