The Thrift Savings Plan (TSP), one of the most popular workplace retirement plans in America, now offers investors the opportunity to invest in gold bullion. This makes sense given the fact that the price of gold has increased dramatically over the past few decades. In addition, the Federal Reserve recently announced it will continue buying $85 billion worth of Treasury bonds each month, which could lead to further increases in interest rates. All of this adds up to make investing in physical assets like gold appealing.
If you’re interested in diversifying your investments, you might consider opening a traditional IRA account. A traditional IRA is similar to a 401(k). However, unlike a 401(k), you don’t pay taxes on contributions to a traditional IRA. Instead, you’ll receive tax benefits when you withdraw money from your IRA. But there are some drawbacks to owning a traditional IRA. For example, you won’t be able to take advantage of employer matching programs. Also, traditional IRAs tend to offer lower investment options compared to Roth IRAs.
But while a traditional IRA isn’t the best option for everyone, it does provide another way to save for retirement. If you work for the government, you can open a TSP account. And because the TSP accounts are sponsored by the federal government, you’ll be eligible for special tax breaks.
In addition, the TSP allows you to purchase precious metal coins and bars directly from the United States Mint. Unlike a regular brokerage account where you’d buy shares of stock, you can actually purchase physical gold and silver directly from the United States Government.
So what exactly do you get when you invest in gold through the TSP? First off, you’ll receive a certificate of ownership for your gold. Second, you’ll be allowed to keep your gold even if you change jobs.
Of course, just because you can purchase gold through the TSP doesn’t mean you should. There are many reasons why you shouldn’t invest in precious metals. For example, you’ll lose out on the ability to benefit from employer matching programs. Plus, you’ll miss out on potential gains in the future.
Still, if you’ve been thinking about purchasing gold, this is a great way to start. Not only will you be able to diversify your portfolio, but you’ll also be able to enjoy the peace of mind that comes along with having real gold in your possession.
What is a gold IRA
A Gold Individual Retirement Account (IRA) is a tax advantaged way to invest in precious metals like gold. With a gold IRA, you can own actual gold bullion without selling off other assets. You can choose from many different types of gold coins or bars, such as American Eagles, Canadian Maple Leafs, Krugerrands, Sovereigns, Peace Dollars, etc.
You can buy gold coins or bars directly form a dealer or through an Internet brokerage.
A TSP is an employer-sponsored retirement account. Contributions to TSP plans (401k, 403b, 457, etc.) are tax deferred. There is no minimum balance required for TSP investments. A TSP holder can use his TSP money to buy gold, silver, platinum, and palladium. He can also roll funds from his TPS into an IRA. An IRA can be used as a vehicle to purchase gold, silver and platinum. There are several ways to purchase precious metals including buying them through a bullion dealer; investing in mutual funds, exchange traded funds, or owning physical bullions bars.
What Plans Allow Gold Bullion?
Precious metals are allowed in Individual Retirement Accounts (IRAS), but you have to find a dealer who knows how to handle them. There are two ways to go about investing in precious metals. You can open an individual retirement account (IRA) or self-directed IRA.
Physical bullion like coins and bars are better than paper alternatives because they are easier to transport and store, but investors who want to own physical bullion should consider rolling over their Thrift Savings Plan (TSP) into an IRAthat allows them to invest in physical gold.
This will allow you to take advantage of tax benefits associated with gold investments while maintaining diversification in your portfolio. There are several ways to rollover your TSP to an IRA that allow you to purchase physical gold.
How to Rollover Your TSP
If you are planning to retire soon, it’s important to know about the rules governing rolling over your Thrift Savings Plan into an IRA. If you don’t do this correctly, you could pay a hefty penalty fee. Here’s what you need to know.
The government offers three different ways to invest your tax dollars in retirement accounts: traditional IRAs, Roth IRAs, and 401(k) plans. Traditional IRAs let you save up to $5,500 per year ($6,500 if you’re 50 or older). You can make contributions to your IRA throughout the year and take withdrawals anytime you want. However, once you reach age 70½, you must begin taking required distributions each year. These distributions are taxed as ordinary income.
Roth IRAs allow you to contribute up to $5,550 annually ($6,550 if you’re aged 50 or older). Unlike traditional IRAs, there are no mandatory withdrawals. Instead, you can withdraw your earnings tax free. But, like traditional IRAs, you must start withdrawing funds at age 70½.
Finally, 401(k) plans offer employees a way to save for retirement. They are similar to IRAs because both types of accounts let you defer taxes on your savings.
When you leave federal service, however, you lose access to your TSP. So, when you decide to retire, you should transfer your TSP balance to another type of investment vehicle. There are several options, including a traditional IRA, a Roth IRA, a SEP IRA, a SIMPLE IRA, a Keogh plan, and a 403(b) plan. Each option has advantages and disadvantages.
Can TSP Costing You Money?
