What is a gold IRA? Gold and precious metals IRA explained
Recent market gyrations are sending investors toward precious metals, including gold IRAs. It’s for good reason: Gold is known for stability and steady performance during volatility, global tensions and foreign currency risks.
It’s easy to see why tangible gold is viewed as a risk-balancing asset. But it’s not just for hedging in the moment. Gold has become a go-to retirement planning vehicle for many, with gold IRAs in particular delivering the best of safe-haven precious metals with the tax benefits of retirement accounts.
Let’s take a closer look at gold IRAs.
What is a gold IRA?
A gold IRA allows you to hold physical gold, silver, platinum and palladium as part of your retirement savings. Unlike traditional IRAs, which typically invest in stocks, bonds and mutual funds, a gold IRA focuses on precious metals that have historically maintained their value over time.
Gold IRAs are particularly suited for conservative investors who prioritize stability and are looking for a hedge against economic downturns. They are also a good option if you believe in the long-term value of precious metals as a safeguard against currency devaluation¹. If you prefer a more hands-on approach and value the security of physical assets, a gold IRA could be a smart play.
Pros and cons of a gold IRA
There’s plenty to like about the relative safety of precious metals like gold. But there are risks. Let’s consider the pros and cons:
Pros
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Hedge against inflation: Gold often retains value during inflation, providing stability in economic downturns
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Diversification: Adds a tangible asset to your retirement portfolio, reducing reliance on traditional investments
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Long-term stability: Gold has a long history of maintaining value over time, offering security
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Protection against currency fluctuations: Gold’s value isn’t directly tied to any single currency, offering protection against currency devaluation
Cons
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Higher fees: Gold IRAs come with setup, maintenance and storage fees that are typically higher than traditional IRAs
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Limited liquidity: Selling physical gold can be time-consuming, making it less liquid than other investments
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No passive income: Unlike stocks or bonds, gold doesn’t generate dividends or interest
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Price volatility: Gold prices can be volatile, leading to potential short-term fluctuations in the value of your IRA
How does a gold IRA work?
You can fund the account through a rollover from an existing IRA, 401(k) or other retirement account, or through a direct contribution. Once the account is funded, you purchase IRS-approved precious metals, such as gold bars or coins, through your custodian. These metals are then stored in a secure, IRS-approved depository, ensuring they meet the necessary requirements for a gold IRA.
The custodian manages the paperwork and ensures compliance with IRS regulations, while the value of your gold IRA will fluctuate based on the market price of the metals held. Upon reaching retirement age, you can take distributions either in physical gold or as cash from selling the metals.
Gold IRA storage
“Storage” refers to the secure, IRS-approved facility where your physical precious metals, such as gold bars or coins, are kept. Unlike traditional IRAs, which hold intangible assets like stocks and bonds, a gold IRA requires the actual metals be stored in a designated depository to ensure the safety of your investment and compliance with IRS regulations. Be ready — storage typically incurs annual fees, covering the costs of safeguarding and insuring your assets in the depository.
Gold IRA liquidity
Gold IRAs are generally less liquid than traditional IRAs, which hold easily tradable assets like stocks and bonds. Selling the metals in a gold IRA requires finding a buyer, selling at the current market price and possibly incurring fees. This process can take time, potentially making gold IRAs less attractive for investors needing quick access to cash.
Gold IRA fees and costs
Gold IRAs typically involve several fees – in addition to minimum investments at many companies – that investors should know upfront. Among the most typical:
- Setup fees, ranging from $50 to $150
- Annual maintenance fees, typically $75 to $300
- Storage fees for the physical metals (around $100 to $300 per year)
- Some custodians may also charge transaction fees for buying or selling metals, which can be $40 to $50 per trade
- Additionally, if you choose segregated storage (where your metals are stored separately), the storage fees might be higher
Gold IRA returns
Returns on gold IRAs are tied to the gold’s performance, and those prices can be volatile – influenced by inflation, currency fluctuations and economic instability. Historically, gold has provided long-term growth, especially during periods of market downturns, but it may not offer the consistent returns of stocks or bonds. That’s why gold IRAs are generally viewed as an inflation hedge rather than a high-growth investment.
How to open a Gold IRA account?
Start by choosing a reputable custodian that specializes in gold IRAs and is approved to manage them. Next, complete the necessary paperwork to set up the account and fund it by either rolling over an existing retirement account or making a new contribution.
Once the account is funded, work with your custodian to purchase IRS-approved gold or other precious metals, which will be stored in an approved depository on your behalf.
