Diversifying your retirement portfolio is an important step in reducing its volatility. One of the most unique ways to diversify your investments is by investing in gold alongside traditional stocks, bonds, and mutual funds.
But you have numerous options for investing in gold, some of which are more labor-intensive and risky than others. If your main goal is to save for retirement, a gold IRA may make more sense than a physical gold investment. But like any investment vehicle, gold IRAs have advantages and disadvantages you should be aware of.
Knowing the main gold IRA pros and cons can help you make the right decision for your retirement goals. Read on to learn more about the pros and cons of starting your own gold IRA.
Why Is It Important To Consider the Pros and Cons of a Gold IRA?
Being a smart investor involves fully understanding every investment vehicle in which you choose to place your money. However, because a gold IRA is a retirement investment, understanding the advantages and disadvantages of gold IRAs is even more crucial.
You’ve worked hard for the money you’ve saved for retirement throughout your career, and you need to put it somewhere safe that offers a good chance of increasing in value over time. While no investment returns are guaranteed, you don’t want to unknowingly invest in a highly volatile or unwise product that puts your ability to retire on the line.
After evaluating the benefits and drawbacks of gold IRAs, you’ll be able to make an informed decision about whether precious metal IRAs are right for your retirement goals. While you can’t guarantee that your investment will be free from risk, by knowing the gold IRA pros and cons, you’ll be able to prepare for potential risks and adjust your investments during periods of volatility.
Pros of Gold IRAs
Gold IRAs are a popular addition to many retirement portfolios because they pose several unique benefits compared to traditional retirement investments. Here are just a few of the many benefits that exist.
Portfolio Diversification
One of the main reasons to invest in a gold IRA is the opportunity to diversify your investment portfolio.
All investments come with a level of risk. But if you only invest in one type of stock or asset, your entire investment is subject to the risk of that product.
For example, if you only had investments in the stock market and the stock market crashed, you would sacrifice much of the money you invested. Meanwhile, if you had your investments split between 20 different investment vehicles, and only one of them was stocks, the value of your investments would mostly stay the same with a crash.
Gold is an investment product that operates independently of the trends of the general stock market. When you invest in a gold IRA, you secure some of your retirement money in a product that is not subject to the same volatility as your other investments.
Inflation Hedge
Many investors consider gold to be an inflation hedge, which means it maintains its value through periods of inflation. Historically, when inflation rates have risen, many people choose to convert their cash into gold, increasing the demand for gold and thus skyrocketing its value. In general, the value of gold is negatively correlated with or acts oppositely to the value of the dollar.
While there’s no guarantee that gold will always hedge against inflation, these historic trends have instilled confidence in many investors to add it to their portfolios as an inflation hedge.
Tangible Asset Ownership
There’s something empowering about owning physical gold in your individual retirement account. Unlike stocks and bonds, which represent figurative ownership, gold is a tangible object that has inherent value. You can better visualize your wealth when you picture how much gold is in your IRA.
While you cannot store the physical gold at home, as the IRS requires you to store it in an approved depository, you can feel peace of mind knowing that you’re investing in a tangible, inherently valuable asset.
Safe-Haven Asset
Many people consider gold a safe-haven investment that retains its value during times of economic downturn. Gold is a reliable store of value; it has numerous important uses across many industries, ranging from electronics to dental fillings. It also has enormous value in the jewelry market.
Because of these functions and the fact that gold is a rare element, it’s safe to assume that gold will always have inherent value, even when the market is in turmoil. Investing in gold through a gold IRA could allow you to bypass some of the turbulence that comes with the stock market and traditional investments.
Potential for Returns
When you cash out your gold IRA, your returns will be based solely on the appreciation of gold prices. Gold has an average annual growth rate of 11.2%. This is much higher than the average APY of most high-yield savings accounts and safe assets like CDs.
Because the price of gold fluctuates in the short term, many investors recommend it as a wise long-term investment.
Cons of Gold IRAs
Investing in gold isn’t completely risk-free; if it was, everyone would switch from traditional IRAs to gold IRAs. Understanding both the positive and negative aspects of gold IRAs helps you account for those negatives in other aspects of your retirement portfolio.
No Income Generation
One of the major downsides of gold compared to other investments is that it is not an income-generating asset. You can’t make money from interest or dividends like you can through stocks and bonds.
The return on gold depends purely on its price appreciation at the time you cash in your gold IRA. It does not earn compound interest over time, and you cannot take income from it before you cash out.
Market Volatility
While gold has historically been less volatile than other assets, it is subject to market volatility like any investment. Gold prices rise and fall regularly. There’s no guarantee you will be able to sell your gold for more than you purchased it.
Gold’s volatility results from:
- Supply and demand: Gold is in limited supply, but its demand shifts depending on global economic factors.
- The market: The price of gold tends to increase during periods of economic instability as people rush to turn their cash into gold.
- Unpredictability: The price of gold isn’t directly correlated to any one factor, unlike stocks, which you can clearly tie to the performance of the company or industry the stock is in.
