What is a gold IRA?
A gold IRA is an IRS-approved self-directed IRA (individual retirement account), that allows investors to hold gold and other precious metals as a retirement investment.
A gold IRA is the same as a traditional IRA but holds physical bullion coins or bars instead of paper assets.
A Gold IRA is an option for diversifying an investment portfolio because gold prices usually move reversely toward paper stocks. Diversifying an investment portfolio ensures a balance of investments, to temper any possible losses.
A Gold IRA is also an option for individuals who want to own physical gold they invested in instead of just investing in gold paper investments such as ETFs, commodity futures, stocks, and mutual funds.
Four precious metals are allowed in a gold IRA: gold, silver, platinum, and palladium. Gold is the most common precious metal purchased, so a “gold IRA” is the accepted term for a retirement account that holds metals.
Gold IRA Forms
There are two forms of gold IRA: the traditional gold IRA and the Roth gold IRA. The traditional gold IRA is tax-deferred, meaning the account holder will only get taxed upon withdrawals. The Roth gold IRA contributions are post-tax, meaning the funds are taxed before the contribution.
IRA-Approved Gold
Not all gold bullion, coins, and bars are eligible for a gold IRA. Here are the precious metal products that the Internal Revenue Service (IRS) allows for a gold IRA:
Gold
Silver
Platinum
- Canadian Platinum Maple Leaf coins
- Isle of Man Noble coins
- Platinum bars and rounds produced by a NYMEX/COMEX-approved refinery or national government mint
Palladium
An investor can buy mixed precious metals with just one gold IRA. There is no need to set up a separate account for each type of precious metal to be purchased.
Gold IRA Rollover
A gold IRA rollover is a mode of contribution, transferring funds from a 401(k) plan, traditional IRA, Roth IRA, SEP IRA, or SIMPLE IRA to a gold IRA. An IRA rollover is an option for funding a gold IRA while avoiding tax penalties.
A gold IRA rollover is different from a gold IRA transfer. A transfer involves the movement of assets from one IRA to another IRA account. A rollover is the movement of assets from a retirement account to an IRA. The rollover is handled by the gold IRA custodian.
How does a gold IRA work?
In a gold IRA, the Internal Revenue Service (IRS) allows individuals to buy gold, silver, palladium, or platinum coins, bars, or bullion as investments. A gold IRA is set up through a gold IRA company with the help of an IRS-accredited custodian to handle the documentation process of the account. A gold IRA is set up differently from the other IRAs because it involves the purchase of physical gold or other precious metals that will need to be stored in an IRS-accredited depository.
You cannot hold physical gold in traditional or other types of IRA. Including physical gold as part of your investment portfolio requires having a separate IRA. Physical gold as an investment is managed differently from the usual bonds, stocks, or EFTs.
A gold IRA involves working with a gold IRA company, a custodian, and a depository. A gold IRA investment is different from buying physical gold. The differences between gold IRA vs. physical gold are:
Gold IRA
Physical Gold
Options*
- A gold IRA can hold various precious metals as an investment, and even include other investment types like cryptocurrencies or real estate
- Buyers can buy gold anywhere but may be at risk if not knowledgeable enough about authorized sellers and gold prices
Taxes
- Tax-deferred benefits
- Untaxed at IRS rate for capital gains of a collectible.
- No tax benefits for long-term holding investments. When sold, profits are considered capital gains and will thus be taxable.
Fees
- Involves fees for a one-time setup and annual custodian and depository fees.
- No setup fee but you may incur costs for shipping and handling.
- Costs for storage since storing gold at home is prohibited by the IRS
Security and Storage
- Gold IRA companies usually arrange for security and storage of the physical gold purchased, ensuring the metals are stored in a safe, IRS-accredited depository
- Buyer directly arranges for security and storage without the help of a gold IRA company
Investment Strategy
- Long-term-holding, though this will incur expenses for maintenance and tax penalties for early withdrawals
- No restrictions on timing to sell but selling gold outside of a gold IRA is challenging due to possible doubts on the legitimacy of the gold.
*Options are financial byproducts that allow investors to sell or buy an asset at a date and price agreed upon. Options trading can be used as an investment strategy, like speculating or hedging, which can be risky.
Choosing between a gold IRA and physical gold investments really depends on the purpose of the investor. Gold IRAs are for long-haul investments and taking advantage of tax benefits. Purchasing physical gold is for investors who want immediate access to the precious metal in case they need to sell quickly.
Gold IRA companies usually help gold IRA account holders by selling the gold if the precious metal was purchased from them. With physical gold, the investor will sell the gold directly and may take a while before they can sell the gold at a price they want.
Opening a Gold IRA
It takes about a day to open a gold IRA, with the help of a gold IRA company to set up the account and contact a custodian for the documentation. This timeframe does not include the rollover of funds and the actual purchase of gold.
The whole process of opening a gold IRA involves four steps, namely:
1. Select a gold IRA company to handle your account.
There are a lot of gold IRA companies that can help you in opening your gold IRA. Here are some things to consider regarding what company to choose.
