Many or all of the companies featured provide compensation to LendEDU. These commissions are how we maintain our free service for consumers. Compensation, along with hours of in-depth editorial research, determines where & how companies appear on our site.
Of all your savings goals, none may be more important than retirement. The money you save during your working years will ensure you live comfortably during your golden years.
Investing in gold or other precious metals can diversify your retirement portfolio, but you may be wondering: are gold IRAs safe? The good news is that while no investment comes with a guarantee, gold has a long history of guarding against inflation, and gold IRAs offer the same tax perks as regular IRAs.
What’s more, the IRS has guidelines concerning what type of gold can be purchased for an IRA and how it is to be held. Therefore, investors can feel confident about their gold IRA’s security.
In this article:
- Why it’s safe to open a gold IRA
- Why the gold you purchase is safe
- Why investing in gold is a safe way to diversify
Why it’s safe to open a gold IRA
Unlike new investments like cryptocurrency, gold has long proven a valuable asset. It becomes especially attractive to investors in times of high inflation or economic uncertainty. For example, consider the following facts about gold ownership during the COVID-19 pandemic:
- One in six Americans purchased gold or precious metals during a three-month period in 2020, and one in four were seriously considering it, according to The New York Times.
- The number of users investing in large gold funds on the online trading platform Robinhood tripled during the first half of 2020, The New York Times also reports.
- Polling firm Gallup found 18% of people thought gold was the best long-term investment available in 2021.
- Nearly 11% of the U.S. population already owns gold, according to a 2020 survey by the publication Gold IRA Guide.
Although you could buy gold outside of a retirement account, a gold IRA provides valuable tax benefits. To get those benefits, though, you’ll need a self-directed IRA.
A self-directed IRA is managed by its owner. While regular IRAs are limited to securities such as stocks and bonds, the IRS allows alternative investments in self-directed IRAs. These include real estate, commodities, and yes, gold and other precious metals.
The IRS maintains rules for self-directed gold IRAs, and these help keep your investments safe. Among the requirements:
- Use of an approved custodian
- Use of an approved depository
- Purity standards for gold purchases
Together, these guidelines provide some protection against making an unduly risky investment or storage decision.
Why the gold you purchase is safe
Of all the IRS rules, the mandated depository use seems most likely to frustrate investors. Some people would prefer to store gold themselves and worry about the security of depositories.
While those concerns are understandable, depositories have security features that far exceed those available to homeowners or even those of banks and credit unions. What’s more, most depositories are insured, while assets stored in safe deposit boxes are not covered by a bank’s FDIC coverage. Gold stored at home may also be excluded from homeowner insurance policies.
The IRS has approved 10 depositories for storing gold in IRAs. These companies go through an auditing process to ensure that the gold they receive is the gold you ordered. They also confirm the authenticity of the gold. Many gold IRA custodians work with specific depositories and have developed procedures that make the sale and storage of gold simple and secure for their clients.
Depending on the depository, you may have different storage options:
- Allocated/segregated: With allocated storage, your gold is stored separately from the other assets held by the depository. Fees for this type of storage are higher, but you can be assured that any gold you withdraw is the same gold you deposited.
- Unallocated/unsegregated: Unsegregated storage is less expensive, and depositories will keep your gold with that of other customers. When you make a withdrawal, you’ll get the kind of gold you deposited—such as a 1 oz. bar—but it might not be the same gold bar you purchased initially.
Depositories may use different terms, so be sure you understand how a company will store your gold and what you will receive if you take an in-kind distribution in retirement. It is also a good idea to confirm insurance levels and any limitations on that coverage before selecting a depository.
Why investing in gold is a safe way to diversify
Diversification is a hallmark of smart investing. It means spreading your money across a variety of assets to minimize risk. That way, if one part of the economy has a bad year—such as the stock market crashing or the real-estate bubble bursting—you don’t lose all your money.
Gold has historically been used as an inflation hedge because it tends to increase in value at times when the dollar decreases in value. We’re seeing that right now with some analysts predicting that the spot price of gold could hit $2,100 per ounce in 2022. The price previously hit a record high of $2,063 in August 2020.
The U.S. inflation rate reached a 39-year high in 2021, and consumer prices could continue to climb this year. That could help the value of gold trend upward in the coming months.
Since gold is one of the few investments that seem to predictably go up in value during times of economic upheaval, it is a popular way to diversify a portfolio. However, be sure to balance your gold purchases with other investments to ensure you have a well-rounded retirement fund.
How to get started opening a gold IRA
Now that you know a gold IRA is a safe, here’s how you can get started creating an account:
- Select a custodian: The custodian is the entity that will hold your IRA assets for you, and only certain custodians will manage self-directed IRAs. The custodian will take care of IRS paperwork and requirements, but they won’t offer any investment advice.
- Select a depository: Some custodians only work with specific depositories, but others may offer a choice of where to store your gold.
- Fund your account: Once you have opened your self-directed IRA, you need to fund it by rolling over a balance from an existing IRA or making a cash contribution. For 2022, the IRS allows contributions of up to $6,000 for workers younger than age 50 and $7,000 for those age 50 and older.
- Select your gold: When selecting gold for your IRA, be sure your purchase meets IRS purity guidelines. Many of the largest online gold brokers make it easy to see which items are IRA-eligible. They will also coordinate with your custodian and send your items directly to the designated depository.
>> Read More: How does a gold IRA work?
If this sounds like a complex process, don’t worry. Many online gold IRA providers have streamlined systems in place and work closely with established custodians to take the guesswork out of these decisions. Compare the best gold IRAs to see which company is best for your situation, and then invest confidently, knowing your gold will be kept in good hands.
Author: Maryalene LaPonsie