What is a silver IRA?
Over the past two years, the U.S. economy has been volatile. Inflation rates soared to a 40-year high and the Fed implemented an aggressive series of interest rate hikes. As a result, consumer debt balances and default rates have been on the rise.
When economic downturns like this strike, many turn to precious metals. Also known as safe-haven assets, precious metals tend to increase in value amidst periods of high inflation and market volatility. For example, throughout 2020, the price of gold increased from about $1,550 to $1,900 per ounce and silver increased from about $18 to $26 per ounce.
While there are many ways to invest in precious metals, silver IRAs offer a set of unique benefits. Below, we'll take a closer look at how they work and what to consider before opening one.
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What is a silver IRA?
Before digging into the "silver" part of the term, an individual retirement account (IRA) is a long-term, tax-advantaged personal savings account. You can often deduct the contributions on your taxes and don't have to pay taxes on your earnings until you take distributions in retirement.
The "silver" part of the term comes into play when looking into how an IRA invests your contributions. Traditional IRAs are typically invested in assets like CDs, money market funds, ETFs, mutual funds, stocks and bonds. On the other hand, silver IRAs are used to purchase physical silver bullion coins or bars. The bullion is then stored with an independent IRA custodian.
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Why should you invest in a silver IRA?
A silver IRA can be a good option if you want to invest in silver but don't want to store and secure it. A custodian will handle the asset management for you, although you do have to pay for that convenience.
Like gold and other precious metals, silver can also help to diversify your investment portfolio and hedge inflation.
"If there is one thing we have proven in the last 3-5 years is that precious metals remain the best hedge. When Bitcoin plunged more than 80% and the market crashed in March of 2020, gold and silver made a bull run," says Colin Plume, the founder and CEO of Noble Gold Investments.
Additionally, investing in silver through an IRA offers meaningful tax advantages.
"The tax break is the biggest advantage. If you invest in a Silver Roth IRA, you will not pay taxes on your capital gains. If you invest in a Silver Traditional IRA, you will not get taxed on the year of your contribution," says Plume.
How can you invest in a silver IRA?
If you want to invest in an IRA, the IRS requires you or your spouse to have earned taxable income for the current year. The next step is to find a reputable precious metals IRA company that offers silver IRAs. The IRS also has strict rules on the quality and type of silver that can be held in an IRA account, so you'll want to ensure the company has a good reputation and meets the requirements.
When reviewing companies, look for positive customer reviews, full insurance and secure storage offerings. You should also ensure a company is registered with the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). If you have any doubts, consult a financial professional.
Once you've found a silver IRA provider, you'll set up and fund your account. The process typically requires verifying your identity, answering a few questions and processing a transfer from another financial account. Keep in mind that the IRS sets limits on the amount you can contribute to all of your IRA accounts each year. The annual IRA contribution limit for 2024 is $7,000.
Pros and cons of investing in a silver IRA
What should you consider before investing in a silver IRA? Here are the main pros and cons:
Pros
- Hedges against inflation and market volatility
- Tax-deductible contributions
- Tax-deferred earnings
- Diversifies your investment portfolio
Cons
- Silver is more prone to volatility than gold
- Doesn't generate income in the form of dividends or interest
- Account fees can be expensive (startup, maintenance, wiring, storage, insurance, etc.)
- You incur penalties if you withdraw from your IRA before you turn 59 1/2
A silver IRA is a good way to diversify your investments through silver if you don't want to physically own the metal.
Silver prices can be volatile in the short term, but an IRA is a long-term savings account that can help you take advantage of the asset's price increases over time. For example, in looking at the historical price of silver over the last 25 years, it's increased from $5 per ounce in 1998 to about $24 per ounce in 2023.
"For individuals willing to hold onto and potentially wait over 10 years, purchasing silver makes sense," says Carlos Dias Jr., a financial advisor at Dias Wealth.
If you decide to move ahead with a silver IRA, remember to shop around. Account fees will eat into your earnings so it's important to find a reputable provider with competitive pricing.
