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How Do Gold IRA Plans Work?13 min read

Reading Time: 9 minutes

Do you plan to open a retirement account based on gold coils or other precious metals? Or do you already have a Roth IRA or traditional IRA and wish to diversify to self-directed IRA accounts based on palladium, platinum, silver, or gold? Are you wondering how a gold IRA works? No matter what your situation is, you are in the right place.

The current economic uncertainties make people doubt their traditional IRAs or Roth IRA longevity. Physical gold, silver, and other precious metals are considered the best option for retirement accounts. However, if you are new to gold IRA plans, it is always better to get familiar with them before creating a gold IRA account.

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What Is A Gold IRA?

A gold IRA refers to a retirement account allowing people to make a physical gold investment. It is typically used to diversify savings and gain valuable tax benefits. It is also used to create a hedge against inflation. Besides physical gold, the gold IRA account also allows direct investment in other precious metals, such as platinum, palladium, or silver bullion bars or coins, without actually taking physical possession of them.

In other words, gold IRAs are an excellent way to secure retirement funds by basing them on precious metals’ value managed by reputable gold IRA companies. Unlike traditional IRAS and Roth IRAs, gold IRAs hold gold bullion and other precious metals rather than exchange-traded funds (ETFs), mutual funds, bonds, stocks, and fiat currencies.

On the other hand, there is a close link between traditional self-directed IRA accounts and gold IRAs due to their similarities in terms of contribution limits, tax benefits, and other IRS regulations.

Please note that government regulations outline the gold type anyone can hold in their gold IRA accounts as well as where it should be stored. Luckily, many gold IRA companies easily meet those requirements. These companies can also incorporate precious metals into their customers’ retirement savings.

What are the Different Types of Gold IRA Accounts?

Like conventional retirement accounts, gold-based retirement accounts come in different forms.

Traditional Gold IRA

The traditional gold IRA is funded through pre-tax dollars and is the most common gold IRA type. When investors contribute money to the traditional IRA, they can deduct the amount from their income when they file their taxes.

The account reduces the investors’ taxes in the year they contribute. Once they withdraw from the traditional IRA, the income tax on the full amount is withdrawn. Contributions are also tax-deductible. In other words, any gains or deposits on the gold IRA are not taxed.

Roth Gold IRA

The Roth gold IRA is funded through after-tax dollars. This means that until the investors reach their retirement age, their money will grow tax-free. Also, they don’t need to pay taxes when they decide to withdraw funds.

On the other hand, all this depends on the assumption that investors will not withdraw funds before retirement. This is because it will be regarded as a distribution.

If early distribution occurs, it means the investors will be heavily penalized by the IRS. This account type also does not restrict the contribution withdrawals, while others do.

SEP Gold IRA

A simplified Pension (SEP) IRA is a type of traditional IRA often used by small businesses and self-employed individuals. It works similarly to pre-tax traditional IRAs, where contributions are not taxed but come with higher contribution limits.

Investors can contribute up to 25% of their income of 53,000. If possible, small business owners should contribute to their employees’ SEP gold IRAs as part of the incentive package or job perks.

How Does a Gold IRA Plan Work?

A gold IRA plan requires opening an account alongside an IRS-approved custodian who will help with the gold IRA account setup. Remember, the gold IRA’s foundation relies on its ability to protect your funds against global economic issues by basing its value on tangible assets, including silver, gold, palladium, and platinum coins.

You can fund your gold IRA account in several ways, depending on your reason for opening your gold IRA, like:

  • If you wish to diversify your portfolio, you can fund your gold IRA account from your traditional IRA.
  • If adding physical gold to your list of assets was the main reason, you can fund your gold IRA account by buying gold directly using bank transfer or cash.

When running gold IRAs, expect to pay a wide range of storage and custodian fees. The IRS also set strict rules, dictating the types of precious metals someone can buy as part of their gold IRAs.

If your gold IRA account is managed correctly, it can be one of your entire retirement portfolio’s most valuable assets. It can also serve as a long-term investment and be very profitable as long as the right gold IRA company manages your account.

Is Getting A Gold IRA Plan Beneficial?

A gold IRA investment is a long-term decision. So, you should not take it lightly since a huge part of your retirement savings will be part of your self-directed IRA account for a very long time.

