Just how do you go about putting physical precious metals into your retirement account…?
So I have just left a company where I had accumulated a nice amount of retirement funds in my 401K plan. Like most people, for me a nice amount is any money that somehow hasn’t gone to pay for college tuition. So I found myself for the first time in a long time needing to consider what to do with a small chunk of change.
A 401K plan is an employee-sponsored plan, where your employer often matches part of the monies you invest into your retirement savings. The money is commonly invested with a fund manager, which will offer you the ability to diversify through a choice of different types of funds they manage. This basically means you don’t have to know much, and you trust the fund managers to know what they are doing. The plan of course is held in your former employer’s name.
Though I do trust my former employers, I’m not so sure about the Dollar, or government bonds, or the stock market. So I decided that I would like to diversify a certain percentage of my retirement funds into physical gold. But there were no funds available to me under the 401k that directly invested in bullion. When I inquired with the fund manager, they informed me that they had another group within the company that offered self-directed IRAs. These Individual Retirement Accounts would give me more flexibility, and IRAs can also hold physical gold or silver. I would simply need to transfer the money.
That sounded good to me, as the path of least resistance. But upon further inquiry I was informed that the only gold product that my existing fund managers offered wasn’t physical bullion itself, but exchange-traded trust funds backed by gold. ETFs trade on the stock market, and are a derivative product meant to follow the price of gold. They are not a direct investment into physical gold which you own outright. Instead, you buy shares in the trust, and that trust then owns gold.
This is an important point. Because putting gold into your IRA already moves it one step away from your outright ownership. To get the tax advantages which IRAs enjoy, it’s your retirement fund, not you, which legally owns the assets it holds. So I really don’t see the point in having someone else manage my IRA account’s physical gold, and own it as well. I want my retirement fund to own it directly and have the title. Clearly, I had to do some more homework. And that of course meant asking Google (NASDAQ:GOOG).
Searching for “Self Directed IRAs”, the first items I found were law firms offering to help set up a trust to create my own self-directed IRA account. This meant that I would have had to handle annual filings and reports. The cost to do this was significant as well. If I had the kind of assets where I could sit home all day and focus on where to put my money next, it may have made sense. Like most people, however, I’m too busy working at making a living to have that much time and energy to divert to managing what would in the end be like running a small business.
So I went back to the drawing board (well, Bing this time). My searches now came up with firms that offer the ability to open a self-directed IRA which they administer. Of course, no one in business will do this kind of thing for free. They do charge a fee for the service they provide. More digging and I learned there are two types of firms:
- A trust company (also called a custodian or a fiduciary agency) is licensed and regulated by government and does pretty much everything to set up and manage your IRA;
- On the other hand is an administrator, who works with a trust company to provide essentially the same service, but is not regulated in any way. Note that if you use an administrator, the actual title – the ownership – of your account would reside with them. All their accounts are held in an omnibus account with a trust.
The difference didn’t matter too much to me. I’m confident that government isn’t very good at regulating anything. But it is good at increasing the cost of doing business, without really providing a service. So when it came down to it I considered references and reputation.