Storage and Insurance Costs
Gold IRAs come with a few additional costs compared to other investments, and these costs can potentially eat into your returns.
First, you must store your gold in an IRS-approved depository rather than keeping it at home or in a safe deposit box. Depositories usually charge monthly or annual storage fees, averaging around 0.5% of the value of the gold you’re storing.
You may also need to pay insurance costs to your gold IRA provider. When you open your gold IRA, you’ll likely owe administrative and maintenance fees as well.
Limited Growth Potential
Gold is considered a relatively safe investment, but with that safety comes lower growth potential. The value of your gold investment won’t fluctuate quite as much as a higher-volatility investment. You won’t experience the low lows, but you also won’t experience the high highs that result from riskier investments.
Complexity of Transactions
Gold IRAs have more rules and requirements than traditional IRAs, which scares some investors away. With the right gold IRA custodian, you won’t have to worry about these rules, as a qualified account manager will make sure your IRA checks all the right boxes.
Additionally, cashing out your gold investment isn’t as simple as selling a stock through a broker. You’ll need to find someone to purchase the gold in your IRA at a price comparable to the gold spot price. Often, you can sell the gold back to your gold IRA provider, but you may not always get the best price in this exchange.
Choosing the Right Gold IRA Company
Many of the gold IRA pros and cons you experience depend on your gold IRA company. Choosing the right provider can elevate your overall experience.
These are some of the most reputable gold IRA companies in the industry.
Regal Assets
Regal Assets is a gold IRA company known for its simple IRA rollover process and competitive fees. This provider buys and sells gold, silver, platinum, and palladium, along with cryptocurrencies. It has an A+ BBB rating and a five-star average TrustLink rating, pointing to its positive industry reputation.
Pros:
- A wide range of investment products
- Simple gold IRA process
- Dedicated storage facilities for IRAs
Cons:
- Minimum initial investment of $10,000 for IRAs
Goldco
Goldco has a long-standing reputation in the gold and silver industry and has been around since 2006. It facilitates gold and silver IRAs, SEP IRAs, and SIMPLE IRAs, and a dedicated account manager can help you understand which one is best for your retirement goals. The website also has an extensive resources tab with helpful information about gold IRA pros and cons.
Pros:
- Diverse IRA options
- Gold buyback guarantee
- Knowledgeable account managers
Cons:
- $25,000 account minimum
Birch Gold Group
Birch Gold Group has helped over 7,000 customers invest in gold and other precious metals. This gold IRA company matches each customer with a precious metals specialist, giving you personalized guidance through the process of rolling over funds into a gold IRA. Its website is also chock full of educational resources that can help you better understand the prospective gains and risks of gold IRA investments.
Pros:
- Positive industry reputation
- Opportunity to choose your own custodian and depository
- Helpful account specialist guidance
Cons:
- Rollovers sometimes take a few weeks to process
Augusta Precious Metals
Augusta Precious Metals is one of the oldest gold IRA companies in the industry. It’s a family-owned business that has been around for over 50 years and specializes in building long-term relationships with clients. The company even offers a one-on-one web session where you can speak with a specialist directly and ask any questions about the gold IRA rollover process.
Pros:
- Long-term customer support
- One-on-one guidance
- Extensive industry experience
Cons:
- $50,000 minimum investment for new IRAs
Oxford Gold Group
Oxford Gold Group is a highly-rated, well-trusted gold IRA company based out of Beverly Hills, California. They prioritize helping anyone, no matter how old or young, learn how investing in precious metals can benefit them with the numerous resources they offer, including a free investment guide and live precious metal spot price checking. Their delivery ships precious metals directly to you, and they are dedicated to ensuring each and every client they work with receives the best customer care and service possible. They sell gold, silver, platinum, and palladium, so you will be able to find the precious metal you’re looking to invest in with ease.
Pros:
- Top-notch customer service
- Relatively low minimum investment at $7,500
- Personalized investment advice from custodians
Cons:
- Most pricing not listed outright on website, so you need to contact them to learn.
Noble Gold
Noble Gold is a gold IRA provider based in California. The company charges low maintenance fees for IRAs compared to other providers, and when you’re ready to sell your gold investments, it will buy them from you at a fair price. Noble Gold also sells gold, silver, platinum, and palladium coins and bullion that it will ship directly to you. If you’re opening an IRA through the company, you can choose between a few depositories at different price points.
Pros:
- Several depository options
- Easy buyback program
Cons:
- $20,000 minimum investment for IRAs
Comparison With Other Retirement Investments
To truly understand the gold IRA pros and cons, you should know how this investment compares to other common retirement investments like 401(k)s or traditional IRAs that invest in stocks and bonds. Here are the pros and cons of investing in gold for retirement vs. other investments.
Pros:
- Control: You have complete control over the assets you hold in your self-directed IRA, while you typically don’t have as much control with a traditional IRA.
- Tangibility: With a gold IRA, you own tangible gold products rather than abstract stock in a company.
- Stable: Gold is a relatively stable investment that can provide long-term growth.
Cons:
- Extra costs: Gold IRAs have extra fees and associated costs, such as annual storage fees, that you won’t face with other retirement investments.
