I’m bringing in a guest…
Note from Zach: The market downturn has derailed a lot of people’s retirement plans. So I asked Strategic Retirement’s Beau Henderson to share a strategy for getting back on track as quickly as possible.
The stage is set for gold and precious metal prices to hit historic highs.
In just a few weeks, a lot of people will be regretting not adding some physical gold to their portfolio at today’s low prices.
So if your retirement account has been decimated by the coronavirus crisis, precious metals could go a long way towards helping you recover your losses.
Play it right, and you might not even need to pay taxes on your gains!
I’ll tell you exactly how in just a minute.
First, though, let’s make sure you understand what’s been happening in the gold markets… and why they’re poised for a major breakout in the weeks ahead.
Coronavirus Is Controlling Supply & Demand
As you know, the U.S. government and its agencies are doing everything they can to limit the coronavirus’ damage to the economy.
Congress agreed to throw $2 trillion at the problem, with promises of more money to come.
And the Federal Reserve is throwing gobs of cash into the financial system to keep the markets running smoothly.
But coronavirus hasn’t suspended the laws of supply and demand. The more U.S. dollars that the government creates, the less valuable they become.
In other words, it’s going to take more dollars to buy things — especially precious metals.
That fact alone is enough to expect gold prices to move higher. The reason they should move much higher is because gold is currently having a supply crisis of its own.
There’s just enough of the stuff to go around.
If you read Byron King’s articles in Whiskey & Gunpowder, you know that coronavirus is having as big an impact on gold production as it is on other industries.
(And if you’re not reading Whiskey & Gunpowder, you can sign up for a FREE subscription here.)
Byron reports that mines and processing facilities across the globe have shut down. At last count, work had stopped at well over 100 major projects.
Even if ore were coming out of the ground, refining it would be another matter.
Transporting anything over long distances is harder than ever these days. Then there’s the fact that refiners themselves may not be open for business.
According to Byron’s research, three of Europe’s largest precious metals refineries have ceased operations. They’re located in Switzerland, not far from the Italian border. So they’ve shut down to protect their workers.
Gold dealers are already having trouble fulfilling orders for physical gold products like bars and coins. Some are jacking up their fees to compensate for the extra work they need to do.
It won’t be long before this increasing gap between supply and demand causes a huge jump in prices for gold itself.
And you can incorporate this impending breakout into your retirement plans!
A Critical Component of a Stress-Free Retirement
One of the core components of a solid retirement plan is an individual retirement account (IRA).
For the most part, the money you contribute to a traditional IRA is tax-deductible. In other words, it’s not considered part of your taxable income for that year.
Your money can just sit in the account and earn interest. Or you can invest it, growing the account with dividends and by selling investments at a profit.
The gains you see with interest, dividends or capital gains won’t count towards your taxable income, either.
That’s right… your account could collect $10,000 in dividends and you could sell all your stocks for twice what they’re worth — and Uncle Sam wouldn’t bat an eye.
Instead, any money you take out of the account will be taxed as income for that year. (If you withdraw the cash any time before you turn age 59½, you may also pay a penalty.)
And starting at age 72, the government forces you to withdraw a certain percentage of your account’s value. It’s called a required minimum distribution (RDM), and it only exists so the IRS can start taxing some of the cash you’ve squirreled away.
If you don’t want to be forced to take money out of your retirement account — and don’t want to be taxed on the cash you do withdraw — you can look into a Roth IRA.
Contributing cash to a Roth does not offer any up-front tax break. That is, you can’t deduct the money you put into one from your taxable income.
But in most cases, any withdrawals you make six months past your 59th birthday won’t be counted as income. So that money is entirely tax free.
Just keep in mind that how much money you can put directly into a Roth IRA is limited by how much income you make.
If your modified adjusted gross income — that is, your taxable income with certain deductions added back in — is over $139,000 (or $206,000 if you’re married filing jointly), you can’t contribute directly to a Roth at all.
Instead, you can look into transferring funds from a traditional IRA into a Roth, process known as a conversion.
The money you take out of the traditional IRA and put into a Roth will be added to your income for the year (without the penalty, though.).
Once the money has been moved over, you’re eligible to enjoy all the tax-free benefits Roths provide — including a chance to multiply your money with gold without worrying about taxes.
So whether you open a traditional or a Roth IRA, your next challenge is to figure out the best way to take advantage of rising gold prices.
