Gold IRAs

A gold IRA is a specialized self-directed retirement account for investing in physical gold and other precious metals. Managed by a custodian, it requires both a broker for gold purchases and an approved depository for storage. While offering tax advantages, it’s vital to evaluate its suitability based on individual financial goals and market conditions.

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    Marguerita M. Cheng, CFP®, CRPC®, CSRIC®, RICP®

    Marguerita M. Cheng, CFP®, CRPC®, CSRIC®, RICP®

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    Marguerita M. Cheng, CFP®, CRPC®, CSRIC®, RICP®, is the chief executive officer at Blue Ocean Global Wealth. As a CFP Board of Standards Ambassador, Marguerita educates the public, policymakers and media about the benefits of competent and ethical financial planning. She is a past spokesperson for the AARP Financial Freedom campaign.

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    Thomas J. Brock, CFA®, CPA

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  • Updated: May 23, 2024
  • 10 min read time
  • This page features 10 Cited Research Articles

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 — which 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 IRAs (traditional SDIRA) or Roth IRAs (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 prices continue to rise month after month, hedging against inflation has become even more important and we can expect greater popularity of gold IRAs in the future.

What Is a Gold IRA?

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.”

Types of Gold IRAs

As with other types of investment or retirement accounts, there are different kinds of gold IRAs. There are three main types.

3 Types of Gold IRAs

Traditional Gold IRAs
These are funded with pre-tax dollars, which means you won’t have to pay income tax on the money you put in or any earnings until you withdraw funds from the account
Roth Gold IRAs
Roth gold IRAs allow you to invest in physical gold or other precious metals using after-tax contributions, providing potential tax-free growth and tax-free withdrawals during retirement.
SEP Gold IRAs
SEP gold IRAs are designed for self-employed individuals and small business owners who can invest in physical gold or other precious metals within the framework of a Simplified Employee Pension (SEP) plan.

I understand the allure of adding precious metals, including gold, into an investment portfolio. These assets are a good hedge against inflation, can provide some diversification benefit and usually fare well during volatile/recessionary times. However, I am not a proponent of holding too much of these assets over long investing horizons.

How Does a Gold IRA Work?

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

1. Find a Custodian

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.

2. Fund the Gold IRA

Investors can fund their gold IRAs by contributing to it within the annual contribution limits; in 2023 that’s $6,500 for those younger than 50 years old and an additional $1,000 for those who are 50 years of age 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.

3. Buy Approved Gold

The IRS has strict rules regarding physical gold and other precious metals. These include purity and production requirements. 

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.

4. Use an Approved Depository

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 the age of 59 1⁄2).

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

5. Make Withdrawals

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

For a traditional gold IRA:

  • Required minimum distributions (RMDs) set in at age 73
  • Every withdrawal, required or voluntary, is taxed
  • Withdrawals before age 59 1/2 attract a 10% penalty

For a Roth gold IRA:

  • No RMDs
  • No taxation on withdrawals
  • Withdrawals before age 591/2 and before the Roth IRA is five years old attract a 10% penalty

6. Keep Accounts

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

Precious Metals Eligible for Gold IRAs

Certain metals and coins are not eligible for a gold IRA. The IRS requires a minimum fineness level of 99.5% for gold. Other precious metals like silver, platinum and palladium have to meet their own fineness levels.

Eligible precious metals included in a gold IRA must also have been produced by a national government mint or an accredited refiner, assayer or manufacturer.

Examples of Items Eligible for Inclusion in a Gold IRA

Bars and Bullion
These include certain gold, silver platinum or palladium bars and bullion produced to IRS standards and requirements, including PAMP Suisse bars.
Gold Coins
These include uncirculated U.S. Gold Buffalo coins, Canadian Maple Leaf coins, Austrian Philharmonic bullion coins, Australian Lunar Series coins and Australian Kangaroo/Nugget bullion coins. Chinese Panda coins are also eligible if the coins meet IRS standards.
Silver Coins
The selection of silver coins includes American Silver Eagle coins, Canadian Silver Maple Leaf coins, Austrian Silver Philharmonic coins, Australian Silver Kookaburra coins and Mexican Libertad coins.
Platinum Coins
The list of platinum coins approved for a gold IRA includes American Platinum Eagle coins, Canadian Platinum Maple Leaf coins, Australian Platinum Kangaroo coins and Austrain Platinum Philharmonic coins.
Palladium Coins
Canadian Palladium Maple Leaf coins made from palladium may be included in a gold IRA.

