Opening a gold IRA allows you to hold physical gold as part of your retirement portfolio. Investments have to be stored in a depository that is approved by the IRS which includes storage fees and insurance costs.(GETTY IMAGES)
A gold individual retirement account allows you to invest part of your retirement savings in gold and other precious metals. It also offers a chance to qualify for similar tax breaks to a traditional or Roth IRA. If you’re thinking of getting a gold IRA, it’s a good idea to know the rules and procedures before opening an account.
Before opening a gold IRA, make sure you understand:
- How to set up a gold IRA.
- The pros of a gold IRA.
- The cons of a gold IRA.
- What institutions offer a gold IRA.
- How your retirement savings will be impacted by a gold IRA.
What Is a Gold IRA?
Sometimes referred to as a precious metal IRA, a gold IRA allows you to hold physical gold as part of your retirement portfolio. The gold can be in different forms, including bars or coins. You can also hold other approved precious metals such as silver, platinum and palladium.
A gold IRA has the same contribution limits and withdrawal requirements as other IRAs. For instance, the contribution limit for IRAs is $6,000 in 2022, or $7,000 if you are age 50 or older. “When you acquire gold through a Roth IRA (a gold IRA), you pay taxes only on your contributions, not on the gains,” says Collin Plume, CEO of Noble Gold Investments in Los Angeles. “With a traditional IRA, you can defer paying your taxes until you liquidate, so you can use that money to invest in other things.”
You have to wait until age 59 1/2 to make withdrawals. If you don’t, you could face penalties on the amount you take out. When you turn 72, you have to take withdrawals known as required minimum distributions from a traditional IRA. There are no required distributions associated with Roth IRAs during your lifetime.
If you want to open a gold IRA, you need to start with a self-directed IRA. This is a type of account that gives you more control over your investment choices. You also need a custodian, which is a financial institution that is approved by the IRS to handle self-directed IRAs. You can establish the account either as a self-directed Roth IRA or a self-directed traditional IRA.
Once you have a self-directed IRA in place, you can add contributions and select investments. For this step, you need a metals dealer who will carry out the transaction. When you make investments, they will need to meet the IRS standards in terms of purity and weight.
Not every self-directed IRA custodian offers to manage gold. “It is important to choose a reputable custodian who will be responsible for holding and safeguarding the gold,” says Michael Ryan, a financial coach and retired financial planner in South Florida.
Some places that offer a gold IRA include:
- Oxford Gold Group.
- American Hartford Gold.
- Lear Capital.
- Patriot Gold Group.
- Orion Metal Exchange.
- Augusta Precious Metals.
Costs of a Gold IRA
Gold investments have to be stored in a depository that is approved by the IRS. You need to pay storage fees, along with insurance costs. There are fees associated with purchasing and shipping precious metals. Furthermore, there will be management charges associated with your custodian, which could be higher than with other retirement accounts.
Pros of a Gold IRA
During times of inflation and volatile markets, some investors use gold to hedge against uncertainties. “Gold IRAs can be a great way to diversify your retirement portfolio and protect your savings,” Ryan says.
Gold may also be used as a long-term savings strategy. “Gold has historically been a stable asset, increasing in value over time despite market fluctuations because its industrial uses are increasing while its global supply is shrinking,” Plume says. “Gold is being used in medicine to treat cancer, in electronics like phones and data servers and even on Mars to produce oxygen.”
If you prefer to manage your own investments and choose your holdings, a gold IRA may be a good fit. You’ll have the chance to decide when to invest in precious metals and which types of metal you want.
Cons of a Gold IRA
Liquidity, meaning how quickly you can access cash, can be a drawback with a gold IRA. “Unlike stocks, bonds, mutual funds and ETFs, gold can’t be liquidated with the click of a button,” says Brannon T. Lambert, owner of Canvasback Wealth Management in Raleigh, North Carolina.
Expenses related to storage and insurance premiums can add up too. “As such, gold is less liquid and costs significantly more to buy and sell,” Lambert says. “If you need your money quickly, you could be out of luck.”
How to Decide if a Gold IRA Is Right for You
When you have an IRA that is invested in stocks and bonds, you have three ways to grow your money. The funds could appreciate as the shares you purchase are worth more. You could receive dividends from the shares and reinvest them. Your money can also grow by reinvesting the interest you receive from bonds or bond funds. “When you have a hard asset like gold through a gold IRA, you are eliminating two of the three ways your money can grow,” Lambert says. “Gold does not pay interest or dividends.” You will be relying on capital appreciation and timing to work in your favor. “I would challenge those thinking of putting their retirement in the hands of a gold IRA to look at the long-term price history of gold and decide if they are willing to bet their retirement on it,” Lambert says.