Investing in Gold Through a SEP IRA

Disclosure: Our content does not constitute financial advice. Speak to your financial advisor. We may earn money from companies reviewed.  Learn more

Has your company adopted a SEP IRA to provide retirement benefits? Or are you a self-employed person who has elected to use a SEP IRA in conjunction with your business? SEP IRAs can be a very efficient and powerful retirement tool, but can they be used to help you diversify and secure your retirement assets by investing in physical gold and silver bullion?

Below, I'll break down exactly what a SEP IRA is, how it measures up against other tax-advantaged retirement accounts, as well as how you can shield your retirement savings from volatility in your golden years using alternative assets stored in an IRA. This way, you can hang onto more of your wealth in the event of a stock market calamity.

SEP IRA 101

The Internal Revenue Service (IRS) allows business owners to utilize Simplified Employee Pension (SEP) IRA plans to contribute to both their own and their employees' retirement savings. A variation of Traditional IRAs, SEP IRAs are not employer-independent, and allow tax-deductible contributions to be made into employee accounts or business owner accounts with much higher limits than standard IRAs.

Each employee has either a separate IRA or a separate annuity opened up in their name. These accounts are treated like normal IRAs and have the same investment options as traditional IRA plans. To qualify for an employee SEP IRA, an individual must be at least 21 years old, have worked for the same employer for at least three of the past five years, and have received at least $750 in income during the tax year for 2023.

Standard contribution limits for SEP IRAs are the lesser of $66,000 (for 2023) or 25% of employee income. For self-employed individuals, however, there is a contribution limit based on a percentage of net profits (25%).

Once funds are deposited, however, the assets act just like a Traditional IRA and have all of the same distribution rules, investment rules, deduction rules, etc.

One enormous bonus of SEP IRA plans (relative to other employer-sponsored plans) is that all funds immediately become 100% vested.

SEP IRA Rollover Rules, Guidelines & Limitations

Under IRS regulations, SEP IRA account holders can execute transfers and rollovers without triggering a tax event on the condition that the assets are sent to another qualified retirement account. However, the lone caveat is that both the SEP and the secondary plan have to permit account-to-account rollovers. If they are permitted, you have the choice of either transferring all your assets or only a portion of them to the receiving account.

Note that there are fees associated with early withdrawals from retirement accounts (aged 59 1/2 years). Also, it's generally advised that account holders looking to perform a rollover should opt for a direct rollover instead of an indirect one. If you opt for an indirect rollover, you might trigger distribution fees that you could otherwise avoid with a direct rollover.

SEP IRA vs. Traditional IRA vs. 401(k) vs. Other Retirement Accounts

Below I've put together a chart that highlights the various ways how a SEP IRA compares to other tax-advantaged retirement vehicles such as 401(k)s or Roth or Traditional IRAs:

"Maybe" signifies that it's up to the broker or administrator's discretion whether gold investment options such as gold mutual funds or ETFs are available to the account holder.

Types of Gold You Can Invest in Through a SEP IRA

Your SEP IRA investments are generally restricted to those assets that your custodian approves and makes available. Technically, SEP IRAs have the capacity to offer various types of assets in a self-directed account, such as:

• Equities and stocks
• Individual bonds (corporate and government)
• Options
• Mutual fund shares
• Exchange Traded Funds (ETF) shares
• Certificates of Deposit (CDs)
• Commercial Property & Real Estate (+ Other Real Assets)
• Gold, Silver, and Platinum Bullion

In regards to tax-advantaged retirement accounts, SEP IRAs have a wide variety of assets available to investors compared to 401(k)s. If you have a SEP IRA, you can invest in all the same assets as your standard Roth or Traditional IRA, but with the benefit of being able to invest in additional assets like precious metals and commodities. Therefore, SEPs are one of the only types of retirement savings accounts in which you can invest in real assets and other alternatives.

Additionally, SEP account holders can invest in gold and silver indirectly in the form of precious metals ETFs, index funds, and mining stocks. These options are suitable for any tax-advantaged retirement account, including 401(k)s, and SEP IRAs are no exception.

Physical Gold and ‘Paper Gold' Investments: How Do They Compare?

When investors talk of “paper gold” they're referring to individual stocks, securities, and exchange-traded funds in companies that are involved in the precious metals market. These can take the form of mining companies, like Barrick Gold, or a basket of precious metals-involved companies like SPDR S&P Metals & Mining ETF ($XME), Gold Miners Index (GDX) or the BUGS Index (HUI).

The companies that produce, mine, refine, or export gold and silver ore are, to varying extents, dependent on the price of the asset they use. Therefore, you can indirectly track the price of a physical commodity by investing in companies that are active in their discovery, production, or refinement.

Before getting involved in gold and silver stocks, be warned that they carry more risk than physical gold ownership. Historically, gold stocks appreciate or fall very quickly since they're more liquid and can be bought and sold on exchanges at a much faster rate than real assets. For this reason, they're often more volatile and unstable as compared to physical precious metals.

Paper gold is exposed to other forms of risk that need to be considered, such as:

• Regulation Risk – mining and exploration companies are subject to regulatory oversight that can quickly change
• Production Risk – the equipment and necessary inputs in the mining process are known to depreciate and degrade quickly, and other costs like rising land values and labor cost increases can hurt a company's valuation or stock price
• Management Risk – companies aren't always well-managed; if a mining stock suffers from poor leadership or a management crisis, the stock can tank
• Fiat Currency Risk – buying and selling stocks on an exchange requires you to pay for the security with fiat money that can lose value very quickly in the event of a currency collapse or period of hyperinflation

On the other hand, physical precious metals have never hit zero (or anywhere close to that), and have held their value reliably for millennia. There's truly no contest between physical gold and gold stocks if you want exposure to the asset.

Advantages of Putting 5-20% of Your Retirement Portfolio Into Precious Metals

Gold and silver are simple, safe, and effective diversifiers for retirement investors. If the stock market collapses like it did in March 2020 when the Dow Jones fell by 6,400 points over four trading days, holding some of your wealth in precious metals can go a long way toward protecting your life savings. Unlike stocks, metals are resilient and highly resistant to volatility and panicked sell-offs like we saw in the early days of the pandemic market crash.

This being the case, gold and silver are excellent hedges against broad market risk. But that's not all. Gold is also a great growth asset, as we saw in August 2020 when the yellow metal eclipsed all-time highs well over $2,000 per ounce. The fact that gold holds stable growth potential makes it an attractive asset for investors looking to grow their wealth while managing risk at the same time.

How much of your savings you dedicate to gold and silver will depend on your age, goals, and appetite for risk. If you're closer to retirement (i.e., <5 years), then a larger share of your portfolio (15-20%) might be advisable for your situation. However, younger investors with a greater tolerance for risk might be able to devote more of their wealth to equities and bonds while leaving 5-10% in metals.

Learn More About Precious Metals in a SEP IRA

As we've all found out recently, the economy is fragile. Almost overnight, everything can collapse and your retirement savings can be put in jeopardy. Fortunately, there are steps you can take to protect yourself from disaster.

To safeguard your wealth and head toward retirement with peace of mind, sign up for our monthly newsletter. It's completely free, and we keep all of your data strictly confidential. Once you've signed up, we'll send along a free PDF report entitled 5 Scams to Avoid When Investing in Bullion Gold & Silver so you can avoid the rookie mistakes that can cost you a lot when buying gold or silver.