Investing in Gold Through a SEP IRA | Gold IRA Guide
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Investing in Gold Through a SEP IRA

Gold IRA Guide / Types of Retirement Plans / Investing in Gold Through a SEP IRA

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

We'll go over what SEP IRAs are, how they compare and differ from other retirement plans, how precious metals investing works, and how you can safeguard your retirement assets against stock market or currency collapse.

What is a SEP IRA?

The Internal Revenue Service (IRS) allows business owners to utilize Simplified Employee Pension (SEP) IRA plans in order 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 individual employee has either a separate IRA or separate annuity opened up in their name. These accounts are treated like normal IRAs and have the same investment options as traditional IRA plans. In order 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 $550 in income during the tax year.

Standard contribution limits for SEP IRAs are the lesser of $52,000 (for 2014) or 25% of employee income. For self-employed individuals, however, there is a contribution limit based on a percentage of net profits (18.6% for 2014).

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 & Limitations

The IRS permits rollovers or transfer from SEP IRAs to be executed tax-free as long as the money is moved to another qualified account. The only caveat is that both plans (the SEP and the receiving plan) must allow for retirement savings account rollovers. If you have as SEP and are looking to perform a rollover, you can elect to move the entire balance of the account or only a portion of the account.

There are penalties for taking distributions in cash prior to retirement age (59 1/2). Additionally, if you are going to attempt a rollover, it is highly recommended that you opt for a direct rollover instead of an indirect rollover. Indirect rollovers have withholding requirements and run the risk of incurring early distribution penalties.

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

Here is a table which illustrates how a SEP IRA compares to other tax-advantaged retirement vehicles:

Plan TypeSponsorship2016 Contribution LimitRoth Option?Allow Gold Stocks?Allow Gold ETFs?Allow Gold Bullion
401(k)Private Employer$18,000 / $24,000YesMaybeMaybeNo
Solo 401(k)Self-employed$18,000 / $24,000YesYesYesYes
Keogh PlanSelf-employed or Unincorporated Employer$53,000NoMaybeMaybeNo
403(b)Government or Non-profit Employer$18,000 / $24,000YesMaybeMaybeNo
457(b)Government or Tax-exempt Employer$18,000 / $24,000YesMaybeMaybeNo
SIMPLE IRAPrivate Employer$12,500 / $15,500YesYesYesMaybe
SEP IRABusiness Owners & Self-employed$53,000YesYesYesMaybe
Profit Sharing PlanPrivate Employer$53,000NoMaybeNoNo
Money Purchase PlanPrivate Employer$53,000NoMaybeMaybeNo
AnnuityIndividualNoneNoMaybeMaybeNo
ESOPPrivate EmployerVariesYesMaybeNoNo
SARSEPPrivate Employer$18,000 / $24,000NoYesYesMaybe
Traditional IRAIndividual$5,500 / $6,500YesYesYesNo
Precious Metals IRAIndividual$5,500 / $6,500YesYesYesYes
Thrift Savings Plan (TSP)Government or Military$18,000 / $24,000YesNoNoNo
"Maybe" indicates that gold investment options are at the discretion of your plan provider or brokerage. For example, certain 401(k) plans offer gold mutual funds or ETFs, while others do not.

Types of Gold You Can Invest in Through a SEP IRA

Your SEP IRA investment choices are limited to what your custodian makes available to you. Legally, however, SEP IRAs have the option of offering the following types of investments:

  • Individual stocks
  • Individual bonds (corporate and government)
  • Options
  • Mutual fund shares
  • Exchange Traded Funds (ETF) shares
  • Certificates of Deposit (CDs)
  • Real Estate
  • Precious Metals Bullion

SEP IRAs have one of the more interesting range of investment choices in the tax-advantaged world. They not only allow all of the same investments of a Traditional IRA (and carry along the same Custodian-dependent restrictions), but some SEPs even allow for precious metals or other commodity investments. In these circumstances, SEPs represent one of the very few ways to hold real gold, silver, platinum or palladium in an investment account.

Of course, SEPs can also invest in ‘paper gold' through the purchase of stocks of gold mining companies, or mutual funds that hold mining company stocks, or ETFs that include mining companies. This is an indirect way to invest in gold.

Investing in Physical Gold vs. ‘Paper Gold'

So-called “paper gold” stocks are the shares of companies that mine, produce, and explore for gold ore. There are literally hundreds of gold stocks to choose from, and the larger companies are listed on major gold indices like the Gold Miners Index (GDX) or the BUGS Index (HUI).

Gold stocks tend to be more risky than owning physical gold. This is because, historically, gold stocks will appreciate very quickly as the spot price of gold rises; if the price of gold falls, gold stocks tend to fall much faster.

Gold stocks are also exposed to additional kinds of risk, including:

  • Regulatory Risk – mining and exploration companies are subject to increased regulation and taxes.
  • Cost of Production Risk – mining equipment depreciation, rising land values, labor cost increases, etc can all negatively impact a mining company's valuation.
  • Management Risk – mismanaged or overly leveraged companies can, and do, declare bankruptcy or close shop altogether.
  • Fiat Currency Risk – when you sell securities like gold stock or shares of gold mutual funds, you will still be compensated in a fiat currency. In the event of currency collapse, you may be left holding worthless pieces of paper.

The value of physical gold has never hit zero and has retained value for thousands of years. In terms of staying power, physical gold beats ‘paper gold' hands down.

Benefits of Dedicating 5-20% of Your Retirement Portfolio to Precious Metals

Gold investments are a simple, safe way to diversify your retirement portfolio. Gold (along with other investment metals) will help you protect your assets against stock market volatility and inflation.

Not only is gold a great hedge, but gold offers plenty of growth potential; in fact, many investors purchase gold for its growth prospects, and many analysts predict gold to continue to see gains in the future.

The total amount of precious metals in your retirement portfolio will depend on your own risk tolerance and retirement horizon. One of the best ways to set up a diversified retirement portfolio — and receive tax benefits on your precious metals investments — is to open a self-directed IRA.

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