This is an in-depth guide about gold IRAs.
By the tail end of this post, you'll learn the following;
- What a Gold IRA is
- How does Gold IRA work
- Types of Gold IRAs
- Advantages of having a Gold IRA account
- Gold IRA rollovers
- How much of your portfolio should you invest in gold
- Gold IRA risks
- Why you should store IRA-own physical precious metals at home, and more.
Simply, if you want to go all in on Gold IRAs, this is the article you need to read.
What is a Gold IRA?
A gold IRA (Individual Retirement Account), otherwise known as a precious metal, is a self-directed retirement IRA account that allows you to hold physical gold, silver, platinum, or palladium bullion.
These precious metals in this account represent a specific percentage of your retirement savings.
A gold IRA account is run individually from a traditional account, even though certain aspects, such as distribution and contributions, remain the same.
You can open our gold IRA account through an IRA-approved gold custodian or broker-dealer that can hold precious physical metals, including rounds, bars, silver, and gold coins.
Types of Gold IRAs
There are several gold IRA options you can choose from, including:
Traditional Gold IRAs
You'll need pretax dollars to fund these retirement accounts. Your contributions and earnings grow on a tax-deferred basis. This implies that your withdrawals will be taxed when you retire.
Roth Gold IRAs
A Roth gold IRA is funded using after-tax money. This means your contributions and earnings will be taxed as soon as you start taking your distributions at retirement. There's no tax deferment with a Roth IRA.
SEP Gold IRAs
A SEP gold IRA is available for self-employed investors and people employed by small businesses. You will pay taxes on your withdrawals upon retirement.
Side Note: The IRS caps contributions for all SEP IRAs, allowing you to only set aside up to 25% of your compensations or $61,000, whichever is less.
- A Gold IRA is a retirement account that allows you to hold precious metals, including gold, silver, platinum, and palladium, as part of your investment portfolio.
- You can open a self-directed IRA using pretax and after-tax dollars via a broker or an IRS-approved custodian.
- The IRS allows you to buy gold, silver, platinum, palladium, bars, coins, and other precious metals in their physical form.
- Gold IRA accounts come with higher fees than traditional IRAs because you need to buy and store physical gold and coins.
- The IRS has set annual contribution limits for any gold retirement account.
How to Set Up a Gold IRA
Setting up a gold IRA is different from a traditional IRA.
You can't open your gold IRA account with a traditional custodian such as a conventional broker. Gold IRAs are specialty accounts, and only some custodians offer them.
To set up a traditional gold IRA, you must partner with a specialty custodian or gold IRA company.
Gold IRA companies and specialty custodians will help you complete the documentation and report taxes required to maintain a gold IRA.
While the assets in a traditional IRA aren't the same as in a gold IRA, the rules and regulations are similar. This means;
- You can't exceed your annual contribution limits.
- You must abide by the regulations regarding distributions during withdrawals.
On top of that, here's what you should know about contribution limits
- The limit contribution set by the IRS is $6,000 for 2022. The amount will increase to $6,500 for 2023. You can top up the amount by an extra $1,000 if you're 50 or older, making the contribution limit $7,000 for 2022 and $7,500 for 2023.
- You can take distributions without your IRA being penalized if you're 59½. Any withdrawals before that age attract a 10% extra tax.
Storage is a critical consideration if you plan to open a gold IRA.
You must store precious metals in an IRS-approved facility or depository. You can also hold gold with an approved 3rd party.
You shouldn't store IRA gold at home, lest it counts as a withdrawal, attracting taxes.
How to Fund a Gold IRA
Once you've set up your self-directed gold IRA, the next step is to fund it as follows;
- Use a contribution subject to the limits stated above
- A transfer
- A rollover from a qualified plan such as a 401(k), 403 (b) or 457 plan. It'll talk more about rollovers in later sections of this article.
Next, you'll choose the investments for your account. Your custodian and gold IRA company will complete the transaction on your behalf.
You can't just buy physical bullion, gold collectibles, bars, or ingots. The precious metals in your account must meet the IRS standard requirement for purity and weight. And, as stated, you must store your metals in an insured, IRS-approved depository.
Regarding coins, you can only buy bullion coins issued by specific government mints.
