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Traditional IRAs are a popular choice for retirement planning for many Americans, but some investors are researching other options due to the recent stock market volatility and concerns about inflation rates.
Gold IRAs allow investors to include some of the most reliable assets worldwide in their retirement portfolios. These assets include gold and other precious metals.
What is a Gold IRA?
Gold IRAs follow strict regulations about what can be used as an investment, where it can be held and how much you can deposit annually.
How Does a Gold IRA Work?
Gold IRAs work in the same way as other IRAs, with one key distinction: A gold IRA holds value in precious metals rather than stocks.
The Internal Revenue Service (IRS) regulates the process of obtaining and storing precious metals, which implies that investing in gold IRAs requires more involvement than simply purchasing stocks with IRA funds.
The IRS regulates which precious metals you can use in a gold IRA. Investors may use gold, silver, platinum or palladium. In addition, bullion (uncoined metals such as gold bars) must meet specific fineness requirements, and only certain minted coins are permitted.
The IRS also regulates where you must keep your precious metals for them to qualify as gold IRA investments: You cannot keep them in your home or a safe, but only in approved depositories.
These are some of the most popular IRS-approved depositories for precious metals IRA accounts:
- Delaware Depository: The Delaware Depository Service Company has been a popular choice for the secure storage of precious metals since 1999.
- Brinks Global Services: Brinks has highly secure logistics, bonded warehouses and world-class inventory management systems to protect your investment.
- International Depository Services: IDS is a highly reputable company with branches across the United States.
Once you have established an investment with qualifying precious metals in an IRS-approved depository, you will have to do very little maintenance on your investment.
Most warehouses charge annual fees of $100-$200, and your custodian will probably charge approximately the same amount.
Once you turn 59 ½, you may withdraw your gold without penalty. As with most retirement investments, you will not have to pay capital gains tax but only income tax.
Most gold IRA companies will buy gold from you, so you don’t need to find a seller yourself.
Real World Gold IRA Examples
All IRAs must have custodians that manage your investment on your behalf. Gold IRA companies will act as the custodians of your gold IRA account.
These companies can assist you with the following:
- Sourcing qualifying metals: Gold IRA companies can help you source qualifying metals investments that abide by IRS regulations.
- Finding appropriate storage: Only certain depositories may be used for gold IRA accounts. Gold IRA companies can ensure that you are using a qualifying depository and will help you manage your storage fees.
- Rolling over from an existing retirement account: If you want to invest a significant sum in a gold IRA, you will need to roll over from an existing account. A gold IRA company can assist you with this process.
- Understanding regulations regarding gold IRAs: Gold IRA investments involve numerous complex IRS regulations, and a good IRA custodian will ensure that you fully understand your investment.
Numerous other companies can assist you with the process of converting your retirement to gold, but some of the best gold IRA companies are:
- Augusta Precious Metals: This company is a popular investment choice due to its excellent customer education materials and its customer support.
- Noble Gold Investments: Many investors choose Noble Gold Investments because of their security features and low investment minimums.
- Goldco: This gold IRA custodian is popular for its top-tier buy-back program and its competitive pricing.
While these companies are some of the most popular choices, numerous other companies offer similar services.
Each of these organizations has benefits and drawbacks, so it is crucial to research your options thoroughly or consult a personal financial expert before making an investment.
Types of Gold IRAs
Aside from regulations regarding the purchasing, maintenance and storage of precious metals, Gold IRAs operate under the same rules as other IRAs.
The three types of gold IRAs include:
Traditional gold IRAs: As is the case with traditional IRAs, traditional gold IRAs class as pretax investments. This means that you will not pay taxes on the income you invest, but will pay income tax (not capital gains tax) when you withdraw investments from your account.
Roth gold IRAs: Roth gold IRAs work like regular Roth IRAs: Instead of paying taxes on your investment when you withdraw it, you will pay income tax on your investment when you make it.
SEP gold IRAs: Simplified Employee Pension (SEP) IRAs allow small business owners to contribute to their employees’ IRAs in the same way as larger employers do.
IRA Approved Gold
- American Gold Eagle bullion coins
- American Gold Eagle proof coins
- British Gold Britannia coins (from 2013)
- British The Queen’s Beasts (coin)
- British gold Shēngxiào Lunar Series (British coin)
- Canadian Gold Maple Leaf coins
- Austrian Gold Philharmonic coins
- Australian Kangaroo/Nugget coins
- Chinese Gold Panda coins
- American Gold Buffalo uncirculated coins (proofs not allowed)
- Gold bars and rounds produced by a NYMEX or COMEX-approved refinery or national government mint, meeting minimum fineness requirements.
Benefits of Gold IRAs
Portfolio diversification: The price of gold and other metals is not reliant on the performance of stocks or other economic factors — it is only a reflection of the rate of inflation and the value of the currency you want to trade your gold for.
Because of that, precious metals make for a safe, stable investment, especially in volatile economic periods.
Tax advantages: IRS-approved retirement investments are not subject to income tax, which protects you from paying double tax during liquidation.
Greater control: In many IRAs, the investor will put money into the account and entrust the company managing the account with the choice of investments on their behalf.
With a gold IRA, you can choose what kinds of precious metals you want to purchase and where you want to store them.