Collectible coins, certain types of gold and silver and other non-qualified metals may not be included in a gold IRA.

Examples of Items Not Eligible for Inclusion in a Gold IRA

  • Any gold coin or bullion with a fineness of less than 99.5%
  • Any silver coin or bullion with a fineness of less than 99.9%
  • Any platinum coin or bullion with a fineness of less than 99.95%
  • Any palladium coin or bullion with a fineness of less than 99.95%
  • Pre-1933 gold
  • Gold Krugerrands
  • U.S. silver coins with 90% silver content
  • Collectible coins or any coins not manufactured by a national government mint

Pros and Cons of Gold IRAs

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

Pros of Gold IRAs

Hedge Against Inflation
As inflation continued to rock the global economy, Reuters once again emphasized the usefulness of gold as a hedge against inflation: “Our analysis shows gold can be a valuable component of an inflation-hedging basket.”

Though the debate about gold’s performance in inflationary periods remains, investors have continued to use it as an inflation-hedge and that is not stopping soon.

Store of Value
While 2008 showed that a company can so fail that its stock price goes to zero, the price of gold can never be zero. Also, while the central bank can unilaterally increase the supply of currencies to reduce their value, creating new gold (increasing its supply) is more difficult: mining new gold is harder than printing some pieces of paper.

For these reasons, gold can be a better store of value than currencies and stocks.

Diversification
Gold has near-zero correlation with stocks and bonds. For example, between 2012 and 2020, there was a 0.02 and 0.28 correlation between gold and stocks and bonds, respectively. Therefore, when added to stocks and bonds, it can reduce the risk of the overall portfolio.

Nevertheless, gold IRAs also have their disadvantages.

Cons of Gold IRAs

High Fees
The fees of opening and operating SDIRAs are high when compared to mainstream IRAs. But gold is even more expensive compared to cryptocurrency or real estate SDIRAs.
Illiquidity
For traditional gold IRAs, RMDs set in at age 73. However, selling off physical gold or silver or platinum or palladium can be very difficult.

The process of looking for buyers can be tedious and when in haste, investors may be forced to sell for a price lesser than the market price. And failure to make RMDs will be penalized.

Volatility
Gold IRAs can also be as volatile as stocks and currencies. Due to this high volatility, there can be significant losses during certain periods.
Risk of Loss
There is always a possibility that a physical asset can be stolen or lost to some unforeseen circumstances. Insuring against such losses is an extra cost to the investor.

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.

Gold IRA Fees

Gold IRAs may come with fees because they involve additional services like storage and insurance for physical precious metals. These costs cover the secure storage of the gold and ongoing account maintenance.

Examples of Gold IRA Fees

Account Setup Fees
You may have to pay a fee to begin processing a new gold IRA account. The amount varies from one IRA custodian to another, but these can typically cost $50 or more.
Custodian Annual Maintenance Fee
These fees cover bookkeeping and administrative services. Your IRA custodian usually bills you yearly, typically $75 or more.
Transaction or Seller Fees
You may have to pay a fee if you buy or sell precious metals in your IRA. You pay these fees each time you make a transaction. They may cost $40 or more each time you buy or sell.
Storage Fees
You must pay to have your gold or other precious metals in your IRA stored in an approved depository. These annual fees vary depending on the depository. The fees tend to range from 0.5% to 1% of the value of your precious metals per year.
Wire Transfer Fees
IRA custodians typically charge a fee of $25 or more each time you send any funds via wire transfer.

You may also have to pay fees to insure your precious metals and to cash out precious metals in your account.

Frequently Asked Questions About Gold IRAs

What’s the difference between gold IRAs and physical gold?

A gold IRA is not physical gold itself, but rather a type of individual retirement account where you can invest in physical gold and other precious metals. However, it’s important to note that a gold IRA typically has higher fees compared to a traditional or Roth IRA that focuses on stocks, bonds and mutual funds.

What does it mean when gold is IRA eligible?

To be IRA eligible, gold must meet strict purity standards set by the Internal Revenue Service – with the most common requirement being a purity level of 99.5%.

What is the benefit of a gold IRA?

Gold IRAs provide a hedge against inflation in times of market volatility. Gold can be a better store of value than currencies and stocks, and its value can never reach zero.

How much can you put in a gold IRA?

In 2023, the IRA contribution limit is $6,500 if you are younger than 50 years old. You can make an additional $1,000 catch-up contribution on top of that if you’re over the age of 50. You can start making penalty-free withdrawals at age 59½.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: May 23, 2024
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