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Know the lingo - Some important Gold IRA terms

So you are looking to invest in gold, and you have heard about a Gold IRA, but you aren't sure what all this lingo means. Don't worry because you will be an expert on all that jargon by the end of this article!

What is an IRA?

An IRA is an Individual Retirement Account that allows you to set aside money for retirement purposes. There are two main types of these accounts: traditional and Roth. The traditional variety requires that you pay taxes now on your contributions and withdrawals at retirement, while the Roth version means no taxes are due upon withdrawal (as long as certain rules are met).

What is a 401k?

A 401(k) is a retirement plan that involves your employer. Many people eligible to participate in these plans do so by choosing to contribute pre-tax money from their paychecks into one of the available funds listed under the plan (i.e. mutual funds, bonds, stocks or precious metals). Withdrawals from a 401(k) can be made by the time you reach age 59.5, withdrawals before that may be subject to a 10% penalty, plus taxes.

What is a Gold IRA?

A gold IRA is a retirement account that holds physical gold or a gold-based product. There are two main ways to open a Gold IRA: purchasing bullion (bars and coins) directly from your provider (outright ownership of the metal) or through a self-directed custodian.

You may also choose Silver IRAs as well as Platinum IRA or Palladium IRA, depending on which you prefer to invest in.

What is an IRA custodian?

The term "custodian" refers to the party that administers the account for you. This party may be your bank or another financial institution, such as Ameritrade or Fidelity. To purchase gold with a Gold IRA account through a company like Goldco or Bullion Direct, you must go through a third-party secure online platform known as an IRA custodian. Some reputable companies are Ameritrade (for stock trades), Schwab (for mutual funds), and Fidelity (for many different types of investments). A good way to research which custodian is best for you is by reading online reviews based on your financial needs and access to the internet.

What is a Roth IRA?

Roth IRAs are similar to traditional IRAs in that they offer tax advantages. The biggest difference is how contributions are taxed. With Roth IRAs, the contributions are made with after-tax dollars; therefore there is no deduction when you initially make the contribution but you also have a tax break when withdrawing funds during retirement because those withdrawals will be totally income tax-free. On the other hand, traditional IRA deposits are generally made with pretax dollars; you get a deduction on your contribution and pay income tax when you withdraw the money from the account during retirement.

What is a 401k rollover?

When an individual chooses to rollover their 401(k) or their IRA funds into a new account, it means that they are taking the money from one broker and putting it somewhere else. This is usually done to take advantage of a better investment (or manager).

What does "self-directed" mean?

Self-directed is a term that refers to the fact that you have complete control over your investments and which assets go into them. This is sometimes beneficial since it allows for more flexibility, but it can also lead to greater confusion if you aren't careful about what you are doing.

What is a SEP IRA?

SEP IRA stands for "Simplified Employee Pension." This is a type of retirement plan that offers benefits to self-employed individuals whose businesses do not have any employees aside from the owner. It is similar to a traditional IRA in that it can be opened and managed by an individual or through a custodian, but does not offer contributions made through payroll deductions.

What is an ETF?

An exchange-traded fund (ETF) is a type of stock that tracks an index. These funds are often used by investors as a way to diversify their portfolios and buy several stocks with one purchase. The biggest advantage of ETFs is that they can be bought, sold, or traded during the day on the open market just like individual companies' shares.

What do "bullion" and "coins" mean?

Bullion refers to any gold product in general - including coins, bars, ingots and jewelry. Coins, however, are bullion products specifically designed for use as investments and not for commerce or daily wear. Bullion bars are purer than coins because they have not been minted for re-use; therefore they cost more per ounce. However, some prefer gold coins to bars because they can be sold overseas or to collectors and shops that deal with physical gold. Coins may also offer a better value in the long run since the price is not driven only by gold content but also by condition and rarity, whereas the price for bars is determined solely on the spot market.

FTC Disclosure: we are a professional and independent site that aims at providing valuable information for people interested in retirement investing. Our content does not constitute financial advice. You are encouraged to talk to your financial advisor before making any investment decision. Also, in order to meet the running costs of this blog, we do receive compensation from ads and banners you see on the site. We also receive compensation from leads we refer to external companies.