History of returns: In the last five years (as of 2020), gold investments have exceeded 24% in returns, compared to the S&P 500’s returns of 18.2%.
Risks of Gold IRAs
Held in storage: IRS regulations dictate that metals in your gold IRA account may not be kept in your home or an unapproved storage facility.
Some investors may find these regulations limiting.
No dividends: Gold IRAs have distributions similar to those of certain stock options. Consequently, you will not have access to cash flow with a gold IRA investment, and you will not be able to access any of your investments until you are at the appropriate age to make withdrawals.
High fees: Gold IRAs come with many fees, including storage fees, account setup fees and management fees. Additionally, some gold IRA companies have confusing fee structures, making it difficult to determine how much you will pay for your account annually.
Funding restrictions: As with other self-directed IRAs, gold IRAs have annual contribution limits. Exceeding these limits implies using a rollover IRA account.
Gold IRA vs. Physical Gold
Some investors who are on the fence about gold IRAs might consider purchasing physical gold and maintaining their investment themselves.
However, there are certain important factors that make gold IRAs a safer choice.
Taxes – The IRS designed IRAs to allow retirement investors to only pay tax once. With a traditional gold IRA, this means paying income tax when you withdraw funds from your account.
On a Roth gold IRA, the opposite is true. In either case, you only need to pay income tax once, which saves a significant amount of money.
Physical gold that you purchase to keep on hand will not have these tax benefits. Not only will you pay income tax on the money you use to purchase your investment, but you will have to pay capital gains tax when you decide to sell it.
With a physical gold investment, double taxation is unavoidable.
Liquidity – One of the most significant drawbacks of choosing an IRA is that you will not have access to your funds until you reach the retirement age.
For some people, this might be a good thing — it motivates them to save for their future. However, you may wish that you could liquidate some of your investment in case of an emergency.
Physical gold that you keep and maintain yourself is liquid, which means that you can sell it at any time.
If the market were to crash or you were to lose your job unexpectedly, you could rely on your precious metals investment to support you. You do not have this protection with a gold IRA investment.
Investment Help – A professional gold IRA investment company can assist you with your investment. The assistance includes helping you to understand tax benefits, expected returns, regulations, etc.
With physical gold, you will be required to do most of your research, including finding a reputable gold dealer and managing your investment.
The expertise of a gold IRA company can help you save a lot of money and give you peace of mind about your retirement funds.
Responsibility – Owning and managing physical gold comes with many extra responsibilities. If you decide to purchase physical gold, you must find a reputable metals dealer and file your paperwork. You will also have to store and manage your gold correctly.
Even if you purchase a safe and keep your gold at home, you will need to take out insurance to protect your investment.
If you choose to invest using a gold IRA, the selected company will take care of most of the responsibilities on your behalf.
Investors looking to minimize the work required to maintain their gold should choose a gold IRA over physical gold.
Gold ETFs – Investors who do not want to purchase their gold or invest in a gold IRA have a third option: Gold exchange-traded funds (Gold ETFs).
ETFs operate like trusts. In a Gold ETF, investors own a portion of the gold in the fund, and the ETF manages the precious metals on their behalf.
The value of your share in an ETF will represent the value of gold, so choosing an ETF is a good way of adding gold to your portfolio without taking on the responsibilities associated with direct ownership.
On the other hand, ETFs do not have the same tax advantages as Gold IRAs; they also incur high fees and are affected by market oscillations more than physical ownership or an IRA.
How to Invest in Gold IRAs
- Know how much you plan to invest: Make sure that you know how much you are planning to invest before deciding on a gold IRA company. Whether you plan to roll over from another account or use cash, knowing your limits will impact your choice of company.
- Find a reputable gold IRA company: Many companies advertise assistance with gold IRAs, but you must do research to ensure that you choose a reputable IRA custodian. Before committing to an investment, you should also consider a company’s investment minimums, educational information and annual fees.
- Purchase precious metals: After you have committed to a company, you can decide which metals you want to invest in and how. You may invest in gold coins, gold bullion, silver coins, or any other assortment of approved metals.
- Complete the rollover process: Many gold IRA companies require initial investments above the IRA contribution limits, which means that you will have to roll over funds from another account.
- Hold your investment: Gold IRAs require little maintenance once you have invested in them. You can simply watch your investment grow until it is time to withdraw it.
Are Gold IRAs a Good Investment?
A gold-backed IRA can be a good investment, especially for investors with low-risk tolerances looking to diversify their investment portfolio.
With increasingly volatile markets and economic instability, now is the time to move your retirement into a gold-backed, stable option such as a gold IRA.
If you are unsure about rolling your retirement funds into a gold IRA, you can contact a financial advisor, who will advise you through the process.
Gold IRA FAQs
Let’s look at some of the most commonly asked questions about gold IRAs.
What is a precious metals IRA?
A precious metals IRA is a type of IRA that allows the investor to hold their savings in qualified physical precious metals instead of other types of assets.
How much can you invest in a gold IRA?
There is no maximum amount allowed in a gold IRA, but the contribution limit for 2023 is $6,500 for people under 50 years of age and $7,500 for people over 50 years of age.
Can I buy gold with my IRA?
Yes, you can purchase gold using funds in your IRA by using an IRA rollover into another qualifying account.