What is a gold IRA?

Key points

• A gold IRA is a specialized retirement account.
• Gold IRAs follow the same standards and contribution limits as traditional and Roth IRAs. 
• Higher fees that are generally associated with gold IRAs. 

Gold is that shiny and alluring metal that has captivated humanity for centuries. The yellow metal is a tangible and durable asset with a track record of retaining or increasing its value during economic turmoil and political unrest.

Diversifying your retirement portfolio with gold can be smart, even if you don’t think the economy is headed into a tailspin.

The IRS offers individual retirement accounts, known as IRAs, designed specifically to invest in this precious metal. But before you start stockpiling gold bars, here is what you need to know about gold IRAs.

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What is a gold IRA?

Gold IRAs are individual retirement accounts that hold physical gold as an investment instead of traditional stocks and bonds.

“The idea is to diversify investment portfolios and potentially protect against inflation by having a tangible asset,” says Levon Galstyan, a certified public accountant for Oak View Law Group.  

Galstyan says some advantages of gold IRAs include:

• A risk reduction. 
• Protection from market volatility.
• A hedge against inflation.
• A vehicle to earn returns in retirement. 

But here’s a catch—a gold IRA differs from a traditional retirement account. It has its own rules and regulations, even though the contribution limits and distributions remain the same.

That said, opening a gold IRA is easy. You can do it through a broker or custodian. So if you want to add some sparkle to your retirement portfolio, a gold IRA is an interesting option. 

What should you know about a gold IRA?

Investing in gold can add diversification to your retirement plan. Gold IRAs come in two forms: traditional and Roth. Whichever option you choose, your investment must be in actual gold.

But you don’t have to invest solely in the physical asset. You can invest in other options, such as a gold company’s stock, gold mutual funds or gold exchange-traded funds. 

The IRS also has rules on the physical assets you can hold in your gold IRA.

According to the IRS, “Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one-ounce silver coins minted by the Treasury Department. It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion.”

Gold coins, bullion and other metals must meet the following fineness standards. Gold and platinum must be 99.5% pure for bars, whereas silver must be 99.9%.

There are also other eligibility conditions. For instance, a producer must be an accredited or certified manufacturer, refiner or assayer. 

The IRS permits some gold coins, such as American Gold Eagle, Canadian Maple Leaf and American Buffalo, to name a free. But it does now allow British Sovereigns or South African Krugerrands. 

Acquiring a broker and custodian 

If you’ve decided a gold IRA is right for you, you will need to set up a self-directed IRA. This type of IRA allows you to manage the account and invest in a wider range of products than other IRAs. 

You’ll need a broker to buy the gold and a custodian to create and manage the account to get started. The custodian will then be responsible for storing your physical gold assets. 

A custodian can be a bank, credit union, trust company, brokerage firm or popular gold IRA company, such as Birch Gold Group or Oxford Gold Group.

All should have approval from the government to perform asset custody services. Choosing a company can be a daunting and time-consuming task. But it is important to take your time here. After all, they will play a role in your gold IRA’s success. 

Some valuable traits to look for in a custodian include trustworthiness, transparency, a proven track record, appropriate qualifications and adaptable investment strategies.

Also, another caveat: Precious metals can’t just be stored anywhere. These precious metals must be stored in an IRS-approved depository. In other words, you can’t keep your gold at home. In fact, storing your gold at home might be deemed a withdrawal and subject to taxes.

Special considerations

Just like with any investment, there are risks and rewards. Donny Gamble, founder of the financial website RetirementInvestments, lays out issues that gold IRAs can face: 

• No access to your precious metals held in secure storage.
• No dividends.
• Higher management fees.
• Funding restrictions.

Accompanying those issues are the additional expenses that come with gold IRAs. Typically, a gold IRA will have: 

• Markup fees. The price you pay for gold will vary depending on what form you purchase. Most vendors will have markup fees, meaning you’ll pay more than the market value.
• Account setup fees. A one-time fee is charged to set up your new gold IRA account. This fee can differ depending on the financial institution. A one-time account setup fee can range from $50 to $150. 
• Custodian fees. Just like any other IRA, you’ll have annual costs and fees associated with transactions and assets. But they may be a bit higher for a gold IRA—especially when using a different company than the one managing your other retirement accounts. Storage fees can range from $10 to $60 monthly, or 0.35% to 1% of assets annually, depending on the custodian. 
• Storage fees. You will have to store your gold in an IRS-approved facility. These facilities typically charge storage fees. 
• Selling fees. When selling your gold to a third-party dealer, remember that the dealer will usually offer you less than the current market value. So unless the price of gold has significantly increased since you bought it, you may lose a portion of your investment.

Types of gold IRAs

1. Traditional gold IRAs

Traditional gold IRAs are funded by your pretax dollars, and contributions are tax-deductible. Like traditional IRA accounts, the withdrawals will be subject to income tax when taking your distributions during your retirement. That’s because your account grew in a tax-deferred state before retirement.

2. Roth gold IRAs

Roth gold IRAs are padded by your after-tax dollars. While you won’t have immediate tax benefits, you can take distributions tax-free when it comes time for your retirement. 

3. SEP gold IRAs

Simplified employee pension gold IRAs, also called SEP gold IRAs, are available to self-employed individuals and small business owners. This account will be funded by pretax dollars and subject to taxes on your withdrawals during your retirement. 

Contribution limits for traditional, Roth and SEP gold IRAs

Traditional, Roth and SEP gold IRAs are subject to contribution limits, just like their non-gold counterparts. Those limits are 2023:

CONTRIBUTION LIMITS IN 2023
Traditional gold IRA	$6,500 or $7,500 for 50 years or older.
Roth gold IRA	$6,500 or $7,500 for 50 years or older.
SEP gold IRA	25% of employee compensation or $66,000 maximum.

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Pros and cons of a gold IRA

By now, you have identified some things you like and dislike about gold IRAs. Here are some pros and cons of this retirement account option. 

PROS AND CONS OF GOLD IRAS
Pros	Cons
Tax benefits. Contributions to traditional accounts are tax-deductible, and Roth retirement withdrawals are tax-free.	No tax-advantaged growth. Gold assets won’t pay dividends, meaning you won’t have the advantage of tax-free growth that more traditional IRAs offer. You’ll only see a return if you sell your gold for a profit.
Long-term play. Gold isn’t very easy to liquidate, so you will likely hold it for a long time. “But and hold” strategies typically generate positive returns.	Higher account fees. Gold IRAs have more associated fees.
Control. Since gold IRAs are self-directed, you have more oversight in your investment decision(s).	More hoops. You can’t simply throw money into your gold IRA account. Every transaction must go through a broke

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Going for the gold

If diversifying your retirement plan is a priority, then a gold IRA may be worth looking into. This self-directed IRA allows individuals to hold physical gold, silver and platinum as investments within the account. Similar to a traditional IRA, it also offers the same tax advantages.

But keep in mind there are specific rules and regulations regarding gold IRAs. If you have questions, seek the guidance of a financial advisor before making any investment decisions.

Frequently asked questions (FAQs)