What is Silver IRA?
A silver IRA (individual retirement account) is one kind of self-directed IRA wherein the holder purchases physical silver coins or bars as an IRA investment, then stores them in an IRS-accredited depository for safety.
The silver IRA functions the same way as a traditional IRA but has physical silver as an investment instead of paper investments such as silver mining stocks, silver futures, and ETFs that own silver.
Silver IRA Rollover
Funding a silver IRA smoothly can be done through a Silver IRA Rollover, which involves moving funds from another retirement account to a silver IRA. There are three ways to do a rollover, namely:
Direct transfer - Funding a silver IRA through funds from another IRA account is referred to as a transfer. This transaction is tax-free.
Direct rollover - Funding a silver IRA from another retirement account. Read on to see what other accounts are eligible for a rollover.
60-day rollover - This is when the distribution or withdrawal from a retirement account is paid directly to the account holder, after which the account holder will deposit it to the silver IRA within the 60-day window given before it will be charged with tax.
Silver Roth IRA
A silver Roth IRA is another type of self-directed IRA wherein contributions are paid with after-tax dollars. This makes silver Roth IRA’s withdrawal of contributions tax-free anytime, so long as the silver Roth IRA (or any kind of IRA) is at least five years old. However, withdrawal of earnings before the age of 59 ½ will still incur a 10% tax penalty.
Not all silver coins, bars, and bullion are eligible for a silver IRA account. There are specific types of silver that are IRS-approved for IRAs.
The different types of silver for IRAs are IRS-approved coins, bars, and bullion. These are:
Silver Bars and Rounds
The best type of silver to invest in is silver bars, which are valued based on their silver content and not their design or currency value. Silver bars will also occupy less space than their same value in silver coins, thus saving up on storage costs.
The gold and silver IRA contribution limit is $6500 annually for those below 50 years old and $7500 for those above 50. The contribution limit is in total, applicable regardless of the number of IRA accounts an account holder has. Thus, if an account holder has, for example, a traditional IRA, a Roth IRA, and a silver IRA, the annual contribution limit will be split among all three IRA accounts.
How does Silver IRA work?
A silver IRA is different from other IRA types because it is the only type of IRA that involves investing in physical silver. This type of IRA involves more fees to cover the insurance and storage of the silver in an IRS-accredited depository.
There are four steps to opening a silver IRA, which is similar to how a gold IRA is set up.
1. Choose a silver IRA company
A gold/silver IRA company helps set up a silver IRA, ensuring that the process is simple and stress-free. A good precious metals IRA company usually has key partnerships with custodians and depositories to help accomplish the account setup process without complications. The gold IRA company also serves as a trustee of your precious metals IRA. Here are just some of the best gold IRA companies you can consider:
- American Hartford Gold
- Augusta Precious Metals
- Birch Gold Group
- Noble Gold Group
- Oxford Gold Group
- Patriot Gold Group
You can read our article on What is Gold IRA to get tips on how to choose the right gold IRA company to match your needs.
2. Select a precious metals IRA custodian
The custodian will ensure that the silver IRA is set up under regulatory requirements and with proper document support.
3. Fund the Silver IRA
The best option for funding a Silver IRA is through a rollover from existing retirement investments. Through a rollover, there will be no 10% tax penalties incurred, provided the funds are consumed for the silver IRA within the 60-day window given for funding IRAs through rollovers.
The accounts that can be transferred to a silver IRA are
- 401(k) plan
- 403 (b)
- 457 Deferred Compensation Plan
- traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Non-prototype IRA
- Beneficiary IRA
- Teachers Insurance and Annuity Association (TIAA) Plan
- Thrift Savings Plan
- College Retirement Equity Fund (CREF)
All these accounts are qualified for silver or gold IRA rollover payments.
You can also pay in cash, check or money transfer, but these will incur a tax penalty if your fund source is a 401(k) plan or any of the IRAs mentioned above.
4. Choose the silver products
Most gold IRA companies also have a selection of IRS-approved silver coins for IRAs. Some of these gold IRA companies also have a buyback arrangement wherein the coins and bars purchased from them can be resold through them as well.
