Benefits of a Gold IRA

With pensions a relic at most U.S. employers, workers must save for their own retirement. As you consider your options, you may wonder about the benefits of gold IRA accounts.

A gold IRA can help you save for retirement while harnessing the economic advantages of precious metals. These accounts let you hold a physical asset that can hedge against inflation and provide peace of mind. But they aren’t for everyone. Keep reading to learn more about how gold IRAs work, their benefits and drawbacks, and how to decide whether one is right for you.

How does a gold IRA work?

Gold IRAs are different from regular IRAs. A regular IRA can hold stocks, bonds and other funds, but you’ll need a special account for gold and other so-called alternative assets.

Here are the basics of a gold IRA:

• Gold is kept in a self-directed IRA: You need a self-directed IRA to purchase gold with your retirement fund. To create this account, you’ll need a custodian to manage it.
• Only specific gold qualifies: The IRS only allows gold that is 99.5% pure, except gold American Eagle Coins, to be purchased and held in a gold IRA.
• Gold must be stored in a depository: The IRS won’t let you keep your gold at home. If you do, it considers the gold a distribution, and its value becomes taxable as ordinary income. You could be penalized with an additional 10% excise tax if you’re younger than 59½.

When it comes to tax benefits, you have two options:

1. Traditional gold IRA: You get the tax benefits upfront with a traditional IRA. Contributions are tax-deductible, and withdrawals in retirement are subject to income tax. At age 73 to 75, depending on when you were born, you must begin taking the required minimum distributions (RMDs).
2. Roth gold IRA: The other option is a Roth IRA. You won’t get a tax break for contributions, but the money you withdraw in retirement is tax-free. No RMDs exist with Roth accounts.
   

Traditional	Roth
Tax-deductible contributions	Contributions are taxed
Withdrawals are taxed	Tax-free withdrawals
RMDs required	No RMDs

If you’re rolling over an IRA to a gold IRA, you’ll need to keep the same type of account. For instance, if you have a traditional IRA and want to move that money to gold, your new IRA must be a traditional gold IRA.

If this sounds confusing, don’t worry. Gold IRA companies have trained staff to walk people through the process of setting up and funding a gold IRA. They will help you find a custodian and depository and assist in transferring money to your new retirement account.

7 benefits of investing in a gold IRA

Here are some of the top benefits for investors in a gold IRA.

1. Hedge against inflation

Inflation can eat away at your purchasing power, making dollars less valuable every year. But gold is considered a safe haven. It has historically held its value and tends to do better when stocks falter.

2. Physical asset

Gold is a tangible asset you can possess, unlike stocks and bonds, which exist in paper or electronic form. Many people like the security of knowing their investment can’t be destroyed in a fire or cyberattack.

3. Value isn’t linked to a country’s currency

Gold is a commodity whose value is unrelated to any country’s currency. That means its value doesn’t depend on a country’s economic situation. Many investors find that comforting, particularly in periods of political instability.   

4. Diversification

All investors should spread their money across a variety of assets. This practice, known as diversification, ensures that you don’t lose your entire retirement fund should one part of the economy or stock market crash. A gold IRA allows you to diversify beyond stocks and bonds by adding commodities to your investment mix.

5. Long-term growth

Over the long term, gold has gained in value, making it a solid choice for retirement funds with a long time horizon. Last year, a Gallup Poll found that more than a quarter of survey respondents said gold was the best long-term investment, a close second to real estate, their top pick.

6. Taxable benefits

As we mentioned, gold IRAs come with valuable tax benefits. You can get an immediate tax deduction for contributions with a traditional IRA or open a Roth gold IRA for tax-free income in retirement. 

Our expert’s advice

Erin Kinkade

CFP®

Contributions to a self-directed Roth IRA are restricted by income, so you can’t contribute to one if your income exceeds the threshold. However, if you already have a Roth IRA established, you can still invest in gold within it, but you may not be able to continue contributing funds to the account.

7. Peace of mind

One of the most significant benefits of a gold IRA may be the peace of mind it can bring. Some people sleep better knowing a portion of their wealth is preserved in a commodity that has been valued and treasured for hundreds, if not thousands, of years.

Drawbacks of a gold IRA to consider

Of course, gold IRAs have drawbacks, making them less than ideal for some people, depending on their financial goals and preferences. The main cons to a gold IRA include the following.

Additional fees

Because of IRS regulations, you’ll likely pay higher fees with a gold IRA than with a regular IRA. The government requires a self-directed IRA with a custodian to hold gold and a depository to store gold.

Restrictions on gold investments

Only gold and precious metals that meet IRS manufacturing and purity standards are eligible for a gold IRA. Some gold items, such as older collectible coins, can’t be held in your retirement account.

