- A gold IRA is a specialized retirement account.
- Gold IRAs follow the same standards and contribution limits as traditional and Roth IRAs.
- Higher fees that are typically associated with gold IRAs.
Gold is the shiny and seductive metal that has captivated humanity for centuries. The yellow metal is a tangible, durable asset whose value has been retained or increased during times of economic crisis and political unrest.
Diversifying your retirement portfolio with gold can be wise, even if you don’t think the economy is headed for a tailspin.
The IRS offers individual retirement accounts, called IRAs, specifically designed for investing in this precious metal. But before you start storing gold bullion, here’s what you need to know about gold IRAs.
What is a gold IRA?
Gold IRAs are individual retirement accounts that contain physical gold as an investment instead of traditional stocks and bonds.
“The idea is to diversify investment portfolios and potentially protect against inflation by owning a tangible asset,” says Levon Galstyan, a certified public accountant for Oak View Law Group.
Galstyan says some benefits of gold IRAs include:
- Risk reduction.
- Protection against market volatility.
- A hedge against inflation.
- A vehicle for earning income in retirement.
But here’s a catch: A gold IRA is different from a traditional retirement account. It has its own rules and regulations, although contribution limits and distributions remain the same.
That said, opening a gold IRA is easy. You can do this through a broker or custodian. So if you want to add some sparkle to your retirement portfolio, a gold IRA is an attractive option.
What do you need to know about a gold IRA?
Investing in gold can add diversification to your retirement plan. Gold IRAs come in two forms: traditional and Roth. Whichever option you choose, your investment must be in real gold.
But you don’t have to invest only in the physical asset. You can invest in other options, such as shares of a gold company, gold mutual funds, or gold exchange-traded funds.
The IRS also has rules about what physical assets you can hold in your gold IRA.
According to the IRS, “your IRA can invest in one-, half-, quarter-, or tenth-ounce U.S. gold coins, or one-ounce silver coins minted by the Treasury Department. It may also invest in certain platinum coins and certain gold, silver, palladium and platinum bars.
Gold coins, bars and other metals must meet the following standards of fineness. Gold and platinum must be 99.5% pure for bullion, while silver must be 99.9% pure.
There are also other eligibility requirements. For example, a producer must be an accredited or certified manufacturer, refiner or assayer.
The IRS allows certain gold coins, such as the American Gold Eagle, Canadian Maple Leaf, and American Buffalo, to be free. But it now allows British sovereigns or South African Krugerrands.
Acquire a broker and custodian
If you have decided that a gold IRA is right for you, you will need to create a self-directed IRA. This type of IRA allows you to manage the account and invest in a wider range of products than other IRAs.
You will need a broker to purchase the gold and a custodian to set up and manage the account to get started. The custodian will then be responsible for storing your physical gold assets.
A custodian can be a bank, credit union, trust company, brokerage firm, or a popular gold IRA company, such as Birch Gold Group or Oxford Gold Group.
All should have government approval to carry out asset custody services. Choosing a company can be a daunting and tedious task. But it’s important to take your time here. After all, they will play a role in the success of your Gold IRA.
Some valuable characteristics to look for in a custodian include reliability, transparency, proven track record, appropriate qualifications, and adaptable investment strategies.
Another caveat: precious metals cannot be stored just anywhere. These precious metals must be stored in an IRS-approved repository. In other words, you cannot keep your gold at home. In fact, storing your gold at home may be considered withdrawal and subject to taxes.
As with any investment, there are risks and rewards. Donny Gamble, founder of financial website RetirementInvestments, outlines the problems gold IRAs can face:
- No access to your precious metals kept in secure storage.
- No dividends.
- Higher management fees.
- Funding restrictions.
Adding to these problems are the additional expenses associated with gold IRAs. Typically, a gold IRA will have:
- Surcharge Fees. The price you pay for gold varies depending on the form in which you buy it. Most sellers will charge a markup fee, which means you’ll pay more than the market value.
- Account opening fees. There is a one-time fee to create your new Gold IRA account. These fees may differ depending on the financial institution. The one-time account creation fee can range from $50 to $150.
- Care expenses. Like any other IRA, you will have annual costs and fees associated with transactions and assets. But they can be a bit higher for a gold IRA, especially when you use a different company than the one that manages your other retirement accounts. Storage fees can range from $10 to $60 per month, or 0.35% to 1% of assets per year, depending on the custodian.
- Storage costs. You will need to store your gold in an IRS-approved facility. These facilities typically charge storage fees.
- Selling fees. When selling your gold to a third-party dealer, remember that the dealer will usually offer you less than the current market value. So, unless the price of gold has increased significantly since you purchased it, you may lose some of your investment.
Types of Gold IRA
- Traditional Gold IRA
Traditional gold IRAs are funded with your pre-tax dollars and contributions are tax deductible. Like traditional IRA accounts, withdrawals will be subject to income tax upon receiving your distributions during retirement. In effect, your account has grown into a tax-deferred state prior to retirement.
- Roth Gold IRA
Roth Gold IRAs are topped up with your after-tax dollars. Although you won’t receive immediate tax benefits, you can take distributions tax-free when you retire.
- IRA or SEP
Simplified Employee Retirement Gold IRAs, also called Gold SEP IRAs, are available to self-employed individuals and small business owners. This account will be funded with pre-tax dollars and subject to taxes on your withdrawals during retirement.
Contribution Limits for Traditional Gold, Roth, and SEP IRAs
Traditional gold, Roth, and SEP IRAs are subject to contribution limits, just like their non-gold counterparts. These limits are 2023:
Pros and Cons of a Gold IRA
By now, you’ve identified some things you like and don’t like about gold IRAs. Here are some pros and cons of this retirement account option.
Go for gold
If diversifying your retirement plan is a priority, then a gold IRA may be worth investigating. This self-directed IRA allows individuals to hold physical gold, silver, and platinum as investments within the account. Similar to a traditional IRA, it also offers the same tax benefits.
But keep in mind that there are specific rules and regulations regarding gold IRAs. If you have any questions, seek advice from a financial advisor before making any investment decision.
Frequently asked questions
A gold IRA rollover is the process of transferring assets from an existing traditional IRA or employer-sponsored retirement plan to a new or existing gold IRA. This allows the investor to hold physical gold as a qualified retirement investment, while retaining the tax benefits of the original account.
The minimum investment for a gold IRA account will depend on the custodian you use. The initial investment will vary depending on associated fees and gold prices at that time. But you can expect to pay anywhere from a hundred to several thousand dollars to open an account.
A gold IRA can be a good hedge against inflation and economic uncertainty. But it is important to consider the fees associated with account creation and maintenance as well as current market conditions before making an investment decision.