Some IRS-accepted gold and silver coins include;
- American eagle proof coins
- Canadian maple leaf coins
- American gold eagle
- American silver eagle coins
Palladium coins include:
- American palladium eagle bullion
- Canadian palladium maple leaf
The IRS also accepts certain platinum coins, including:
- Isle of man noble
- British Britannia
Advantages of Gold IRAs
Like any investment, setting up a precious metals IRA has pros and cons. Some upsides include:
Gold IRAs carry exclusive tax treatment as a traditional IRA. Your contributions to a traditional self-directed IRA are tax-deductible.
In addition, qualified Roth IRAs withdrawals are tax-free. Plus, your money grows tax-free if you allow it to remain in the IRA.
Physical gold and other precious metals aren't easy to liquidate, but neither are IRA holdings.
Because retirement planning is long-term, a gold IRA is more or less a buy-hold-type investment that'll come in handy when you retire.
Gold IRAs are self-directed, putting you in charge of your holding and investment decisions.
Moreover, holding precious metals in an IRA provides significant protection against creditors in certain states. Still, inherited IRAs carry lesser protection against creditors and IRAs created by spouses depending on your state.
Disadvantages of Gold IRAs
Consider the following drawbacks if you hold physical gold in a self-directed IRA.
No Tax-advantaged Income
Investing in gold bullion won't reap any interest, dividends, or other returns. So, you won't be leveraging tax-free growth in terms of investment. You'll only enjoy a break on the capital gains by selling your gold or platinum bullion at a profit.
As stated, you must store your gold in an IRS-approved depository. This means you'll incur storage fees for the precious metals you hold in an IRA.
Gold storage fees are relatively higher than standard IRA management charges.
You maneuver around these fees by choosing a gold IRA company offering reasonable charges to facilitate the storage.
Augusta Precious Metals is one of the best gold IRA companies if you're looking to save on storage, shipping, and account setup fees.
Augusta handles custodial and storage fees for up to 10 years, depending on your account.
Investors aren't allowed to carry over precious metals, gold bars, or silver coins they previously owned into gold IRA accounts.
Besides, you must involve a custodian or your gold IRA company to be able to buy gold and other precious metals.
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Gold IRAs Risks
Are self-directed IRAs worth it? Moreover, is it wise to hold gold in an IRA?
If you had asked financial advisors this question a few years back, the answer would have been no. And the argument is that gold and other precious metals don't yield dividends and earnings.
Sure, it is a crucial raw material in the jewelry-making industry, but when you invest in gold, it sits in a safety deposit box.
That said, gold is considered an excellent hedge against inflation. Plus, it is a good investment option to diversify your portfolio.
Consider the following gold stats over the years.
- The 1980s – Gold was valued between $300 and $500 per ounce until 2006
- 2008 – Gold's value surged past $1,700 following the global financial crisis. After the crisis, the value dipped to $1,000 and $1,300 per ounce.
- 2020 – Gold peaked at nearly $2,000 after the ravaging Covid 19 pandemic
- 2022 – While gold prices dipped below $1,700, they've moved past that figure as the year ends.
The above stats indicate that gold performs well during financial turmoil or crisis. It also peaks in value when stocks and paper assets like mutual funds experience uncertainty.
Besides, opening a traditional gold IRA allows you to invest in alternative assets like crypto and gold ETF.
The ups and downs notwithstanding, opening a self-directed IRA account is a viable way to hedge your retirement against financial uncertainties.
Between 1980 and 2006, for instance, a gold IRA would have generated more money if you'd invested in the stock market in addition to gold.
Even though gold prices didn't change significantly during that period, you'd have generated about 14.49% in annual returns with the S&P 500.
Please make no mistake; I am not saying that you should consider other precious metals as part of your investment. But if history is anything to go by, gold will generate better results than other metals over time.
Understanding Gold IRA Rollovers
As I mentioned, you can roll over your traditional IRA, such as 401(k), 403(b), or other eligible accounts, such as SEP gold IRA to fund your self-directed precious metals IRA.
Your gold IRA company will help you initiate the rollover. The provider will contact your plan's admin with a request to roll over your savings in the new gold IRA.
Side Note: You can initiate the rollover yourself. However, you should be aware of the following;
- You have 60 days only to complete the entire process if you're 59½ years old or younger.
- You'll incur a 10% early withdrawal penalty and pay income tax.
Some advantages of dealing with gold IRA companies like Augusta Precious Metals include:
- You don't have to pay taxes and penalties since the company will ensure the transaction is complete within 60 days.
- The funds are never in your hands, which removes you from the equation of having to pay an early withdrawal penalty.
