A silver IRA is a self-directed individual retirement account that allows you to own silver and other precious metals in your portfolio. Investors sometimes use this type of account to hedge against inflation. But does it make sense for your retirement? Here are the pros and cons.
A financial advisor can help you break down the advantages and risks of a silver IRA for your retirement plan.
How Does a Silver IRA Work?
Investors look to silver and other precious metals as a way to diversify their portfolios and protect their investments from market instability.
Silver IRAs are self-directed IRAs, which allow you to pick specific investments to hold in your account.
You can sign up for an account with a plan administrator and a separate IRA custodian who holds and manages your assets.
Account contributions will be used to buy silver bullion and other precious metals like gold, platinum and palladium. However, the IRS imposes strict rules requiring precious metals to meet specific purity standards.
Additionally, silver IRAs will also face the same contribution limits as traditional IRAs, with the IRS limiting annual contributions in 2023 to $6,500 ($7,500 for account holders age 50 and older).
The agency will also allow you to make withdrawals from your account without penalty after age 59 ½. However, you will face a 10% tax for withdrawals before then.
Types of Silver IRAs
There are three types of silver IRAs. These include:
- Traditional silver IRAs. This account allows your contributions to grow tax-deferred, which means that you won’t pay taxes on your investment gains until you take that money out in retirement.
- Roth silver IRAs. Conversely, you pay taxes upfront for contributions that are made to this IRA and qualifying withdrawals in retirement are tax-free.
- SEP silver IRAs. If you are self-employed, this tax-deductible account allows you to contribute up to 25% of your compensation or $66,000 in 2023, whichever amount is smaller.
Pros and Cons of Silver IRAs
Silver, like gold and other precious metals, is often considered a safe investment because it can retain value during market downturns and inflation. However, holding silver won’t pay you dividends or interest.
When compared with gold, silver can be more volatile because it costs less and the price fluctuates more often. So, if you have to cash out your silver fast, you could end up taking a loss.
And, finally, while your silver IRA can offer different tax benefits based on the account type, storage and insurance costs from maintaining silver and other precious metals in a depository could eat into your investments.
How to Invest in a Silver IRA
If you want to open a silver IRA, you’ll have to earn taxable income as if you would for a traditional IRA, Roth IRA or SEP IRA. But investing in precious metals is more complicated since you’ll have to select a custodian to hold your silver IRA and a precious metals dealer to buy your silver.
After you have selected which products to buy, you’ll need to pick a depository that meets IRS requirements to store your silver.
Investing in a silver IRA can be a strategic move to diversify your portfolio and hedge against inflation.
However, you should take note of the volatility of silver prices and additional maintenance costs to determine if it’s a good investment for your retirement portfolio.
Retirement Savings for Beginners
- A financial advisor can help you create a financial plan to protect your retirement assets from inflation and market downturns. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to figure out how much you will have for retirement, SmartAsset’s free retirement calculator can help you get an estimate based on your expected retirement age, annual income and retirement expenses.
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