The Tax Savings Partnership (TSP), a tax-advantaged savings plan offered by many employers, has been criticized for being too expensive. One company says the fees are actually just fine, though.
According to NerdWallet, the average annual costs associated with the TSP are $1,724 per employee. However, those costs include both the employer match and the administrative fees charged by the TSP itself. If you compare those numbers against the fees charged by traditional IRAs, the TSP looks like a bargain.
For example, according to Vanguard, the typical cost of an individual retirement account is $2,846 annually. In addition to the initial contribution, there are ongoing fees every quarter. These include a management fee, a 12b-1 fee, and a distribution fee.
If you want to open a Roth IRA, the fees are slightly lower. A Vanguard Roth IRA charges $1,095 annually. However, that includes a 0.35% federal income tax penalty for early withdrawals. There are no additional fees.
To make things worse, the TSP doesn’t even provide a good comparison between the plans. For example, NerdWallet found that the TSP offers a maximum contribution limit of $17,500 per year. On the other hand, a Vanguard Traditional IRA allows contributions up to $6,000 each year. The TSP also limits how much you can contribute to your 401(k).
In addition to the differences in contribution amounts, the TSP also provides less flexibility than a traditional IRA. The TSP requires employees to use pre-tax dollars, while Roth accounts allow post-tax contributions. Employees must also pay taxes on earnings within the TSP, while Roth accounts do not require distributions to be taxed.
Does Gold Better Returns Than the TSP?
The C and S funds outperformed gold during the tenyear period from January 2000 to December 2010. The F fund outpaced gold during the same period, according to data compiled by Bloomberg. Gold prices peaked in 1971 and declined about 90% since then. In contrast, both the C and S funds returned about 7% annually over the same period. The F fund returned about 8%.
Gold tends to perform well during times of economic uncertainty. During periods of high inflation, investors often seek safe haven investments such as gold. However, the price of gold fluctuates based on supply and demand. When there are fewer buyers, it becomes harder to find a buyer willing to pay a certain amount for each ounce. This creates downward pressure on the price. Conversely, when there are more buyers, the price rises.
Investors seeking safety typically turn to government securities like Treasury bills and bonds. These instruments tend to rise in value when interest rates fall and vice versa. As interest rates fell during the decade, bond yields dropped. Bond yields move opposite to prices. Yields on 30-year Treasuries fell from 6.5% in 2001 to 2.3% in 2011. At the same time, the C and S funds gained 9.2% and 11.7%, respectively.
In addition to the C and S funds, the F fund also outperformed gold during the period. The F fund invests in large companies, including banks, utilities, manufacturers, retailers, telecommunications firms, real estate investment trusts, and health care providers. The fund focuses on companies with strong balance sheets and solid earnings growth.
A diversified portfolio of stocks offers another way to invest in gold. Over the decade, the MSCI World Index rose about 5.1%. By comparison, the C and S Funds grew about 3.8% and 4.9%, respectively. The F fund increased about 6.6%.
Stocks tend to do poorly during times of economic uncertainty, as people become nervous about the future. Investors look for safer assets like cash and Treasuries. Stock prices fall during recessions because businesses cut costs to survive. Companies sell off parts of themselves to raise money. They issue debt and take advantage of low interest rates.
When stock markets decline, investors usually shift into bonds. Bonds generally offer lower yields than stocks. But they provide steady income streams. If you want to earn a little extra income, consider buying some shares of the C and S funds. You could also buy individual stocks.
Frequently Asked Questions
Is a Gold IRA the same as a gold certificate?
A gold certificate is simply a paper document that allows you to redeem your gold investment in exchange for actual gold. You can hold a gold certificate in your possession, or you can leave it with a bank or brokerage firm where you maintain a custodial account. A gold certificate is just like a stock certificate, except that it refers specifically to gold.
If you have a precious metals Individual Retirement Account (IRA), your IRA directly owns physical gold bars or coins that you can select and order directly. Your gold IRA is not a certificate; rather, it is a mutual fund account that holds physical gold.
Why are Precious Metal IRA fees higher than my regular IRA?
Many large IRA custodians like JP Morgen Chase, TD Ameritrade and Edward Jones offer structured paper financial products such as stocks, mutual funds, CD’s, etc. These companies charge annual fees ranging from $15-$50 per year depending on how much money you have invested. Some also charge monthly maintenance fees.
Some of these custodians also charge additional fees for transferring money into and out of the IRA. For example, some require a minimum transfer amount while others don’t care about it at all.
Most of these custodians are structured to make money selling investments. This includes charging fees to manage your portfolio, commissions on trades, transaction fees, etc.
A self directed IRA custodian doesn’t make money off any of your assets inside the account. If you want to invest in gold, silver, platinum, palladium, etc., you still have to pay the same custodian fee just like you do if you buy shares of stock or bonds.
Therefore, these custodians must charge a fee in exchange for the services they provide.