Founded in 2006, California-based Goldco is a gold IRA provider that specializes in helping clients diversify their retirement portfolios with precious metals, offering personalized service and secure storage options.
American Hartford Gold, based in California and founded in 2015, offers gold IRAs among its range of precious metals investment options, with a focus on customer service and secure storage.
Rosland Capital, founded in California in 2008, is a gold IRA provider specializing in precious metals, offering clients personalized service, secure storage options and a focus on wealth preservation through gold investments.
Gold IRA vs traditional IRA
Gold IRAs invest in physical precious metals, while traditional IRAs focus on stocks, bonds and mutual funds. Gold IRAs act as a hedge against inflation but come with higher fees and lower liquidity. Traditional IRAs provide broader investment options, potential dividends and easier management, typically with lower costs.
How they’re the same:
Tax-deferred growth
Both gold IRAs and traditional IRAs offer tax-deferred growth, meaning you don’t pay taxes on your investment gains until you withdraw funds during retirement.
Required Minimum Distributions (RMDs)
Both types of IRAs require you to start taking Required Minimum Distributions (RMDs) starting at age 73, ensuring the IRS eventually collects taxes on your deferred earnings.
How they’re different:
Investment options
Traditional IRAs typically invest in equities, bonds, funds and conventional financial instruments. In contrast, gold IRAs focus specifically on physical precious metals like gold, silver, platinum and palladium.
Fees and costs
Gold IRAs generally come with higher fees, including storage, insurance and transaction costs, due to the physical nature of the assets. Traditional IRAs usually have lower administrative costs, as it invests in more liquid, non-tangible assets.
Gold IRA vs Roth IRA
Gold IRAs invest in physical precious metals and are tax-deferred, while Roth IRAs focus on traditional assets like stocks and bonds with tax-free withdrawals in retirement. Gold IRAs have higher fees and lower liquidity, whereas Roth IRAs offer broader investment choices, easier access to funds, and tax advantages on withdrawals.
How they’re the same:
Retirement savings
Both gold IRAs and Roth IRAs are designed to help individuals save for retirement, offering tax advantages to encourage long-term investment.
Custodian requirement
Both types of accounts require a custodian to manage the assets and ensure compliance with IRS regulations, although the assets held in each can differ significantly.
How they’re different:
Tax treatment
Gold IRAs are typically tax-deferred, meaning you pay taxes upon withdrawal. In contrast, Roth IRAs are funded with after-tax dollars, allowing for tax-free withdrawals in retirement.
Investment focus
Gold IRAs are focused exclusively on investing in physical precious metals like gold and silver. Roth IRAs, however, typically lean on conventional investment vehicles, such as equities, bonds and mutual funds. They also typically offer broader investment options with different risk profiles.
Gold IRA vs self directed IRA
Self-directed IRAs allow a broader range of assets, including real estate and private equity. Gold IRAs are a kind of self-directed IRA that focus on precious metals and have higher fees and storage requirements.
How they’re the same:
Tax-advantaged accounts
Both gold IRAs and self-directed IRAs offer tax advantages, such as tax-deferred growth or tax-free withdrawals (with a Roth option), depending on the account type.
Diverse investment options
Both types of IRAs allow for diversification within your retirement portfolio.
How they’re different:
Asset focus
Gold IRAs are specifically designed for investing in physical precious metals. Self-directed IRAs, however, allow for a wider array of investments, including real estate, private equity and even cryptocurrencies.
Management complexity
Gold IRAs require a custodian to handle transactions and storage of the physical metals, leading to higher fees. Self-directed IRAs also involve a custodian but offer more flexibility, though they can be more complex to manage due to the variety of allowed assets.
Alternatives to a gold IRA
Do you want to invest in gold, but you’re not ready for a precious metals IRA? Precious metals ETFs and non-gold self-directed IRAs are worth considering.
Precious metals ETFs allow you to invest in gold, silver, or other metals without the need for physical storage, offering a more liquid and cost-effective option. Self-directed IRAs, on the other hand, offer broader investment flexibility beyond just precious metals, allowing you to invest in assets like real estate, private companies, or even cryptocurrencies.
Both options provide diversification opportunities similar to gold IRAs but with different levels of risk, liquidity and management complexity, depending on your investment goals.
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Chris Clark is freelance contributor with MoneyWise, based in Kansas City, Mo. He has written for numerous publications and spent 18 years as a reporter and editor with The Associated Press.
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