What Is a Gold-Backed IRA?

A gold-backed individual retirement account (IRA) allows workers to invest in gold or other precious metals. Often simply called a gold IRA, anyone with earned income can open one, but it isn’t as simple as setting up a regular IRA. Only self-directed IRAs may hold gold, and the IRS requires that gold to meet certain standards.

Keep reading for everything you need to know about how to open a gold-backed IRA without running afoul of government rules.

What is a gold-backed IRA?

IRAs are one of the most popular ways to save for retirement. These tax-favored accounts come in three main varieties.

IRA type	Trad.	Roth	SEP
For anyone?	✅	✅	❌*
Upfront tax deduction?	✅	❌	✅^
Tax-free withdrawals?	❌	❌	✅^^
Cont. limits	$7,000 (<50) $8,000 (50+)	$7,000 (<50) $8,000 (50+)	25% of income $69,000 max
Taxed at withdrawal?	✅	❌	✅^ ❌^^

• Traditional: Contributions to a traditional IRA are tax-deductible. Money grows tax-deferred, and withdrawals in retirement are subject to regular income tax. Any withdrawals made before age 59½ could be assessed a 10% tax penalty as well. In 2024, workers age 50 and younger can contribute up to $7,000 to an IRA, and those who are older can contribute up to $8,000.
• Roth: With a Roth IRA, the tax benefits come at retirement. There is no deduction for contributions, but withdrawals after age 59½ are tax-free if you’ve met the five-year holding requirement. Roth accounts have the same contribution limits as traditional IRAs, and gains are subject to the same 10% penalty in case of early withdrawal.
• SEP: Short for Simplified Employee Pension, a SEP IRA is for those who are business owners or self-employed. Those with SEP accounts may choose traditional or Roth tax benefits, but either way, they have much higher contribution limits. In 2024, workers can contribute 25% of their income, up to $69,000.

To use one of these accounts as a gold-backed IRA, you must open what’s known as a self-directed IRA. These specialized accounts allow people to hold alternative investments beyond the typical stocks, bonds and mutual funds.

Our expert advises: Tax implications of a gold-backed IRA

Natalie Slagle

CFP®

The tax implications of owning a gold-backed IRA are similar to traditional and Roth IRAs as long as the account owner has satisfied the rules regarding holding gold in a self-directed IRA. You can make contributions with pretax dollars for gold-backed IRAs. Contributions for gold-backed Roth IRAs can be made with after-tax dollars. Distributions from a traditional IRA are taxed as ordinary income. Distributions from a Roth IRA are treated as tax-free as long as the account owner met the five-year holding requirement. Distributions made from either a traditional or Roth gold-backed IRA prior to 59 ½ will face a 10% penalty.

Legal and regulatory considerations for gold-backed IRAs

Once you have opened a self-directed IRA, you can begin purchasing gold up to the annual contribution limits to hold in the account. You can also roll over money from another IRA and use that to fund your gold-backed IRA.

It’s crucial to understand that only certain gold can be held in an IRA. For instance, the IRS does not allow gold collectible coins to be held in an IRA. Instead, the rules and regulations state gold must fall into one of the following categories:

• Coins with a purity of 99.5%, such as American Buffalo coins.
• Bars with a purity of 99.5% from a national mint or a certified or accredited source.
• American Eagle coins, which are the one exception to the 99.5% purity rule.

Bars must be manufactured to specific weight specifications, and bullion coins must be uncirculated. Gold U.S. coins can be one ounce or a half, quarter or tenth of an ounce.

Similar purity requirements exist for silver, platinum and palladium, all of which can also be held in a gold or precious metals IRA.

How does investing in a gold-backed IRA work?

If you’re ready to get started with a gold-backed IRA, here’s how to set one up.

1. Select a custodian: The IRS requires gold IRAs to have a custodian. This is a company that manages your investments and ensures all government regulations are met.
2. Choose a gold-backed IRA company: If selecting a custodian sounds confusing, you can skip ahead to this step. Many companies that specialize in gold-backed IRAs work with custodians and can help you select one to set up your account.
3. Decide on a depository: If you want the tax advantages of an IRA, you must store your gold in an IRS-approved depository. Your custodian or gold-backed IRA company can help you find the best option.
4. Buy your gold: The next step is to purchase your gold. Many gold-backed IRA companies make it simple to see which items are IRA-eligible. They may also allow you to make a purchase by rolling over money from another IRA.
5. Ship gold to depository: Once you have selected your gold and completed the transaction, your gold IRA company will send the precious metals to the depository for storage.

You should expect to pay $75 to $200—or more—per year for your custodian’s services, and storage expenses can vary. 

It’s most common for depositories to charge a fee that is a percentage of the total value of your gold. These fees may range from less than half a percent to one percent or more, but some companies charge a flat fee, such as $10 or $50 a month, to keep commingled metals.

Compare your gold-backed IRA options

Before selecting a gold-backed IRA company, be sure to research what type of gold it sells and whether it has a minimum purchase requirement. Plus, look for value-added features, such as buyback programs that make it easy to liquidate gold when you want to make a withdrawal.

To get started, check out our best gold IRA companies.

Should you invest in an IRA backed by gold?