You can select from a gold IRA company or purchase from an IRS-accredited precious metals dealer to ensure your coins and bars are valid for a silver IRA.
5. Choose a depository
The IRS requires all physical precious metals to be secured in an IRS-accredited depository. A gold IRA company will help with finding a depository for your silver and other precious metals.
Silver as an Investment
It is safe to invest in silver because this precious metal has similar features to gold in terms of stability as a retirement investment. Silver has been considered a “safe haven” investment, one of those that are expected to remain stable or increase in value during economic upheavals.
A silver IRA is a good investment because:
1. Silver is cheaper than gold.
As of this writing, the gold price per ounce is $2,049.13 while silver is $25.11. This price discrepancy means a $5000 investment will yield so much more silver than gold, and stands to gain more profit than gold because of the high demand for it.
2. The potential for silver growth is huge.
Silver is a much sought-after metal globally, as it is used in the medical field, for solar energy, photography, technology, manufacturing, fashion, and currency. This demand will likely continue, making silver highly in demand for the next years, thus increasing its price. Silver is used in these industries more than gold is.
3. Silver is a good hedge against depreciation.
Like gold, silver in an IRA runs opposite the direction of paper investments. Silver can get affected by inflation but it will never amount to zero the way paper stocks can. Silver’s value also cannot be manipulated by governments or banks.
4. Silver IRA enjoys tax benefits.
Silver IRAs enjoy tax benefits that ordinary stock investments do not. Silver IRAs are exempt from capital gains tax, and earnings from it are tax free. A silver IRA can also be tax-deferred until such time that distributions are made, after age 59 ½.
Silver and other precious metals also enjoy exemption from sales tax in 41 states as of early 2022. This exemption aimed to encourage more investments on precious metals to stabilize the economy.
The states with no tax on silver are:
- New Hampshire
- New York
- North Carolina
- North Dakota
You can read more about gold and silver IRA tax rules here.
Silver Investment Risks
The risks of investing in silver are:
1. Silver requires bigger storage space.
Since silver is cheaper than gold, the volume of silver for the same price as a gold investment is much more and will require a bigger storage space. This means storage costs can eat up the earnings of your investment.
2. Silver is more volatile than gold.
Since silver is highly in demand in various industries and businesses, its price is more unstable. Inflation can lower demand for silver as its price goes up.
3. Silver IRAs have no dividends.
The only way for silver to earn is for it to appreciate in value. The volatility of silver due to its dependence on demand in manufacturing and other industries can make its price and performance suffer during the recession and other economic crises.
4. Silver tarnishes.
Although tarnishing does not affect the value of silver since it is priced according to weight, buyers may not want to buy tarnished silver, making it difficult to resell.
Gold IRA vs. Silver IRA
A silver IRA is better than a gold IRA if based on the following considerations:
- Value for Money - You can buy significantly more silver coins and bars for a certain amount than gold because gold costs so much higher per ounce than silver does.
- Industrial demand - Silver is the more sought-after metal by different industries and businesses than gold. This demand brings up the price of silver faster. This demand is not bound to change any time soon. The value of Silver rises along with economic growth.
However, there are other considerations that need to be looked into. They are:
- More silver items purchased means more storage space - the additional volume of silver will increase the annual storage cost
- Silver’s growth gets affected negatively during inflation - Demand for silver lessens during inflation.
- Silver prices are more volatile than gold - its dependence on industrial demand affects its prices during economic downturns or when inflation hits.
Read our Gold IRA vs. Silver IRA article for more comparisons on these IRAs that can help you choose which precious metal to invest in.
Silver offers higher returns than gold because of the high demand for it, thus giving silver a promising future. Silver is a good option for small investors who want to make the most out of their investment budget. However, silver is not a good short-term investment, because of its volatility. Silver’s growth is dependent on the economy and inflation.
In comparison, gold is less volatile and more stable, thus offering less risk. Still, silver is still considered a safe haven investment because, despite its volatility, silver will never amount to zero value the way some paper stocks are in danger of doing so. Silver is still a good hedge for depreciation and an excellent option for diversifying your investment portfolio.