Before you initiate the gold IRA rollover, it is essential to determine the percentage of your current retirement savings you'd like to transfer into your new account.
Most financial advisors recommend putting 5 to 10 percent of your portfolio into a precious metal account for maximum portfolio diversification.
How to Make Withdrawals from Your Gold IRA
The rules and regulations of withdrawals — selling off your gold for cash — vary depending on whether your account is a traditional or Roth IRA.
Withdrawal procedures are as follows:
Traditional gold IRA
- The required minimum distributions (RMDs) are pegged at age 72
- Every withdrawal that you make, whether voluntary or required, is taxed
- Any withdrawals before age 59½ attract a 10 percent penalty
Roth Gold IRA
- There are no required minimum distributions
- You won't be taxed on withdrawals
- You will incur a 10% penalty if you withdraw your holdings before you are 59½ years old or if your Roth IRA is 5 years old.
How to Convert Your IRA to Gold Without Incurring Penalties
Most investors incur a penalty when transitioning from their regular IRA or 401K to precious metals or gold IRA.
Apart from the two requirements I've mentioned above, you need to abide by all the proper steps when converting your traditional IRA or 401K to a precious metals IRA to avoid tax penalties,
The IRS has particular guidelines that every investor transferring their existing retirement account must follow.
It'd be best, therefore, to get well acquainted with the rules and regulations before investors can open gold IRAs.
Consider consulting your gold IRA provider to help you interpret and understand the rules of engagement.
Frequently Asked Questions (FAQs)
Is it a good idea to invest in a gold IRA?
Yes, investing in a gold Individual Retirement Account (IRA) can be an excellent idea:
Some benefits of precious metals IRA include:
- It allows diversification: Gold tends to have a low or negative correlation with other assets, such as stocks and bonds. Its value may move in a different direction than the stock market or bond market, which can help reduce your portfolio's overall risk.
- Inflation protection: Inflation erodes the purchasing power of money. If the value of your investments doesn't keep pace with inflation, you may not be able to maintain your standard of living in retirement.
- Liquidity: Gold can be more difficult to sell quickly than other investments such as stocks or bonds. If you need to access your money in a pinch, selling your gold may take longer than selling other assets.
How much can you put in a gold IRA?
The annual contribution limit for a traditional IRA or a Roth IRA is $6,000 for 2021 or $7,000 if you are 50 or older.
However, the amount you can contribute to a gold IRA may be further limited by the IRS based on your income and tax filing status.
It's important to note that the rules for traditional and Roth IRAs also apply to gold IRAs, including the annual contribution limits.
If you're interested in setting up a gold IRA, it's a good idea to consult with a financial advisor or a tax professional. That way, you can ensure you understand the rules and that your investment is structured correctly.
Can you own gold in an IRA?
Yes, you can own gold in an Individual Retirement Account (IRA).
It is essential to note that some specific rules and guidelines must be followed when investing in gold or other precious metals like silver, platinum, and palladium in an IRA.
For example, the gold must meet certain purity requirements and be stored in an approved depository. Additionally, there are limits on the amount of gold held in an IRA.
As with any investment, it is crucial to carefully consider your financial goals and risk tolerance before deciding whether gold or other precious metals are appropriate for your IRA.
What is the quality of gold eligible for IRA?
The Internal Revenue Service (IRS) regulates the quality of gold that is eligible for inclusion in an Individual Retirement Account (IRA).
According to the agency, IRA gold must meet the following requirements:
- It must be in the form of coins or bars
- It must be at least 99.5% pure
- It must be produced by an IRS-approved refinery
Further, the IRS has a list of specific gold coins and bars approved for inclusion in an IRA.
Some examples include American Eagle gold coins, Canadian Maple Leaf gold coins, and South African Krugerrand gold coins.
Gold bars produced by approved refiners, such as Credit Suisse and PAMP Suisse, are also accepted in an IRA.
Augusta Precious Metals
Augusta Precious Metals is a well-known company that offers a range of gold IRA services. Augusta has an A+ rating with the Better Business Bureau and has received a lot of positive reviews from customers.
The Bottom Line
Owning gold through an IRA is a great way to diversify your investment and safeguard your retirement savings.
A few rules of thumb, though.
One, deal with a reputable gold IRA company from the get-go. Two, if you're funding your IRA via a 401K rollover, complete the process within 60 days. Again, a good IRA provider can come in handy here.
And lastly, determine what percentage of your investment should go to a gold IRA.