This Lesser-Known IRA Option Lets You Invest in Gold — but Is It Really a Good Choice for Your Retirement?

Gold has been a valuable asset for practically all of human history, so it makes sense that many people see it as a good long-term investment. And in modern times, the values of precious metals have tended to move in the opposite direction of paper assets like stocks or bonds, making them a smart way to diversify your portfolio.

But how do you go about investing in gold in the first place? One option that’s less widely known is a gold IRA.

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What is a gold IRA?

A gold IRA enables you to invest in precious metals — not just gold, but also silver, platinum, and palladium. Regular IRAs don’t permit this because these metals are considered collectibles, and the IRS will consider it a distribution if you spend any of your regular IRA funds on coins or bullion. This could trigger tax bills, as well as a 10% early withdrawal penalty if you’re under 59 1/2 at the time you make those investments.

Gold IRAs are a type of self-directed IRA, which means they allow you to invest in a wider range of items than regular IRAs. But they’re also a little more complicated. You’re responsible for purchasing the gold on your own from a metals dealer, but you can’t store it in your home or any of your bank accounts. The IRS considers that a distribution as well.

Instead, you’ll need a custodian to keep the metal for you. That could be a bank, brokerage firm, or trust company. That institution will also take charge of the necessary paperwork to report your gold IRA deposits and withdrawals to the IRS. The best custodians will also insure those assets in case of theft.

Gold IRAs can be either the traditional or Roth variety. Traditional IRA contributions reduce your taxable income, but you will owe taxes on the withdrawals you make from those accounts later. Roth IRA contributions are taxable, but your withdrawals in retirement are tax-free as long as you’re at least 59 1/2 and have had your account open for at least five years.

Gold IRAs have the same total annual contribution limits that apply to regular IRAs. In 2024, you may set aside up to $7,000 in an IRA if you’re under 50 or $8,000 if you’re 50 or older. But this limit applies to all your IRAs, not to each one individually. You cannot set aside $7,000 in a gold IRA and another $7,000 in a standard IRA.

It’s also worth noting that gold IRAs follow the same required minimum distribution (RMD) rules as traditional IRAs. Beginning in the year you turn 73, you’ll have to start making annual withdrawals, even if that means selling when gold prices are low.

Why invest in a gold IRA?

Investing in a gold IRA has several advantages, including:

  • Inflation protection: Historically, when stocks are down, gold prices are higher. Having some gold in your portfolio can help hedge you against the ups and downs of the stock market.
  • Tax advantages: Gold IRAs have the same tax advantages as regular IRAs. You’ll either save upfront on your contributions or later on your withdrawals in retirement.

What are the disadvantages of investing in a gold IRA?

Gold IRAs aren’t for everyone. There are a few drawbacks you should be aware of, including:

  • Higher fees: Gold IRAs are specialty accounts that require expertise that many banks and brokers don’t have. They also come with storage requirements, which increase your costs.
  • Illiquidity: It’s not easy to sell a lot of physical gold at once. If you have to do this, you could find yourself selling at a lower price than you hoped for. It also may take longer than you’d like to access your assets or complete transactions.
  • Fluctuating value: Gold prices fluctuate much like stock prices. But unlike stocks, gold will never pay you dividends, nor will it generate earnings. As an investment, it might pay off when the stock market is struggling, but its value may not grow much, if at all, when stock prices are strong.

How do you open a gold IRA?

The first step in opening a gold IRA is finding a good custodian. Make sure it’s appropriately licensed and that it effectively insures your assets against theft or damage. (To be clear, no custodian will insure your gold against declining asset values.) You also want a company that is transparent about the fees it will charge you and has good customer service. It’s worth reaching out to a few potential custodians to discuss how they can meet your needs before committing to one.

Once you know where you want to keep your gold or other precious metals, you have to buy some. It’s usually up to you to find a metals dealer on your own, but your custodian may be able to recommend dealers it trusts. Then, it will guide you through the rest of the process of completing the purchase and moving the metal to wherever the custodian plans to store it.

What if you want to invest in gold, but you don’t want a gold IRA?

If opening a gold IRA sounds too complicated, you might prefer to invest in a mutual fund or exchange-traded fund (ETF) that invests in gold or other precious metals. You can keep these in your regular IRA rather than jumping through all the hoops a gold IRA requires.

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