Can You Reallocate Precious Metals in an SDIRA?


Have you ever come across terms like gold IRA, silver IRA, or precious metals IRA? While many investors use these terms, they aren’t “official” account types. While you can’t invest in physical precious metals in your typical Roth or Traditional IRA, a Self Directed Individual Retirement Account (SDIRA) allows you to put money into alternative assets like precious metals, commodities, and real estate. But that’s not all! With an SDIRA, you can also invest in stocks, bonds, ETFs, and mutual funds. You can move your money among these asset classes as you see fit.

Gold safe

What is an SDIRA? Precious Metals IRA? Gold IRA?

An SDIRA is a special type of IRA in which the owner has more choice and control regarding their investment choices. It’s like an everyday retirement account with the training wheels taken off.

Though the account owner chooses the investments, just like every other retirement account an SDIRA has a custodian. This is an IRS-approved bank, trust, or company. Basically, a custodian is the one who’s responsible for making sure your account adheres to all relevant IRS and government regulations.

Depending on what you buy with your SDIRA, it can be called a precious metals IRA, gold IRA, or silver IRA. Regardless of what you call it, remember that these are all just a few of the investment choices you can make with an SDIRA.

Can I reallocate precious metals in an SDIRA?

Yes, you can reallocate precious metals in your SDIRA without tax implications. Just like you can move retirement funds in your 401k from stocks to bonds, or sell shares of one ETF to buy a mutual fund, these transactions aren’t taxable.

What does “reallocation” mean?

Stacks of gold and silver coinsAllocation in an investment account refers to how your investments are divided up. You might have half your balance “allocated” to stocks and the other half “allocated” to bonds, for example.

Reallocation is the process of moving money within your account from one investment to another. It’s another way of saying, “selling one thing to buy another thing.” Reallocation is sometimes called “exchanging” as well. The important element here is that all funds stay in your retirement account. So long as your reallocation moves funds within your retirement account(s) without transferring them outside those accounts, you’re safe from taxes.

Another example: It’s common (even expected) as individuals approach retirement to reallocate funds from higher-risk investments such as stocks into safer, less-volatile assets like physical precious metals, bonds, and cash.

So, if I own gold and want to sell some to buy silver, can I do that?

Yes, you can sell gold to buy silver within your SDIRA, so long as you do so in accordance with the law and your custodian’s guidelines. Keep in mind that as long as the money from the sale remains within your IRA, it won’t trigger a tax event.

If you sell and withdraw the proceeds from your IRA, they’ll be subject to any applicable taxes and a 10% penalty if you’re under the age of 59½.

What other kinds of precious metals and bullion products can I reallocate into?

The IRS allows you to invest in four different precious metals bullion products: gold, silver, platinum, and palladium. The IRS also specifies that these products need to be of a certain fineness to qualify for deposit in your SDIRA.

Does that mean I can buy other assets alongside my precious metals?

Yes. This is the most common question, and a huge reason that labeling SDIRAs as “gold IRAs” is a disservice to everyday folks saving for retirement. A Self Directed IRA allows you to invest in alternative assets like precious metals as well as the more common stocks, bonds, mutual funds, and ETFs.

The only stipulation is that these have to be eligible for your IRA and your account provider has to offer these products.

Why would I want to reallocate my precious metals inside of an IRA?

Precious metals share some qualities like intrinsic value, but there are many differences between the four types of metals you can own in your IRA. For some, investment priorities, risk tolerance, and priorities might change, leading to an interest in reallocating or rebalancing. For others, it’s essential to diversify and gain exposure to precious metals, so reallocation can help create a more balanced portfolio with exposure to tangible assets like precious metals.

  • Gold is the traditional hedge against inflation and is often the go-to for preserving capital during periods of high inflation. Gold is also the safe-haven investment of choice during economic or political crises.
  • Silver is affordable, trading at just a fraction of the price of gold. In addition, silver has more industrial uses than gold and has higher growth potential, partly due to the lower price point. Silver’s hybrid industrial/investment demand makes its price movements less predictable than gold.
  • Platinum is a durable metal rarer than gold and is valuable in the jewelry industry and the manufacturing of laboratory equipment, medical instruments, and certain electronics as well as catalytic converters for automobiles. Platinum is much less common than gold, and its production less geographically diverse. Trading at about half the price of gold, platinum can be an interesting metal that hedges against inflation and enjoys demand across several different industries.
  • Palladium is currently the most expensive precious metal per ounce. It’s incredibly rare, primarily an industrial metal, and shares many chemical properties with platinum. Palladium is used in electronics, medical and dental applications and in jewelry. Scientists have discovered that palladium is uniquely suitable for reactions involving hydrogen, and may become a critical material for green energy production.

What is the real benefit of holding and reallocating precious metals inside an IRA?

The benefit of holding and reallocating precious metals inside an IRA is simple: as long as the money remains in the IRA, you aren’t immediately responsible for the taxes. You have to pay taxes when you sell precious metals for a profit in an ordinary account. Using a Traditional IRA to hold and reallocate precious metals allows you to defer the taxes until the time of withdrawal. With a Roth IRA, you pay taxes on your income to purchase the precious metals upfront but altogether avoid taxes when you withdraw during retirement.

Furthermore, diversifying and rebalancing among different assets can reduce the volatility of your savings without significantly reducing returns. Sound too good to be true?

“Diversification is the only free lunch” in investing, says the quote attributed to Nobel Prize laureate Harry Markowitz. And a self-directed IRA empowers you to diversify outside paper-based assets, into physical precious metals and other tangible investments. Sounds like a win/win!

Birch Gold Group is the nation’s leader in SDIRAs, if you’re interested in a gold IRA, give us a call today.