Before buying gold coins, bars, and other precious metals, ensure what you can expect from getting a gold IRA plan. Here are the benefits you can enjoy with gold IRAS:

Tax Deductible

Have you ever made a long-term investment? If not, it’s time to know that you have to deal with tax payments. So, all kinds of investments with tax benefits are very popular. If you make contributions to traditional gold IRA, they are considered tax-deductible.

Meanwhile, qualified withdrawals from Roth Gold IRA accounts are tax-free. You will get tax benefits the same as a traditional IRA or Roth IRA account, depending on the gold IRA type you choose. In other words, you can pay taxes once you invest or make withdrawals after retirement.

More Control Over the Account

Unlike traditional IRAs, you can obtain more control over your account when you invest in precious metals.

Since gold IRAs are self-directed, you can directly manage your holdings. You also have the control to make all the investment decisions.

You are free to choose which precious metals you wish to invest in as part of your account. The decision is yours whether you want to diversify further to cryptocurrency or real estate.

Long-Term Investment

Once you start investing in gold IRAs, you have to commit to it for the long run. But it is not a bad thing since it will gain more value the longer you keep your precious metals there.

After a few years, the gold price is guaranteed to go higher. Although gold fluctuates from day to day with regard to the spot price, the value continuously increases over a period of years, which is the goal of any long-term investment.

Ease of Liquidation

Both precious metals and real estate are good investments you can make for your future. But the liquidity of each asset is where the gold IRAs stand out.

During an emergency, you can find physical gold bar buyers more quickly than someone to buy your real estate property on the spot.

Although most assets, especially gold, need to be analyzed for their potential growth and market, 99.9% of silver bullion bars and coins sell in record time hassle-free.

Hedge Against Inflation

When it comes to investment, inflation can significantly impact your decision. The economy’s current situation is not favorable to different fiat currencies, even to paper assets. So, most financial advisors advise their clients to open a gold IRA and invest in precious metals.

One of the best things about gold IRAs is that they are beneficial even in the middle of an unstable economy.

The two World Wars or the Great Depression were the periods in history where there was the highest demand for gold. For such a thing, some people might be buying and storing gold bars to get maximum benefits, like protecting their investments against inflation.

Potential for Growth

Both silver and gold have high demand globally. China, Russia, and other countries go all out to buy these precious metals by any means. In short, the growth of these commodities is not only expected but also guaranteed for the future.

Anyone can invest in precious metals as much as they want, knowing that the chances of making a loss on their investment in the future are small. All you have to do is wait for the required time for your gold IRAs to grow and get the maximum benefits upon retirement.

Safe Storage

Imagine you are keeping precious metals in your sock drawers. Will you have peace of mind? Surely, the answer is no. Silver, gold, and other precious metals are high-value commodities that attract criminal attention. So, if you plan to invest in gold IRAs, ensure to prioritize their storage.

The best thing you can do is keep your precious metals in an IRS-approved depository as mandated by IRS regulations. This gives you peace of mind knowing that your metals are safe and secure at all times. Also, choosing the right custodian help keep your metals safe as well as insured against destruction or theft.

Easy Steps to Open a Gold IRA Account

Do you find the gold IRA benefits interesting? If yes, you might be thinking of opening an account right now. Don’t worry; the entire process is super easy. All you need to do is follow the steps below:

Step 1: Look for an IRS-Approved Custodian

First, you have to find a reputable and trustworthy IRS-approved custodian. Please note that any mistake here will negatively impact your precious metals IRA account. While there are plenty of great gold IRA companies, there are some who will take advantage of you.

So, ensure you know what you are really looking for in a custodian. You should also know the difference between an unsuitable gold dealer and a reliable one. Here are some signs that you are choosing the right gold IRA company:

  • Work with affordable and reliable IRS-approved depositories
  • IRS insurance and licensing for precious metals
  • A wide range of precious metals
  • Affordable and realistic account setup fees and other related costs
  • Knowledge of all IRS rules and regulations
  • Years of experience working with gold and other precious metals

Step 2: Fund Your Gold IRA Account

Your homework does not stop after finding a reputable IRS custodian; your next move is to fund your gold IRA account. With your precious metals dealer, you can fund your gold IRA account in three different ways.