Here are some companies that have been touted as the “Best Gold IRA Company
- Augusta Precious Metals
- American Hartford Gold
- Noble Gold Group
- Birch Gold Group
- Oxford Gold Group
2. Select a Custodian
The custodian will handle all the documentation requirements involved in setting up your gold IRA, especially the tax reports. Gold IRA companies can suggest which custodian to work with, to make your selection easier.
3. Fund the account
After setting up your gold IRA account, you can begin the actual purchase of the gold or precious metals by funding the account. You can fund the account in three ways:
- Cash is a term used for paying in literal cash, check, or wire transfer to fund your gold IRA. Note that wire transfers incur bank service fees if you choose this option.
- Fund Transfer is the direct transfer of IRA funds from one account to another IRA. This can be done with the help of the gold IRA custodian and may take up to five days to complete the transaction.
- Rollover is the transfer of funds from a 401(k) plan, traditional IRA, Roth IRA, SEP IRA, or SIMPLE IRA to a gold IRA. A gold IRA rollover is an excellent option for funding a gold IRA while avoiding tax penalties. It takes two to four weeks to roll over into a gold or silver IRA, from a 401(k) plan or the other IRAs. There is a 60-day window given to complete the rollover to avoid a 10% tax penalty.
4. Select the gold or precious metals
The type of gold or metal that can be held in a gold IRA account are gold, silver, platinum, and palladium coins, bars, or bullion. However, these precious metals have to be IRS-approved.
Previously owned gold cannot be added to a gold IRA, even if the gold is IRS-approved. Based on gold IRA rules, an investor must work with an accredited financial institution to purchase gold and other precious metals.
The gold in a gold IRA is held by the account holder's trustee, an IRS-accredited entity such as licensed gold IRA companies, banks, credit unions that are federally insured, and savings and loan associations. The trustee secures the gold in an IRS-accredited depository to ensure the gold’s safety and quality.
Gold IRA Fees
The fees involved in opening a gold IRA account are:
- Setup fee - A range of $50-$100. Some gold IRA companies don’t charge this.
- Wire fee - $30, not always charged by gold IRA companies
- Seller fee - Usually a markup that gold sellers charge.
- Custodian fee - $75-$300, usually packaged with annual fees
- Insurance fee - Also usually lumped with annual fees, with cost depending on the amount of gold to be stored. Cost can be between $100 to $300
- Annual/Storage fee - $180-$280, depending on the investment amount.
- Delivery fee - Usually depends on the investment amount, though some gold IRA companies offer free delivery.
- Cash Out fee - charged when a gold IRA account is closed. Custodians can also charge a cashout fee, usually $250.
The total cost for opening a gold IRA is anywhere between $350 to $750. Most gold IRA companies also require a minimum investment of $5,000 to $25,000.
Can married couples share a gold IRA?
Married couples cannot share a gold IRA. The general rule is that only those with an income can contribute to any kind of IRA. However, there is such a thing as a spousal IRA, wherein both within a couple can contribute even if one of them is unemployed.
A spousal IRA is doable for traditional and Roth IRAs wherein couples can invest in gold through stocks, bonds, certificates of Deposit (CDs), or money market shares but not a gold IRA that allows ownership of physical gold.
Gold IRA Investment Benefits
The benefits of a gold IRA are:
- It is a good hedge against inflation because a gold investment within a gold IRA moves differently from the stock market. Gold prices can still increase even in times of economic uncertainty.
- A gold IRA is a good alternative to diversify one’s retirement investment portfolio.
- A gold IRA also enjoys tax benefits that are not available to gold stock investments.
An investor should not put all retirement funds in a gold IRA, despite these benefits. To invest in a gold IRA, the best is to use 5% to 10% of the total retirement portfolio.
Gold IRA Risk
Gold prices do fluctuate but its movement is not attuned to the economy. After the 2008 financial crisis, gold prices rose to $1700 then went down to the $1100 to $1300 level. During the height of the pandemic in 2020, gold prices hit the $2000 mark and have since settled at $1900 in 2023.
With a gold IRA, it is important to get financial advice if you are new at investing, to make sure you will buy gold at the right time. Similar to paper stocks, investing in gold also has its risks.
Conclusion
A Gold IRA may have risks but the benefits still outweigh these risks. Gold is still a good alternative to diversify the investment portfolio but it is still recommended to be guided by a financial advisor. A gold IRA is also for a long holding period, hence the recommendation not to put the majority of investment funds into it, to avoid tax penalties.
A Gold IRA also involves more fees than traditional or Roth IRAs. You can still invest in gold without these fees by opting for gold stocks, which move like the usual paper stocks.
It is also crucial to find a gold IRA company to help you with opening a gold IRA. Choose a gold IRA company that will meet your expectations in terms of pricing and customer service. With a gold IRA company, opening and managing a gold IRA is simpler and stress-free.
Physical Gold