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Real Estae IRA Vs Gold IRA - Introduction

When considering retirement investments, many look towards the stock market to invest in stocks, mutual funds, and bonds. However, there are more alternative assets that you can invest in, including a real estate IRA or gold IRA (Individual Retirement Account).

Both gold and property IRAs offer immediate diversification from the stock market. Investors can also invest in paper alternatives to real estate property and physical gold as in traditional assets.

The most suitable investment for you will be based on various factors like your timeline, size of your investment, investment goals, and purposes. Gold and Property IRAs have many benefits that are comparable or overlap. For instance, the two retirement investments will help diversify your portfolio and could help hedge your retirement savings against inflation.

Bear Lake Gold, in this article, wants to give you full details on the two kinds of retirement investments. The information in this article will help you decide which one is best for you based on your retirement investment goals,  So The question is do I invest in a real estate or a gold IRA, both one or neither?

 

What is a Gold IRA?

A precious metal IRA or gold IRA is a self-directed IRA (SDIRA) that allows retirement investors to hold physical gold in their retirement accounts. Investors looking to include physical gold bars in their retirement accounts may consider a gold IRA. Other investment products such as silver, platinum, palladium, coins, rounds and bars can be held within this account if they meet the Internal Revenue Service IRS eligibility criteria.

Investors who want to invest in gold stocks, mutual funds, or gold ETFs (Exchange-Traded Funds) can do that through a regular IRA. It is pertinent to mention that the kind of investments you can hold in a gold IRA is strictly physical IRA-eligible precious metals.

The IRS rule regarding purchasing precious metals for a gold IRA stipulates that the IRA can hold U.S. gold coins of one-half, one-quarter or one-tenth ounce, or one-ounce silver coins issued by the Treasury Department. In addition, it allows investing in other precious metals such as certain platinum coins and certain gold, silver, palladium, and platinum bullion.

401k gold free gold

How a Gold IRA Works

In looking at how a gold IRA works, we want to consider the important steps you need to take to open a gold IRA.

Locate a Self-Directed IRA Custodian

Gold IRAs are special SDIRAs, which special IRA custodians can only open. Custodians that operate mainstream IRAs for traditional assets cannot open a gold IRA for investors.

Hence, the first step is to find a gold IRA custodian or trustee through which you can set up your gold IRA.

Although these specialized trustees maybe more limited in their numbers there is still a handful in the gold and silver industry. However, the best trustees in the industry are Augusta Precious Metals, Goldco, and American Hartford Gold. In a later segment of this article, we will provide details about them and why they stand out in the industry, among others.

Primarily, these companies give you the best factors you should consider before selecting the best custodian for you. They have amazing track records and are accountable to and transparent with their customers.

Bidens attack on gold IRa TAx rules

Fund Your Gold IRA

You can fund your gold IRA account by contributing money to it. The money must not exceed the annual contribution limits; $6,500 for account holders less than 50 years and $7,500 for investors above 50 years.

Alternatively, gold IRA investors can roll over their traditional or 401k funds into their gold IRAs. To successfully roll over retirement funds from your regular 401k retirement plan into a gold IRA, you must strictly follow the IRS guidelines for rollovers. The process has similar rules as applying for a rollover into a Roth IRA or a Traditional IRA. For instance, rolling over pre-tax funds into a Roth IRA will attract taxes before turning it into a Roth IRA, while post-tax funds are not subject to taxation. Alternatively, any pre-tax funds you roll over into a traditional or Roth IRA will only get taxed at withdrawal.

Buy IRA-eligible Precious Metals

The physical metals you can add to your gold IRA portfolio are only metals the IRS allows. These gold and other precious metals products are considered IRA-eligible because they primarily meet the IRS purity standards.

According to the IRS, the approved purity standard for approved precious metals must be at least;

  • 5% for gold products.
  • 9% for silver products.
  • 95% for palladium and platinum products.

Apart from the IRS purity standard, other eligibility conditions that qualify metals to be IRA-eligible are;

  • The products must come from refiners, assayers, or manufacturers certified by the following organizations.
    • The New York Mercantile Exchange (NYMEX).
    • The Commodity Exchange Inc. (COMEX).
    • New York Stock Exchange (NYSE).
    • The London International Financial Futures and Options Exchange (LIFFE).
    • London Metal Exchange (LME).
    • London Bullion Market Association (LBMA).
    • The London Platinum and Palladium Market (LPPM).
    • The Tokyo Commodity Exchange (TOCOM).
    • ISO 9000
    • National government Mint.
  • Proof coins must be in perfect condition, and these councils must carry authenticity certificates. In addition, they must be in complete and original mint packaging.
  • Bullion bars smaller than 400-ounce gold and 100-ounce gold, 50-ounce platinum, 1000-ounce silver, and 100-ounce palladium bars must be minted to their actual specified weights.
  • Bullion coins must not be damaged and be in brilliant uncirculated condition.

