Many people prefer investing in precious metals such as gold instead of stocks and mutual funds. The value of gold is stable in comparison to other types of holdings. This makes it an excellent inflation hedge for investors.
A gold Individual Retirement Account (IRA) is a gold investment designed for people who purchase precious metals as savings for retirement. A gold IRA enables you to invest and manage gold and other physical precious metals. This is why it is also known as a self-directed IRA account.
IRS regulations governing gold IRAs are rather specific. The size, weight, design, and metal purity of IRA gold coins and gold bars must all comply with the rules.
Placing rigorous restrictions on what constitutes an IRA enables the IRS to verify that consumers have investments in self-directed retirement accounts rather than collectibles.
You must open up an account with a traditional IRA business and buy the precious metals you prefer to fund it with. Several individuals who create gold IRAs use money from another IRA. However, it’s unwise to move all your savings into a gold IRA at once.
Types of Gold IRAs
When setting up an individual retirement account, you can choose between a traditional IRA, a Roth IRA, and a SEP IRA.
Traditional Gold IRA
The most prevalent kind of gold IRA is the classic one. Withdrawals on these types of accounts have an associated tax in retirement. You must pay tax on withdrawals in retirement. This is because pre-tax dollars fund the account.
Roth Gold IRA
After-tax funds are used to fund a Roth IRA. With this, you don’t pay taxes on distributions you receive in retirement and the money grows tax-free.
SEP Gold IRA
Self-employed persons or small business owners should consider a SEP gold IRA account. Although the contribution caps are different and entrepreneurs can pay contributions for their employees, pre-tax dollars fund it.
What Is the Benefit of a Gold IRA?
Gold IRAs have pros and cons as any other investment. The paragraphs below will explore a few benefits of having such an account.
Tax Benefits
Gold IRAs provide specific tax benefits to the investor. Standard IRAs also offer a similar advantage. Unlike investments with traditional IRA contributions, these types are not taxable. Additionally, an individual can withdraw from Roth accounts for free.
Long-Term Holding
Physical gold isn’t highly liquid. However, IRA holdings also make it difficult for investors to turn their assets into cash. This condition makes gold an excellent long-term investment. It is also a good buy-and-hold investment since you can’t access the money in an IRA until you retire.
More Control
Gold IRAs are self-directed accounts. This means that the individual manages their assets and has the final decisions on all investments in the IRA account.
Cons of a Gold IRA
No Tax-Advantaged Income
Gold bullion returns no dividends or interest. This condition is why it doesn’t benefit fully from the tax-free growing characteristics of IRA investing. The only thing that qualifies for a tax benefit is the capital gains you make from selling gold and making a profit.
Higher Fees
Investors should store gold in a safe box at a bank. Keeping it at home is a terrible decision.
The right way involves paying a custodian to buy and transport your precious metals for your IRA. Learn more about them here.
A custodian also stores the gold and provides a guarantee to the client. This makes the cost of gold IRAs higher than traditional IRAs.
Funding Restrictions
Precious metals you currently own can’t be transferred to your new gold IRA. You cannot purchase precious metals on your own and transfer them to your IRA. The custodian is responsible for executing every transaction on your account.
How to Open a Gold IRA
Gold IRA companies help you create a self-directed IRA account. Some banks will allow you to establish an account online.
You can buy the gold bars, coins, or other precious metals you want to invest in from the business that manages your gold IRA.
To prevent improper self-dealing, they will also coordinate the choice of an IRS-approved custodian, which is a prerequisite for all self-directed IRAs. The custodian is a company that offers financial services and carries out investment operations on your behalf. Additionally, they perform essential administrative tasks to guarantee that gold IRA accounts comply with every IRS rule.
Like the account custodian, the gold IRA firm coordinates the tasks carried out by the depository. A depository is a physical location where the precious metals in your gold IRA are stored.
Despite some offers, you have a choice of two or more. Most gold IRA companies suggest or mandate that you engage with a specific custodian and depository. This is usually because of the partnerships they have with them.
When selecting a depository and custodian, it is necessary to consider their fees, including administration, storage, and insurance for your precious metals.
How to Buy Physical Gold in an IRA
Select a Gold IRA Provider
You should pick a gold IRA provider with a solid reputation who is open and honest about their fees. Explore as many gold IRA providers as possible, and weigh your alternatives. After you open an account with a gold IRA company, their professionals help you buy the gold bars or gold and silver coins you put into it.
Select the Metals
Gold and silver are the most popular metals to put into a precious metals IRA. Some gold IRA providers also let you buy and add palladium and platinum to your IRA.
Get a Consultant
Companies that provide gold IRAs don’t provide consulting services. They are not obligated to operate to your most favorable financial objectives like other retirement experts. As precious metals dealers, their mission is solely to sell, not to offer investment advice. Instead of relying on representatives from the gold IRA provider, you should seek guidance from a reputable expert.
How to Store Gold in an IRA
United States government mints produce gold and other precious metals with IRS approval. These are others produced by private mints and other state-sanctioned mints.
An IRS-approved depository must be in charge of keeping your precious metals. You can’t keep physical gold at home or in a secure deposit box. This is in breach of the rules governing gold IRAs.
Note that there are charges associated with having physical gold in a gold IRA. This is a good bargain for the security it comes with. Compared to standard retirement accounts, a gold IRA is more expensive. Be mindful of the expenses as listed:
Gold IRA Account Creation Fees
Ask them what they charge; this isn’t done in every gold IRA firm.
Trader’s Fees
Gold IRA providers markup the cost of the bullion and precious metal coins they provide for sale. These markups might differ significantly based on the product. An example is that of a proof coin versus a bullion coin. Investors should be aware of them before making any purchases.
Fees for Maintenance
Either the custodian or the gold IRA provider may impose this yearly cost. The cost could be fixed or dependent on the account size.
Charges for Storage
You pay a depository this amount to store your gold assets in its facilities. Sometimes the fee includes insurance for your gold while they protect it. If so, you’ll need to set aside money for insurance as a different expense.
Shipping Fees
Expect to pay for shipping and shipping insurance if you want your required minimum distributions (RMDs) in kind. This arrangement means you will receive the real coins or bars you bought.
Buyback Fees
Gold IRA providers charge fees for buybacks. Others assert that they don’t, but you should note that the price they offer to buy back your gold from you will probably be less than the benchmark price for the gold they sell.
Conclusion
Examples of gold investments that meet IRA specifications are American Eagle, Buffalo, Canadian maple leaf coins, and many more.
Other approved precious metals such as silver, platinum, and palladium make excellent investment options besides gold.
Consult a financial counselor if you’re considering opening a gold IRA to find out how the metal might fit with the objectives of your retirement portfolio. Having all your assets in one basket is generally never a wise move.
About Edwin Cannon
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.