Ah, the glittering allure of gold: a material, long-lasting asset that typically maintains or improves in value in the face of inflation, political unrest, and collapsing stock markets. Many investors who wish to diversify their individual retirement accounts (IRAs) beyond the traditional suspects — stocks, bonds, and mutual funds — might desire a stake in the actual yellow substance, even if they don’t believe that such catastrophes are imminent.
In actuality, one of the few commodities in which IRAs are permitted to invest by the IRS is gold. However, you should be aware of the ins and outs of a Gold IRA before you embark on a buying binge of bullion.
An IRA cannot be your normal account if you want to hold actual gold in it. It must be a distinct, unique account known as a goldandpreciousmetals.com gold IRA.
A Gold IRA, also referred to as a precious metal IRA, functions very similarly to a typical individual retirement account, with the same contribution thresholds and payout guidelines. The Gold IRA is designed to retain physical bullion, such as gold coins or bars and other authorized precious metals like silver, platinum, and palladium, rather than paper assets like stocks and bonds.
Gold mutual funds that invest in bullion or equities (or both) as well as gold ETFs that follow gold indexes can also be found in gold IRAs, along with gold stocks (shares of gold mining/production businesses).
How to make a Gold IRA investment
The first step in holding actual gold in an IRA is to open a self-directed IRA (SDIRA) with a custodian, which you administer yourself. Although many financial services and mutual fund companies that handle normal IRAs don’t handle the self-directed version, the custodian is an IRS-approved financial institution (bank, trust company, brokerage).
Additionally, you must choose a precious metals dealer who will buy the gold for your IRA on your behalf (your custodian may be able to recommend one).
Make sure actual gold is one of the investment options offered by the self-directed IRA custodian before you start an account because not all of them do. The SDIRA can be set up as a Roth IRA or a standard IRA (contributions are tax deductible) (tax-free distributions).
The next step is to add money to the account by a transfer, rollover, or contribution from a qualified plan, like a 401(k), 403(b), or 457 plan (of course, subject to contribution limits).
Your custodian and metals dealer will then carry out the transactions on your behalf while you choose the investments for the account.
Also, you cannot simply purchase any bar or ingot. Physical metals must be kept in an insured, IRS-approved depository and adhere to IRS “fineness” standards for purity and weight. You can only use bullion coins produced by specific government mints when it comes to coinage.
Benefits of Gold IRAs
The same as with any investment, gold IRAs have advantages and disadvantages. Several benefits are as follows:
tax advantages. Standard IRAs and gold IRAs both offer some of the same special tax treatment: Traditional self-directed IRA contributions are tax deductible. Additionally, tax-free withdrawals from Roth funds are permitted.
Permanent hold. Physical gold isn’t extremely liquid, but IRA holdings aren’t either. Gold is a good long-term, buy-and-hold investment because you typically don’t touch the money in an IRA until you retire, which makes gold a good fit for an IRA.
increased command. All gold IRAs are self-directed, meaning you manage your holdings and choose all of the investments.
Drawbacks of Gold IRAs
Be careful to take these disadvantages into account if you’re thinking about a gold IRA.
No tax benefits were received. No interest, dividends, or other returns are given on gold bullion. As a result, it doesn’t fully benefit from the tax-free growing feature of IRA investing. Only capital gains from selling your gold at a profit would qualify for a tax benefit.
higher costs Gold cannot be stored at home or in a safe deposit box at a bank. Instead, you must pay a custodian to purchase, ship, and transport the precious metals you keep in your IRA, as well as to store and insure them. The custodian costs for gold IRAs are typically higher than those for traditional IRAs.
financial limitations. No precious metals you already own may be transferred to your gold IRA. You cannot individually purchase precious metals and transfer them to your IRA either. All transactions must be handled by a custodian on your behalf.
Before making any choices, you should think about the hazards associated with investing in gold. However, for individuals who wish to diversify their retirement funds and benefit from the hedging advantages that the yellow metal provides against other financial assets, such as equities and paper money, a gold IRA can be a suitable choice.
Many financial professionals advise keeping 5% to 10% of a portfolio in gold.
According to Collin Plume, president and chief executive officer of Noble Gold Investments, a precious metals dealer and depository, “it’s simply advantageous to weigh and think about acquiring gold, silver, and other precious metals to serve one well within a diversified, well-rounded investment portfolio.” The key phrase here is “diversification.”
Real estate, investing, active trading, retirement planning, and international retirement are some of the topics that financial writer Jean Folger has covered for more than 15 years. She is a co-founder of PowerZone Trading, which has been offering active traders and investors programming, consulting, and strategy development services since 2004. In the past, Jean held positions as a trip leader for an adventure travel agency, an English teacher, and a real estate broker.