Even in young adulthood, it is not too early to plan for retirement. Inflation and the expenses of living before you reach retirement age can affect your ability to retire with financial comfort. An individual retirement accounts (IRA) provides a home for your money to grow throughout the many years that you work and contribute to your retirement.

How Does an IRA Work?

An IRA is a portfolio of assets or investments rather than an investment itself. The growth of your IRA and the risk of volatility turn on the types of assets in the account. Your portfolio can include less risky items such as money market accounts, U.S. Treasury bonds and certificates of deposits. While considered generally safe, these assets yield lower rates of return than IRAs comprised of stocks, bonds, mutual funds or precious metals.

You might rollover your 401k plan into an IRA, perhaps because your employer has discontinued funding it or because you no longer work for the employer. Transfers of your 401k plan to an IRA does not trigger income taxes.

Generally, you begin your withdrawals from the IRA when you retire. Those draws may come with tax consequences, depending on the type of IRA and when the distribution occurs.

Different types of IRAs

In a traditional IRA, you may deduct contributions up to a limit set each year by the Internal Revenue Service. The extent of these tax breaks for traditional IRA contributions also depends upon whether you have an employer-provided retirement plan. If you’re covered by such a plan, your adjusted gross income determines the limit of your deductions. You do not pay taxes on a traditional IRA until you make withdraws, which you must begin no later than April 1st of the year that you turn age 70 years and six months. You face a 10 percent early withdrawal penalty for distributions prior to age 59 years and six months, unless you qualify for an exemption such as being a first-time home buyer or you are paying unreimbursed medical expenses.

A Roth IRA has some of the opposite tax consequences from a traditional IRA. Your contributions are not deductible. However, you do not pay taxes on distributions if you make them on or after you’ve turned 59 years and six months old and have held the Roth IRA for at least five years.

In a traditional and Roth IRAs, you make contributions of money. Small business employers and self-employed individuals can contribute to their employees’ traditional IRA called a SEP IRA. If you have a SIMPLE (Savings Incentive Match Plan for Employees) IRA, your employer (a small business) matches your contributions to the plan.

With most IRAs, you have little control over the assets in the account. Typically, money market accounts, stocks, certificates of deposits and bonds form the portfolio of the IRA. Self-directed IRAs place you in control of the asset mix. In addition to or in lieu of more traditional investment products, you may select real estate, rights to oil, gas, minerals, water or timber; bitcoins or other cryptocurrencies, commodities and precious metals.

You may turn to such an account to achieve more diversification or the prospects of higher returns. Due to the potentially complex or volatile features of some assets in a self-directed IRA, you may need a financial or investment advisor to guide your IRA portfolio decisions.

Precious Metals IRAs

IRAs that contain precious metals represent one form of self-directed IRAs. These metals take the form of coins or bars that the IRA holds in trust for you. As with other assets in an IRA, the precious metals can and often fluctuate significantly in value. Factors such as the demand for jewelry, the level of mining activity (and thus the supply of precious metals), political events and inflation can affect the gold price or value of other precious metals.

The Internal Revenue Service sets specific standards for what constitutes “precious metals.” Specifically, only gold, silver, palladium or platinum can be deposited into a precious metals IRA. The items must also have a particular composition of the particular precious metal.

How Do You Put Physical Gold in an IRA?

To have an IRA with gold bars or coins, you must turn to an IRS-approved trustee or a bank. You deposit money in the IRA, and the bank or approved trustee you select acquires the gold. Otherwise, most of the general rules and principles of IRAs apply. You must observe the annual contribution limits imposed by the Internal Revenue Service.

Having a gold-based IRA can provide great returns over a period of years to support your retirement. Starting early can allow you to weather the sometimes sharp declines and over time yield value to comfortably fund your retirement.

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