The IRS permits gold bullion coins like the American Buffalo, American Gold Eagle, Australian Gold Nugget, and the Canadian Maple Leaf but does not allow British Sovereign or South African Krugerrand gold coins as gold IRA investments. The IRS also does not allow gold collectible investments in IRAs.

When you see the IRA-eligible products that you want to buy, you can complete your purchase through a precious metal dealer. As much as the gold IRA custodian makes the purchase transaction for the investor, it is not responsible for selecting a preferred gold dealer for you. The custodian trustee can make gold broker recommendations, but it is up to the investor to decide who to buy from.

Use an Approved Depository

You cannot store the physical gold, silver, platinum, and palladium investments in your IRA in just any location. You must store them in an IRA-approved depository. You cannot store your gold IRA investments in your home. If you do, the IRS considers it a withdrawal, and the investments will incur tax penalties.

Some reliable IRS-approved depositories are;

  • Delaware Depository Service Company
  • JPMorgan Chase
  • CNT Depository
  • HSBC Holdings

Withdraw Your Investments

Some rules guide investment withdrawals (selling off your precious metals for money) from your gold IRA. However, these rules vary depending on whether your IRA is a traditional or Roth gold IRA.

tax compliant Gold IRA

Withdrawal Rules for a Traditional Gold IRA

  • The age for Required Minimum Distributions (RMDs) is 72.
  • Your withdrawals, whether voluntary or required, are subject to taxation.
  • You will pay a 10% withdrawal penalty if you withdraw before you reach 59.5 years.

Withdrawal Rules for a Roth gold IRA

  • There are no RMDs.
  • You will not pay taxes on withdrawals because your contributions annually are taxed.
  • Any withdrawal you make before your Roth IRA is 5 years or you reach 59.5 years will be subject to a 10% tax penalty.

Keep Records

Your gold IRA trustee or custodian will be responsible for keeping records of your withdrawals and new purchases. You can always keep checking your account to know the state of your investments.

Why Should You Invest in Gold?

Throughout human history, people have always valued gold. The reason is that the precious metal has some special features that have presented it as a ‘safe haven’ for investments. First, its entry barriers are low. You can start your gold investment journey by purchasing one gold coin. Second, gold holds value. Gold’s value tends to rise when fiat money is losing its worth. This second reason has made gold investment a good option for hedging the inflation and deflation that comes with crashes in the stock market.

The movements in the stock market have very minute or no effect on the value of gold. Most of the time, gold's value goes inversely to the stock market's movement. Hence, gold investments are an excellent way for portfolio diversification.

Additionally, gold has a history of outperforming other investment options during geopolitically uncertain periods. Sometimes, investors call it “the crisis commodity,” because when there are uncertain periods economically, people turn to gold, and that action increases its price.

Gold works with the economic demand and supply principles like other traditional assets. The demand has grown over the years as various gold markets are starting to emerge in Asia, South America, Latin, and Africa, and they are taking their place on the global economic platform. The supply, on the other hand, refers to gold mining. Sometimes, these mines can take up to 10 years to construct

real estate ira

What is a Real Estate IRA?

Real estate or property IRAs refer to a self-directed individual retirement account (SDIRA) that allows you to hold real estate investments. You can open a Roth real estate IRA, Traditional property IRA or Self Employed Pension (SEP) property IRA, just like regular IRAs.

However, unlike regular IRAs, investors can directly select, buy, and sell real estate assets in their retirement accounts.

Regarding real estate IRA, you can invest in single and multi-family, rental and commercial properties, international properties, land, and mortgage notes. In addition, investors do not need to cash out their IRAs and pay taxes because real estate investments are allowed in IRAs.

How Real Estate IRAs Work

You need to open a self-directed IRA to invest in alternative assets, and according to the IRS, your investments must be through a custodian. As an investor, you should select an IRA custodian that can protect your investments by giving them extra oversight.

Getting properties in your IRA is not very different from buying your regular real estate properties. When you see a property you want to buy, you must buy it through your custodian. You just need to tell your custodian that you want to buy the property, and then your custodian will transact on your behalf.

