Gold IRAs

The goal of every investor, including those with retirement accounts, is to maximize returns and minimize risk. To achieve this two-fold goal, many retirement account holders are seeking to invest in alternative assets — assets outside of stocks, bonds, mutual funds, ETFs and CDs — that are the traditional investments allowed in retirement accounts.

These investors have been able to invest in these alternative assets through self-directed IRAs (SDIRAs). The alternative assets supported by these SDIRAS include real estate, cryptocurrency and physical assets like gold, silver, platinum and palladium. Self-directed IRAs can be traditional IRA (traditional SDIRA) or Roth IRA (Roth SDIRA) and the same rules regarding contributions, income limits, and distributions apply to them as apply to mainstream IRAs.

Gold has become popular because of its ability to provide portfolio diversification and serve as a hedge against inflation. As the US hits a new 40-year inflation high, hedging against inflation has become even more important and we can expect greater popularity of gold IRAs in the future.

A gold IRA is a type of SDIRA that allows retirement investors to invest in physical gold.

It bears emphasizing that a gold IRA only becomes necessary when an investor wants to invest in physical gold — bars, coins and bullions.

Those who would prefer investing in the stocks of gold companies (like Barrick Gold), in mutual funds of such companies (like Fidelity Select Gold Portfolio) or in ETFs that track the performance of a gold index (like SPDR Gold Shares), can do so with a mainstream IRA.

Furthermore, a gold IRA can contain other precious metals, including silver, platinum and palladium. Like gold, these precious metals must also be physical.

According to IRS rules, “Your IRA can invest in one, one-half, one-quarter or one-tenth ounce U.S. gold coins, or one-ounce silver coins minted by the Treasury Department. It can also invest in certain platinum coins and certain gold, silver, palladium and platinum bullion.”

Let’s consider how a gold IRA works by highlighting the key steps involved in starting one:

Many of the custodians and brokers that open mainstream IRAs that invest in traditional assets don’t have the capacity to open and operate a SDIRA, including a gold IRA.

Therefore, the first step towards operating a gold IRA is to look for a custodian or trustee that provides gold IRAs.

While these custodians and trustees are not as plentiful as those for mainstream IRAs, there are still many of them. Some of the popular gold IRA companies include Orion Metal Exchange, Birch Gold Group, Red Rock Secured, Gold Alliance, Oxford Gold Group and Goldco, among others.

With any of these companies, you can open a gold IRA account. However, there are certain factors investors must consider before deciding on gold IRA companies: fees, track record, customer support, transparency and accountability, among others.

Investors can fund their gold IRAs by contributing to it within the annual contribution limits: $6,000 for those younger than 50 and $7,000 for those 50 or older.

Investors can also roll their 401(k) or traditional IRA over into a gold IRA. Any gold IRA rollovers will follow the same rules that apply for rolling over into a traditional IRA or a Roth IRA. For example, pre-tax funds that are rolled into a Roth IRA are taxed before they are converted into a Roth IRA while after tax funds are not taxed. On the other hand, pre-tax funds rolled into a traditional IRA are not taxed until they are withdrawn.

The IRS has strict rules regarding physical gold and other precious metals. For example, to be IRS-eligible, gold bars must have a 99.5% purity, silver 99.9% purity and platinum and palladium 99.95% purity.

Furthermore, while the IRS permits gold coins like the American Gold Eagle, American Buffalo, Canadian Maple Leaf and Australian Gold Nugget, it does not allow investment in South African Krugerrand or British Sovereign gold coins. Similarly, the IRS does not permit investment in gold collectibles.

Once an investor has seen an approved gold for purchase, they can complete the transaction through a broker.

While the custodian or trustee oversees the accounting, the SEC dictates that they are not responsible for the gold seller or broker that the investor uses. Though they can make recommendations, they are not ultimately held accountable for the investor’s choice.

Gold, silver, platinum and palladium cannot be stored just anywhere. The IRS must approve the depository for that explicit purpose. More importantly, the investor cannot take the gold home. The IRS considers storing gold at home a withdrawal and will subject the investor to taxes (if it’s a traditional gold IRA) and/or penalties (if the withdrawal takes place before age 591/2).

Examples of IRS-approved depositories include Delaware Depository Service Company, HSBC, JPMorgan Chase and CNT Depository, among others.

The rules guiding withdrawals (selling off the gold for cash) depend on whether the gold IRA is traditional or Roth

The custodian or trustee keeps accounts of new purchases and withdrawals.

Why do some investors find gold to be a great alternative investment for their retirement planning? There are many benefits of doing so.

Nevertheless, gold IRAs also have their disadvantages.

Ensure you speak with your financial advisor before deciding if investing in gold is appropriate for you based on your unique personal and financial circumstances.