  • Cash Contributions

Most self-employed individuals have no retirement accounts to withdraw their funds from. If that is your situation, go to your IRS custodian and make direct cash contributions into your account. The advantage here is that you can be safe from IRS penalties. So, you can contribute as much as you want.

  • Direct IRA Transfer

If you want one of the fastest methods to fund your account, then you can go for a direct transfer from your other retirement accounts. Since this method incurs additional costs, it is recommended to talk to your IRS custodian or financial advisor about the right option for you.

  • Gold IRA Rollover

If you have a Roth IRA, 401(k), and other types of retirement accounts, you can roll over funds from there and fund your gold IRA account. Having a competent custodian is an advantage as they can make the process simpler.

According to IRS rules, you cannot keep the amount from the rollover in a bank account for over 60 years. If you did, you have to deal with a penalty of 10% of the value of the rollover. Also, you are only allowed to have one rollover yearly. So, you have to find alternative options if you have already used rollover to fund other retirement accounts.

Step 3: Choose IRS-Approved Precious Metals

Gold IRAs hold not only gold but also other precious metals, such as silver, platinum, and palladium. As mentioned above, the IRS limits the types of bullion and coins investors can hold in their gold IRAs. This ensures that investors will only buy high-quality precious metals with long-term value.

You can invest in as many precious metals as you want as long as they meet the IRS purity standard, which is 99.5% for palladium, platinum, and gold and 99.9% for silver. Here are the precious metals you can hold in your gold IRA account:

  • American Eagle platinum coins
  • Canadian Maple Leaf coins (palladium or platinum)
  • Palladium and Platinum rounds and bars produced by a COMEX or NYMEX-approved refinery
  • Canadian Polar Bear & Cub
  • Australian Kookaburra coins
  • Chinese Panda coins
  • Australian Kangaroo coins
  • British Britannia (2013 or newer)
  • Australian Philharmonic coins
  • Canadian Maple Leaf coins
  • Credit Suisse bars and other rounds and bars produced by a COMEX or NYMEX-approved refinery
  • American Proof and American Eagle coins

Step 4: Pick an IRS-Approved Depository

The place where you should store the gold and other precious metals is a vital consideration for gold IRAs. People cannot take possession of gold or other precious metals in their IRAs. In other words, you cannot keep the precious metal safe at home. You have to choose a depository instead to store your gold. The depository is responsible for keeping your precious metals safe and secure. Below are two major types of precious metals storage:

  • Commingled

The depository stores your precious metals together with other customers’ coins and bars. If you add metals to the storage, the amount, quality, and type are noted by the depository. Once you remove them for sale, you will not receive the same bars and coins. Instead, you will get equivalent metal.

  • Segregated

The depository stores your precious metals, separated from other customers’ bars or coins. If you put gold bars and coins in the depository, they remain yours, and you get the same bars and coins once you take them out for sale.

Conclusion

With gold IRAs, you have a better chance of securing your future, especially if you make the right choices and start investing early on.

Plus, the entire process is straightforward. As long as you choose the right IRS custodian, investment management becomes easier. With a lot of benefits waiting for you, there is no way you can go wrong with making gold IRAs part of your investment plans.

Frequently Asked Questions

What is the difference between physical gold and gold IRAS?

Physical gold allows you to have direct possession over precious metals, while gold IRAs will enable you to invest in physical gold as an asset class.

What are the benefits of a gold IRA plan?

A gold IRA offers a hedge against inflation during market volatility. Compared to stocks and currencies, gold can be a better store of value. Plus, the value can never reach zero.

What does IRA-eligible gold mean?

Gold is considered IRA-eligible if the IRS allows it to hold an asset within the directed IRA.

What different types of precious metals can a gold IRA account hold?

Gold IRAs can hold four precious metals: silver, gold, palladium, and platinum.

Other Gold IRA Articles You Should Read

Here are a few of the most popular gold IRA articles that I’ve published over the years. My guess is that you’ll find them interesting and helpful if you’re looking to invest today.


About 

Edwin Cannon has spent his entire career in the financial industry and specializes in alternative investments and surviving marketing turbulence. He started My Retirement Paycheck to help educate consumers about retirement investment options that aren't typically introduced by advisors.