Your custodian will purchase the property contract in the IRA name because it is an IRA investment. The transaction costs are paid from the IRA and the gains from the property investment return to the IRA.

With an SDIRA account, investors do not need to pay income taxes from rental properties. For instance, income from rental properties going to your IRA is either tax-deferred (for Traditional IRA) or tax-free (for Roth IRA). However, for investors who purchase real estate using non-recourse loans, the profit debt financed portion will be subject to tax.

Why Should You Invest in Real Estate?

Real estate investments offer many advantages. The cash flow from real estate rental properties is usually excellent because it can generate rental yields and capital appreciation income. Asides from the monthly rentals passive income, rental properties provide an awesome tax advantage. Additionally, you can leverage your private equity into increased buying.

Real estate investments can give you passive income, appreciate in price, give you rental income, offer passive cash flow, portfolio diversification, leverage, and other tax advantages. This confluence of events that come with real estate investment makes it an attractive long-term investment.

You can also hedge your funds from inflation by investing them in real estate. As world economies are growing, the demand for real estate is growing too. The rise in real estate demands brings about rising rental income and capital appreciation.

Real estate investment trusts (REITs) will allow you to invest in real estate without getting involved in the daily administration of properties. Additionally, through REITs, you can reduce your property's operating expenses. That means you will create a lower investment bar instead of buying a property.

Real estate investment allows investors to invest in a market with low volatility. Hence, you will build equity and wealth as a real estate investor while maintaining diversification.

What are the Similar Advantages of Investing in Gold and Real Estate?

Gold and real estate investing have various advantages. For instance, these investment options allow investors to make huge profits while effectively diversifying portfolios and offering protection from inflation effects and stock market volatility.

In addition, gold and real estate investment also offer tax benefits. However, their tax benefit structures may differ. The tax benefits associated with real estate investments come from write-offs, cost depreciation, and deductible expenses. Physical gold, on the other hand, has lesser tax advantages. They allow tax-deductible contributions and tax-free withdrawals based on the type of gold IRA you choose to open.

What are the Risks of Gold and Real Estate Investment?

No investment is free from financial risks. Gold could decrease in price, and the value of real estate properties could decline.

Gold investments have no counterparty risks, but real estate investments do. Counterparty risks refer to the risk that third-party involvement brings. For instance, a tenant may refuse to pay rent for your real estate rental property. These risks can stop you from paying your property taxes, mortgages, and other fees.

Alternatively, gold investments have no counterparty risks because no one is involved in the investment except the investor. You simply purchase your gold products and own them.

Capital Requirements for Gold and Real Estate

The capital required to make real estate investments is more than what you need to make gold investments. As we mentioned, you can begin your gold investment journey by buying and storing one gold coin.

If you want to buy real estate properties, you will need a lot of capital, plus housing finance. However, you can reduce the amount of capital if you invest in a real estate investment pool like REIT or indirectly invest in real estate through a management firm.

The Differences between Real Estate and Gold Investment

When you understand the difference between these alternative investments, it will be easy to decide the best investment advice for you. Please consider your economic circumstances and investment goals as you read through this section.

Return Rates

Return rates estimate the degree of capital appreciation you get from your investments. In simple terms, the measure of return rates indicates the amount of money produced by your investments.

Gold investments subject your return rates to the public trading markets. Gold price constantly fluctuates, and it can witness price swings in the short term. Nevertheless, the increase in the value of gold has been steady over the years.

Through the years, real estate has shown strong Returns on Investments (ROI) and steady growth. In addition, the prices of properties are not subject to price regulations of any market. However, in the 2008 financial crisis, the real estate industry was affected. Apart from that time, real estate investments have grown steadily in price over the years.

Recurrent Expenses

Regarding recurrent expenditures, gold has fewer expenditures than real estate investments. The main recurrent expenses associated with gold are storage and insurance fees. Aside from that, you will not spend so much money on ongoing expenses. You just need to store your gold and keep observing the prices.

For real estate investments, on the other hand, you will spend more money on recurrent fees. For instance, purchasing a property will require you to make a down payment, interest, mortgage, legal fees, and property taxes. In addition, you will keep paying for maintenance, repair, and insurance if you intend to rent the property. You will also end up accounting for the increasing costs of building materials.

Volatility

The measure of price fluctuation within a specified time is called volatility. Concerning the available investment options for retirement, many people want to reduce volatility effects and hedge their savings against inflation by diversifying their assets.

