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Personal Finance Gold

Are Gold IRAs Safe?

Updated Feb 15, 2024   |   7-min read

Of all your savings goals, none may be more important than retirement. The money you save during your working years will ensure you’re comfortable in your golden years.

Investing in gold or other precious metals can diversify your retirement portfolio, but are gold IRAs safe? No investment comes with a guarantee, but 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 you can purchase for an IRA and how it’s held, so you can feel confident about your gold IRA’s security.

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:

You could buy gold outside a retirement account, but a gold IRA provides valuable tax benefits. To get those benefits, you’ll need a self-directed IRA.

A self-directed IRA is managed by its owner. Regular IRAs are limited to securities, such as stocks and bonds, but the IRS allows alternative investments in self-directed IRAs. These include real estate, commodities, gold, and other precious metals.

The IRS maintains rules for self-directed gold IRAs to 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 protection against an unduly risky investment or a poor 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 because they worry about the security of depositories.

But 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, but 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 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 or segregated: With allocated storage, your gold is stored separate from the depository’s other assets. Fees for this type of storage are higher, but you’re assured any gold you withdraw is the same gold you deposited.
  • Unallocated or 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’ll receive if you take an in-kind distribution in retirement. It’s wise 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 an inflation hedge because it tends to increase in value at times when the dollar decreases in value.

Because gold is one of the few investments that seem to see a predictable rise in value during times of economic upheaval, it’s a popular way to diversify a portfolio. 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 safe, here’s how you can get started creating an account:

  1. 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.
  2. Select a depository: Some custodians only work with specific depositories, but others may offer a choice of where to store your gold.
  3. Fund your account: Once you have opened your self-directed IRA, you need to fund it by rolling over a balance from an IRA or making a cash contribution. For 2024, the IRS allows contributions of up to $7,000 for workers younger than age 50 and $8,000 for those 50 and older.
  4. 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 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 with confidence your gold is in good hands.

FAQ

What are the tax benefits of a gold IRA compared to a traditional or Roth IRA?

Gold IRAs offer unique tax benefits that align with the broader advantages of IRAs. Traditional gold IRAs allow for tax-deductible contributions and tax-deferred growth, meaning you only pay taxes on withdrawals in retirement, potentially at a lower tax bracket.

Roth gold IRAs require taxed contributions upfront but provide tax-free growth and withdrawals, offering a significant advantage if you expect to be in a higher tax bracket during retirement. Both types offer the opportunity to diversify your retirement portfolio with precious metals while enjoying the respective tax benefits of traditional and Roth IRAs.

How do I choose a custodian for my gold IRA, and what should I look for?

Look for a company with strong experience in handling IRAs of all types, including gold. It must have a solid track record proving its financial stability and credibility. Ensure it complies with all IRS regulations. Last but not least, consider its fee structure and whether it offers allocated storage, which guarantees the safety of your investment.

What happens to my gold IRA when I reach retirement age?

Upon reaching retirement age, 59 and a half years according to the IRS, you can start withdrawing funds from your gold IRA without penalties by selling gold back to the custodian, which in turn pays you the cash equivalent. If you prefer holding on to your gold, you have the option to take physical possession.