As with other financial products, a gold IRA may not be for everyone. To decide whether one makes sense for you, consider these pros and cons.

Pros

• Diversifies retirement investments.

• Gold is considered a hedge against inflation.

• Physical asset that isn’t tied to the stock market.

Cons

• Ongoing expenses related to the storage of gold.

• Gains may not keep pace with other securities.

• Not a liquid asset, so you must find a buyer to convert it to cash. (Liquidity can be crucial when it comes to taking your required minimum distributions.) 

A gold IRA can be a valuable retirement resource, but it’s often best when used as part of a larger financial strategy. 

What our expert recommends

Natalie Slagle

CFP®

I do not recommend clients of any age to invest their retirement portfolio in gold via a self-directed IRA. I see the benefit to having some of your retirement portfolio invested in alternative investments to have a different investment experience beyond cash, bonds, and stocks. However, I don’t see its in my clients’ best interest to have more than 10% of their portfolio allocated toward this category. I would advise any investors to consider the pros and cons of investing in gold in a self-directed IRA. Liquidity is crucial when you retire and need to start recreating your paycheck. If you need liquidity to fund your cash flow needs or satisfy your required minimum distributions, an illiquid self-directed IRA can be costly. If we’re seeking investment in the alternative investment space, I would likely recommend a mutual fund or exchange-traded fund of some kind.

Alternatives to gold-backed IRAs

Diversification is one of the cornerstones of good investing. It ensures that even if one investment has a bad year, others will continue to make money.

Gold has historically held its price when other investments have lost value, making it a solid option to diversify. However, gold in an IRA requires specialized storage, and liquidating it can take time if you need cash.

You can eliminate these concerns by investing in a gold exchange-traded fund (ETF). Funds such as SPDR Gold Shares (GLD) and iShares Gold Trust (IAU) invest in gold, so you get many of the same benefits of holding gold yourself. However, buying and selling shares of an ETF is similar to buying and selling stocks—so they’re easy to sell when you want to make a withdrawal.

If you have a self-directed IRA, you can invest in these alternative investments, which may provide the diversification you need:

• Real estate
• Cryptocurrency
• Private equity
• Private debt

Talking to a trusted financial advisor is always wise before investing a sizable amount in any asset.

FAQ

Can I transfer my IRA into a gold-backed IRA?

Yes, you can roll over assets from another IRA to a gold-backed IRA. However, the transfer needs to go directly from one account to the other to avoid any possible tax penalties. Your gold IRA company and custodian should be able to ensure a smooth process.

How does the performance of a gold-backed IRA compare to traditional IRAs?

It’s hard to compare because the performance of a traditional IRA depends upon which funds a person has invested their money in. As a result of the recent historic bull market, the S&P 500 has outperformed gold during the past 10 years, but the value of gold has seen steady growth. For many people, that is the value of owning gold: It provides stability during periods of market volatility.   

What’s the minimum investment needed for a gold-backed IRA?

That depends on the company you use, but most have at least a $10,000 minimum for opening a gold-backed IRA.

Is there a maximum limit on how much gold I can hold in an IRA?

No, there isn’t a maximum limit on how much gold you can hold in a self-directed IRA, but the IRS has annual contribution limits. For 2023, those limits are $6,500 for workers age 50 and younger and $7,500 for workers age 50 and older.

Are gold-backed IRAs insured? What kind of protection do they offer?

Just like stocks and bonds, there is no guarantee a gold-backed IRA will make money. However, physical gold in a depository is likely insured against theft or damage. Check for what protection is offered when selecting your depository.

Many brokerage firms offer Securities Investor Protection Act (SIPC) insurance to help protect against the loss of cash and securities such as stocks and bonds a customer holds in case the firm runs into financial trouble. However, gold and silver coins are ineligible for SIPC protection.

Can I liquidate my gold-backed IRA before retirement? What are the penalties?

All IRAs are subject to the same IRS rules regarding withdrawals. If you take physical possession of your gold or otherwise liquidate it for withdrawal prior to age 59½, you’ll owe a 10% tax penalty. That’s on top of the regular income taxes due on withdrawals from a traditional IRA.

How often can I make contributions to my gold-backed IRA?

You can contribute as often as you like up to the IRS annual limits.

What happens to my gold-backed IRA if the gold market crashes?

Gold values tend to be relatively stable, but the market has crashed on occasion. The most significant drops occurred in 1980 and 2013. However, prices have always rebounded, so if a crash happens, it may be best to hold the assets in your gold IRA.

In the meantime, if you need money for retirement, make withdrawals from other assets while the gold market recovers. This is a perfect example of why diversifying your retirement savings is so important.

Can I also invest in other precious metals within a gold-backed IRA?

Yes, the IRS allows silver, platinum and palladium meeting certain purity standards to be held in a gold IRA.

Do I physically own the gold in my IRA, or is it just a paper asset?

You own physical gold in your IRA, but it must be stored in an IRS-approved depository. When you want to make a withdrawal, the company can send the physical gold to you, or you may convert it to cash. Many gold IRA companies have buyback programs to help with this conversion.

Can I add gold to my IRA from my personal collection?

No, most self-directed IRA custodians won’t allow you to add gold from your personal collection. Instead, you must purchase gold from a reputable company to add to your IRA.