The Many Ways to Cash in on Gold
The company that holds your IRA — known as the custodian — generally limits what you can invest in with your money.
Some are very strict, forcing you to stick with selected mutual funds or exchange-traded funds.
Both essentially represent investments in a pool of stocks that mirror a particular index — like the S&P 500 — or a theme, like high-yield companies.
If you’re lucky, your limited choices may include funds that specialize in gold and precious metals.
Just keep in mind that very few mutual funds invest directly in gold. Instead, they buy a basket of mining stocks, which should increase in value as gold’s price goes up.
That’s also the case for many exchange-traded funds, which trade on the major exchanges like any other stock.
You may be offered the Van Ecks Vectors Gold Miners ETF (GDX) or the iShares MSCI Global Gold Miners ETF (RING).
Of course, gold miners are affected by more than just the actual price of gold. So their stock prices may not mirror what gold is trading for.
In fact, gold miners have been so beaten down lately that a rebound in prices could help them perform better than the metal itself.
If you want more direct exposure to gold’s ups and downs, check out the SPDR Gold Shares (GLD). Each share represents a stake in a pool of physical gold, so its value is almost directly tied to the going price for gold.
With luck, though, your IRA custodian gives you unfettered access to stock investments. In that case, you can invest in any or all of the exchange-traded funds I’ve mentioned.
Overall, though, odds are very good that GLD is the closest your IRA custodian will let you get to cashing in on physical gold.
So you may have to decide to do it on your own…
Invest Directly in Gold by Taking Control of Your Retirement
If you want your retirement account to invest in physical gold bars and coins, you can open what’s called a self-directed IRA.
The rules are mostly the same as they are with regular IRAs. You fund them with pre-tax dollars, which can reduce your taxable income for the year.
And any gains the account makes are tax-free, but any money you withdraw will be treated as taxable income.
The biggest difference is that a self-directed IRA offers a much broader array of asset classes, including physical gold!
Now, you can’t invest in just any bars or coins.
They must meet a minimum fineness requirement of .995 and be produced by a national government mint or accredited manufacturer. The only exception are American Gold Eagle coins, which have a fineness of .9167
And you can’t stash your gold bullion under a mattress, in a home safe or a closet. All IRA-eligible gold coins and bars must be controlled solely by the IRA’s custodian and stored in an IRS-approved depository.
You also can’t hand your custodian a stack of coins to put into your IRA. All purchases must be made from your IRA. You tell your custodian what you want to buy, who you want to buy it from and where you want the gold stored.
In most cases, selling works the same way. You arrange the sale and tell your custodian to execute it. Any profits must be deposited back into your IRA.
Of course, that all changes when you reach retirement age. You may need to sell some of your gold holdings for cash — especially if you have RMDs.
Remember, the cash you take out will be taxed as income.
If you want to avoid paying taxes, you can look into opening a self-directed Roth instead.
That’s right — you can open a self-directed Roth IRA!
All the regular Roth rules apply, of course, including the income restrictions for funding a Roth directly.
But you also have the option of converting funds from a traditional IRA to a Roth.
Just imagine what that could mean for your retirement account!
Start Your Recovery Plan
Let’s say you open a self-directed IRA today and buy 10 one-ounce gold coins. That’ll set you back approximately $16,000 at today’s prices.
If Zach and Byron are right, those same coins could be easily worth $20,000 or more by the summer.
So the value of your retirement account could be 25% higher in just a few months… without you owning a cent in taxes if you sell!
But let me be perfectly clear. I am NOT saying you should sell all of your investments to buy gold today.
Diversity is the key to a successful retirement account. You NEVER want your future riding on a single investment or even a small handful of investments.
It’s also important to remember that the coronavirus crisis won’t last forever, and stocks will eventually recover. So it doesn’t make sense to take huge losses today, especially if the stocks you’re holding pay dividends.
Instead, my point is that gold should also be part of your retirement strategy, and the price spike we see coming makes this the perfect time to build your position.
Depending on who runs your IRA, you can add gold-related funds, mining stocks or even shares representing gold itself to your account.
If you want to invest directly in gold bars and coins, you can open a self-directed IRA.
And if you don’t want to pay taxes on your golden gains, you can look into opening or converting into a Roth IRA.
Just make sure you do it before gold moves any higher!
Here’s to living rich,
Retirement Coach, The Daily Edge