What is a Silver IRA & How Does it Work?

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There's always talk about buying silver and gold in the form of an IRA, but does that mean you should do it? If you're unsure if it's right for you, we can help break down what it is and how it works.

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What is a Silver IRA & How Does it Work?

A Silver IRA is a self-directed IRA in which you purchase physical silver bullion and is an excellent way to distinguish your financial portfolio.

You do this through an external, government-approved custodian and receive all the tax benefits of a regular IRA while being able to invest in assets not usually available for standard accounts.

Why You Should Know About Silver IRAs

IRAs are an essential aspect of retirement planning, and it's never too early to start saving. Knowing the pros and cons of having a silver IRA could help you formulate a plan that fits your needs.

Silver IRA vs. Traditional IRA

Since a silver IRA, and all precious metal IRAs for that matter, are considered self-directed IRAs, they are not done through large firms such as banks. Instead, you must hire a separate non-bank custodian or trustee to manage your account.

While an IRA will conventionally be composed of stocks and bonds, a silver IRA is the financial ownership of actual, physical silver.

Of course, it's different from simply buying silver because you will receive all the tax benefits of an IRA (though you will not have actual access to the silver as it will be kept in a depository).

How Do I Setup a Silver IRA

The institution you will create your silver IRA with will be independent of the bank, and your custodian will be government-approved. 

Once you have consulted a custodian and opened an account, you need to find a brokerage to buy the silver through and a depository to keep your silver.

All transactions and transfers will be done through the custodian and the broker, respectively. 

Pros & Cons of a Silver IRA

Silver IRAs have their ups and downs, and knowing them is imperative to understand what they are and how they function.

Pros

Here is a list of some of the pros of a Silver IRA:

  • It diversifies your portfolio
  • It fortifies your finances
  • It's reliable
  • It's cheaper than gold
  • Silver prices generally go up over time

It Diversifies Your Portfolio

Diversity is a crucial part of your IRA portfolio because it reduces the risk of loss, creates multiple opportunities for gain, and encourages exponential growth over a wide range of investments.

It Fortifies Your Finances

Silver prices don't change much and aren't subject to rapid changes in the economy. By incorporating silver into your IRA, you help safeguard your finances from heavy losses.

These silverprice.org charts indicate that while silver prices occasionally go through periods of rapid growth and decline, overall they stay at a steady rate through the decades.

It's Reliable

Silver is a stable resource to the economy and has been that way for many centuries. As such, while the price of silver can occasionally become unstable, its value as a precious metal makes it an indispensable part of the industry and unlikely to leave the market anytime soon.

Furthermore, since silver is a physical, limited resource, it does not devalue like fiat currency and is less subject to counterfeit.

It's Cheaper Than Gold

There are many precious metals you can include in your self-directed IRA. Gold and silver seem to be the most popular, perhaps as a result of their historical and cultural significance.

Regardless, there's no denying the fact that silver is many times cheaper than gold.  As of 2022, the price of silver sits around 23 USD per oz, while gold is roughly 1,800 USD per oz.

Intrinsically, the more of a resource you have, the more potential for gain you have, and with a steady increase in both of them, it might be more profitable to invest in silver over gold.

Silver Prices Generally Go Up

As we previously stated, silver prices typically go up over time. It might be at a much slower rate than conventional stocks and bonds, but it's also less risky and has a track record to prove it.

Cons

Before you rush to put all your savings in a silver-backed IRA, consider these disadvantages first:

  • Silver does not gain interest
  • There may be associated fees
  • You cannot invest physical silver you already own

Silver Does Not Gain Interest

The profit you get from a silver IRA is strictly from capital gain. While you receive atypical IRA benefits such as tax deferral and deductions, there is no interest, dividends, or payouts.

There are Going to be Some Fees

Unlike standard IRAs, there are some fees you're probably going to have to pay. There's a fee to open a self-directed IRA, maintenance fees, depository fees, and sometimes a withdrawal fee.

You Can't Roll Over Silver You Already Own

If you have silver coins or jewelry at your house, you cannot transfer this to your silver IRA. You can only increase its value by purchasing more assets through a brokerage.

Should You Setup a Silver IRA?

Silver IRAs are just tax-deferred assets you can buy but don't have physical access to. Their value doesn't fluctuate much, and there is steady growth over time, so they can be a practical way of protecting your IRA. 

While a silver IRA isn't a substitute for a full IRA, it can be an extremely important part of creating a solid and diverse portfolio.

Silver IRA FAQ's

Here are some common questions asked around the web:

Can I convert my IRA to silver?

Absolutely. However, you will need an already established self-directed IRA. Once you're ready to convert, you must simply contact your custodian about transferring your funds.

Keep in mind that there may be fees associated with doing this.

Can I convert my 401k to silver?

Not directly. You will have to have your 401k be deposited into your traditional IRA, at which point you will be free to roll over to a silver IRA.

What other precious metals can I back an IRA with?

Other precious metals that are IRA approved by the IRS are gold, platinum, and palladium.

What silver qualifies for an IRA?

In order for silver to qualify for an IRA it must be in the form of bullion bars or coins and must be 99.9% levels of purity.

Birch Gold

Birch Gold Group offers precious metal IRAs and precious metal sales with an emphasis on customer education and all-in-one service.

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