Gold price is constantly changing. Hence, gold investments may witness little volatility. Real estate investments, on the other hand, have lower volatility levels when compared to gold. However, there are exceptions to real estate volatility. In periods of financial crises, real estate prices may remain steady, and that makes real estate properties long-term investments.

Economic Boost

Physical gold investments share a certain feature with traditional investments, like mutual funds. The market price of gold is fixed. Hence, any economic boost that gold will have will result from gold's price increase. Gold neither creates cash flows nor pays dividends.

On the other hand, real estate investments provide an economic boost. There are many ways investors get this boost. For instance, when their equities rise and mortgages reduce. The economic boost allows investors to invest in more properties using their equities and quickly grow their wealth. In addition, real estate rentals can generate income for investors.

Tax Advantages

If you are concerned about tax benefits, real estate investments offer better tax benefits than gold investments. Physical gold investment holdings in your precious metals IRA can enjoy tax deference. However, the investments are subject to capital tax gains.

On the other hand, real estate investments offer more tax advantages and tax deductions. Based on your investments, some benefits are mortgage interest, legal costs and services, mortgage expenses, repair and maintenance fees, depreciation, and property taxes.

Liquidity

These alternative investments are the opposites of two ends regarding liquidity. Gold is a global product; the open market sets its price and is traded publicly. Hence, converting your physical gold assets to liquid cash by selling them will only take a few hours, and you do not need special contracts to do it. It shows that gold is an asset with high liquidity.

On the other hand, real estate properties can take months to sell. No market sets the price. Rather, the investors fix their prices by comparing the prices of other properties in the area where theirs are located. This method of fixing prices is mostly always inexact.

In addition, you will need escrow to sometimes inspect the properties and constantly negotiate about them before you sell them off. All these make the selling process of real estate properties complex. Most investors who cannot keep up with the process pay legal fees to hire attorneys when they want to sell or buy properties. These complex procedures make real estate investments illiquid.

Conclusion

What is the Right Investment for You?

Bear Lake Gold will give its final verdict on the better investment option using the various facts we have put together in the document. First, we would love to point out that ‘better’ is subjective because both investments have similar and different benefits, advantages, and disadvantages. Hence, before you know the better choice and make your investment decisions, you have to know the right investment for you, and you can only know that by answering the following questions.

  • Do you prefer a more liquid investment?
  • What is your volatility tolerance level?
  • What is your investment strategy?
  • What is your investment lot size?
  • How much priority do you place on tax benefits?
  • Do you want to make passive income from a rental property?
  • Do recurrent expenses on your investment bother you so much?

When you have sincerely answered these questions, you should now weigh your answers with the benefits, advantages, and disadvantages of real estate and gold IRA investments.

From what we discovered about these investments, they will effectively help investors diversify their investment portfolios, hedge against inflation, provide leverage and funds security, and offer potential growth in the long term.

Therefore, the best way to answer the question “Real Estate vs. Gold: Which is a Better Investment?” is to look at the differences between investment options.

Gold is very liquid, giving it an edge over real estate. You can quickly sell gold for cash whenever you decide, and although gold could have price volatility in the short term, it has shown to be a long-term growth type of investment.

Hence, depending on how fast you want to liquidate your investment after retirement, in our opinion, you should settle for gold investments. You can sell off and buy within a few hours. Gold investments do not also need a huge capital to start. With your annual starting contribution limit of $6,500 or $7,500, you can buy physical gold investments for your gold IRA. In addition, you will enjoy minimal ongoing expenses when you own gold investments, and they do not have counterparty risks.

The reverse is the case for real estate investments or real estate IRAs. Even though the investment offers much lower volatility, making it more stable daily than the gold investment, it has more disadvantages. You will need a huge capital to begin; they are not so liquid because it takes months to sell off, the ongoing expenses are much, and they are affected by counterparty risks.

The truth is that real estate investments come with more taxable income benefits, generating income through rentals, and that could add to your capital gains, but you may spend more of the gains on recurrent expenditures.

Therefore before you choose the investment you term better, you should consider your investment goals. However, considering the enormous advantages of gold investments, we recommend choosing gold IRAs and physical gold investments. When you have made more profits from your gold investment, you can utilize the profits for investing in real estate properties.

If you have decided to invest in a gold IRA for your retirement, we recommend investing through our top three recommended gold IRA providers. These companies are the best in the industry and have amazing features that we put together in their various review guides. Click the relevant buttons below to download their full information guides for free.

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