Are you an owner of a Keogh retirement plan and are wondering how to get the most value out of it? Do you want to know if (and how) you can invest in recession-proof physical gold bullion (or any other precious metal) through this account? This page will have all your answers.
Established in 1962 thanks to the efforts of Representative Eugene Keogh, a ‘Keogh Plan’ is a tax-advantaged pension plan designed for self-employed workers or unincorporated business entities.
Not all self-employed persons can establish a Keogh Plan. Independent contractors, for instance, cannot open a Keogh. Rather, they are only available to self-employed individuals that own an unincorporated business.
Keogh Plans come in both defined contribution and defined benefit varieties. The defined contribution Keogh is set up as either a profit-sharing or a money-purchase plan. The defined benefit Keogh operates much like a traditional pension plan, with the caveat that it is self-funded.
Keogh Plans are notorious for complicated paperwork, but remain a viable option for high earners who are self-employed. Establishing a Keogh Plan does not inhibit your ability to contribute to an IRA.
If you are self-employed and have a Keogh, you are considered an employee for rollover purposes. This means that you are allowed to rollover part or all of eligible rollover distributions into a self-directed IRA. This is considered a tax-free rollover between like accounts.
In other words, a Keogh Plan distribution that is subsequently rolled into a self-directed IRA is not counted as income. However, if the rollover distribution is paid directly to an IRA holder, typical withholding limits (20%) apply. You can avoid this requirement by instead choosing to execute a direct rollover.
Underneath this text, we've put together a chart that illustrates how a Keogh plan weighs up against other leading tax-advantaged retirement accounts.
|Plan Type||Sponsorship||2021 Contribution Limit||Roth Option?||Allow Gold Stocks?||Allow Gold ETFs?||Allow Gold Bullion|
|401(k)||Private Employer||$19,500 / $26,000||Yes||Maybe||Maybe||No|
|Solo 401(k)||Self-employed||$19,500 / $26,000||Yes||Yes||Yes||Yes|
|Keogh Plan||Self-employed or Unincorporated Employer||$58,000||No||Maybe||Maybe||No|
|403(b)||Government or Non-profit Employer||$19,500 / $26,000||Yes||Maybe||Maybe||No|
|457(b)||Government or Tax-exempt Employer||$19,500 / $26,000||Yes||Maybe||Maybe||No|
|SIMPLE IRA||Private Employer||$13,500 / $16,500||Yes||Yes||Yes||Maybe|
|SEP IRA||Business Owners & Self-employed||$58,000||Yes||Yes||Yes||Maybe|
|Profit Sharing Plan||Private Employer||$58,000 / $64,500||No||Maybe||No||No|
|Money Purchase Plan||Private Employer||$58,000||No||Maybe||Maybe||No|
|SARSEP||Private Employer||$19,500 / $25,500||No||Yes||Yes||Maybe|
|Traditional IRA||Individual||$6,500 / $7,500||Yes||Yes||Yes||No|
|Precious Metals IRA||Individual||$6,500 / $7,500||Yes||Yes||Yes||Yes|
|Thrift Savings Plan (TSP)||Government or Military||$19,500 / $26,000||Yes||No||No||No|
("Maybe" indicates that gold investment options are at the discretion of the plan provider. For instance, some 401(k)s offer gold mutual funds or ETFs, while others do not.)
Keogh plans are able to invest in the same instruments as 401(k) plans and standard IRAs (traditional and Roth). This means that they are able to include:
Unfortunately, you simply cannot invest in real assets such as precious metals bullion with a Keough plan. However, you can gain exposure to assets that are tethered to the price of gold or silver, such as stocks in mining or exploration companies. Likewise, you could purchase shares of a gold or silver ETF or index fund that specializes in precious metals companies—these are what are known as “paper gold” assets.
There is no shortage of paper gold or paper silver stocks, such as Barrick Mining Corporation, or even publicly-listed indices such as Gold Miners Index (GDX) or the BUGS Index (HUI). These index funds invest in a diverse range of companies that are active in the precious metals sector, which can include those that operate mines, exploration campaigns, or refineries.
Sure, paper gold is a convenient and accessible alternative to physical bullion. Paper gold is not without its share of drawbacks, however. Thanks to their liquidity as public securities, these assets can be quickly bought and sold and, therefore, they are susceptible to volatility. When the spot price of gold drops, for example, the outsize negative impact of this is very quickly reflected in the value of a gold mining stock.
Unfortunately, that's not the other type of risk associated with paper gold. Investors also have to be aware of the following risk categories:
On the other hand, physical gold and silver never lose their value entirely. It's impossible for a bar of gold to go bankrupt or be mismanaged. For this reason, physical assets are much more secure and pose less risk to the investor than paper gold.
There are plenty of advantages associated with rolling over your Keogh plan assets into a self-directed IRA. For one, an IRA gives you full checkbook control over what you want to invest in. Whereas a Keogh is limited to traditional stocks and bonds, IRAs empower investors to diversify with real assets and alternatives.
Employer-sponsored retirement accounts, like Keoghs, are limited in scope and are inherently conservative. If you want to diversify with precious metals and take real control of your retirement savings, an IRA is a far superior option. Plus, with an IRA, there's no vesting period. IRAs do not require investors to have their assets sit in their account for a period of time before a distribution can be made.
No doubt, IRAs win on flexibility and customizability. Not to mention, Keoghs often charge higher fees and are subject to more regulation, making them tricky to manage without accidentally triggering a penalty or fee.
Gold is the ultimate diversifier, and it has served this role for millennia. Since Roman times, gold and silver have been used to store value and protect one's savings. Financial markets are fickle, unpredictable, and vulnerable to collapse. However, gold, silver, and platinum-group metals are resistant to major price fluctuation and always hold their value over time.
Although gold is solid as a rock when it comes to hedging, it's also a reliable growth asset. A troy ounce of gold hit a market high of $2,058 per troy ounce in 2020, up nearly 25% from its high on the previous year at $1,542. This kind of growth rivals the S&P 500 and other stock market indices in their best years. As more investors seek safe growth in the years ahead, it's safe to assume that gold and silver will continue to trend upward with time.
Not everyone should dedicate the same share of their portfolio to precious metals. Going over 20 percent or under 5 percent is generally not recommended. The closer you are to retirement, generally speaking, the more of your portfolio you should devote to precious metals. Younger and more risk-tolerant investors can afford to be on the lower end, with a 5-10 percent allocation in precious metals in an IRA.
As we learned last year, the stock market can crash at the drop of a hat. If your portfolio isn't diversified, you run the risk of losing a big chunk of your retirement savings overnight. Luckily, there are steps you can take to protect yourself and safeguard your retirement savings from incurring unnecessary losses.
Investing in precious metals through an IRA is easier than you think. If you're wondering where to start, sign up for our monthly newsletter. There, we break down the latest news and developments for serious precious metals investors. Plus, it's 100% free and your data is kept safe from third parties. If you sign up now, we'll send you our exclusive PDF report entitled 5 Scams to Avoid When Investing in Gold and Silver, completely on the house.