Liquidation can take time

Gold is always in demand, so liquidating your assets, meaning selling them for cash, shouldn’t be difficult. However, the process can take longer than selling a stock or bond. You’ll need to find a buyer and complete the sale before receiving the money.

However, some gold IRA companies have buyback programs that can minimize this drawback. While the programs vary, they typically involve companies buying back the gold you purchased from them. Before selecting a gold dealer, see whether it offers this option.  

No dividends

If you want to create income from your investments, gold might not be right for you. While you may earn dividends or interest from some investments, such as stocks and CDs, you won’t get that with gold.

Is a gold IRA right for you?

No matter how good an investment is, it won’t be right for everyone.

Here are considerations when deciding whether a gold IRA is right for you.

Consider a gold IRA if	Reconsider a gold IRA if
You need to diversify your investments	You already own gold
You are making a long-term investment for retirement	You’ll need to access your investment before age 59½.
You are worried about inflation and economic uncertainty.	You have other assets designed to ride out a recession.

One important consideration before opening a gold IRA is when you expect to tap into your investment. Remember that the government only allows tax benefits for IRAs because they want people to save for retirement. That means if you withdraw funds from your traditional IRA before age 59½, you could get hit with a 10% tax penalty in addition to other income taxes. 

If you expect to need money before that age, you may still want to invest in gold—just not in an IRA.

Our expert’s take

Erin Kinkade

CFP®

Withdrawals from Roth IRAs before age 59½ might not be taxable or subject to a penalty if the withdrawal consists entirely of the amount you originally contributed, aka your cost basis. The portion of your Roth IRA withdrawal made before age 59½ that consists of earnings and growth above your cost basis could be taxed as ordinary income, and a 10% penalty tax will likely be applied. That said, be sure you understand IRAs’ tax treatment and contribution rules before opening and funding your gold IRA.

While everyone’s situation differs, let’s examine three sample scenarios that highlight how people might decide to open a gold IRA.

Scenario 1

John has a retirement account but mainly holds company stock he earned through a profit-sharing plan. He is concerned about how international conflicts and domestic politics will affect the economy. He doesn’t own gold yet, but he has savings he doesn’t expect to use until he’s in his 60s. He moves some of his savings into a gold IRA to create peace of mind and diversify his portfolio.

Scenario 2

Nancy purchased a significant amount of gold near the end of the COVID-19 pandemic when inflation began to soar. She has a 401(k) account at work and a regular IRA invested in mutual funds. Since Nancy is only in her 40s and wants to be able to use her gold if inflation should increase again, she decides against a gold IRA. Instead, she buys more gold to keep at home as a personal investment.

Scenario 3

Dave recently accepted a new job but has a large 401(k) account through his former employer. This represents all his retirement savings, although he has an emergency fund and several certificates of deposit. He wants to diversify his retirement portfolio, so he rolls his 401(k) balance into two IRAs, with part of the money going into a gold IRA and the rest in a regular IRA to invest in mutual funds.  

How to start investing in a gold IRA

If investing in a gold IRA is right for you, here are the next steps to take.

1. Find a gold IRA company: While you can find a custodian and depository yourself for your gold IRA, the process is easier if you work with an experienced company with staff who can provide the necessary paperwork and assist with its processing. 
2. Fund your gold IRA: Once your IRA is created, you need to fund it. That could mean moving money from your savings or rolling over all or a portion of a current 401(k) or IRA. Again, the staff at a gold IRA company can assist with this process.
3. Buy your gold: The final step is purchasing it and shipping it to a depository. Make sure your gold meets IRS requirements and is 99.5% pure.   

The price of gold is expected to rise, so don’t wait to make your purchase. Check out the best gold IRAs and get started today.

FAQ

Are gold IRAs a good idea?

Gold IRAs can be wise for investors looking to diversify their retirement portfolios with tangible assets. They offer protection against inflation and economic downturns, but before deciding, it’s important to consider storage fees, market volatility, and the long-term performance of gold.

Do you pay tax on a gold IRA?

Yes, distributions from a gold IRA are subject to taxes. If you have a traditional gold IRA, withdrawals are taxed as ordinary income. If you have a Roth gold IRA, qualified withdrawals are tax-free, but contributions are made with after-tax dollars.

Should I convert my IRA to gold?

Converting your IRA to gold can be beneficial if you seek to diversify your investments and hedge against market instability. However, it is crucial to evaluate the costs, potential risks, and overall investment strategy. Consult with a financial advisor to determine whether this move aligns with your retirement goals.

Can you withdraw from a gold IRA?

Yes, you can withdraw from a gold IRA. But first, consider the rules and potential penalties. If you withdraw before the age of 59½, you may face a 10% early withdrawal penalty in addition to taxes. After 59½, you can take distributions without the penalty, but they’re taxed as ordinary income if it’s a traditional gold IRA.