- Lower returns: Gold IRAs are less volatile than other retirement investments, so their potential for returns is also lower.
Types of Gold IRAs
Several types of gold individual retirement accounts may be available to you, depending on your employment and income. These are the three main types of gold IRAs, and their pros and cons include the following.
Traditional
A traditional gold IRA is a retirement account funded with your pre-tax dollars. Your contributions and earnings in a traditional IRA grow on a tax-deferred basis, which means you won’t need to pay taxes until you withdraw your money at retirement.
Pros of traditional gold IRAs include:
- Broad eligibility requirements: Anyone with earned income can contribute to a traditional gold IRA.
- Tax benefits: The contributions to a traditional gold IRA are tax-deductible, and you don’t need to pay taxes on contributions until you withdraw them.
Cons of traditional gold IRAs include:
- Early withdrawal penalties: You will incur taxes and a 10% penalty on any funds you withdraw from your IRA before you turn 59.5.
- Required minimum distributions: You must begin taking distributions from your IRA when you turn 73.
Roth
A Roth gold IRA is a retirement account that you fund with post-tax money. This allows your money to grow tax-free. When you’re ready to take distributions from your retirement account, you can do so penalty-free and tax-free as long as you meet the IRS-qualified distribution requirements.
Pros of Roth gold IRAs include:
- No taxes on withdrawals: You won’t need to pay taxes when you withdraw from your Roth gold IRA.
- No early withdrawal rules: You can withdraw from your Roth gold IRA at any time without facing any penalties.
- No required distributions: You do not have to begin taking distributions from your Roth gold IRA at any specific age.
Cons of Roth gold IRAs include:
- Eligibility requirements: You can only open a Roth gold IRA if your income falls below a certain limit. In 2024, that limit is $161,000 for individuals and $240,000 for married couples filing jointly.
- Not tax deductible: Your contributions to a Roth gold IRA are not tax-deductible.
SEP
Simplified employee pension (SEP) gold IRAs are accounts available to self-employed individuals and small business owners. You can use this type of account to invest in gold, silver, and other precious metals, along with other specialized assets like artwork and real estate. They’re typically best for people who expect their tax bracket to be lower in retirement, as the contributions are tax-deferred.
Pros of SEP gold IRAs include:
- Tax benefits: Your contributions to a SEP gold IRA are tax-deductible and tax-deferred.
- High contribution limits: You can contribute up to $69,000 or 25% of your annual compensation, whichever is smaller, per year.
Cons of SEP gold IRAs include:
- Eligibility requirements: You must be self-employed or work for a self-employed person to qualify for a SEP gold IRA. As an employee, you must have worked for the business for at least three of the last five years.
- Early withdrawal penalties: SEP gold IRAs have the same early withdrawal penalties as traditional gold IRAs.
What Tax Advantages Are Associated With Gold IRAs?
The tax advantages you will gain from a gold IRA depend on the type of IRA you’re opening. Traditional IRAs use pre-tax contributions, while Roth IRAs use post-tax contributions. With a traditional gold IRA, you can deduct the contributions you make each year from your taxable income, providing further tax benefits.
When you open a gold IRA, you’ll need to roll over the funds from an existing IRA. But you can transfer these funds tax-free if you complete a direct rollover, which sends the money directly between accounts without you ever taking possession of it.
A gold IRA may help your heirs save on taxes as well. If you leave a traditional gold IRA to beneficiaries, their distributions will be taxable at their income rate. But if your estate is subject to estate tax, your beneficiaries will receive a deduction for the taxes that were already paid out of the estate.
Are There Any Restrictions on the Types of Gold You Can Hold in a Gold IRA?
The IRS controls what types of gold you can hold in a self-directed IRA. Generally, your gold needs to be at least 99.5% pure. The IRS doesn’t permit you to hold rare or collectible gold coins in your account, and all gold products must be produced by an accredited or certified manufacturer.
When you work with a reputable gold IRA provider, they will ensure that you only choose eligible products to include in your IRA.
What Types of Gold Are Eligible for a Gold IRA?
The following types of gold products are permissible in a gold IRA:
- 400-ounce gold bars
- 100-ounce gold bars
- One-ounce gold coins
- One-half-ounce gold coins
- One-quarter-ounce gold coins
- One-tenth-ounce gold coins
- Proof coins in mint packaging
These are a few examples of gold coins you can hold in a gold IRA:
- American Eagle proof coins
- Australian Lunar Series coins
- Canadian Maple Leaf coins
- Chinese Panda coins
- U.S. Buffalo coins
Investment Limits
Like any IRA, gold IRAs have investment limits that you must adhere to each year that you make contributions. Your limits depend on the type of IRA you open: traditional, Roth, or SEP.
What Are the Maximum and Minimum Investment Amounts for a Gold IRA?
There are no standardized minimum investment amounts for gold IRAs. Instead, each gold IRA provider sets its own minimum investment requirements that you must meet to open an account with it. These minimums often start around $10,000, though some companies require you to roll over at least $50,000 to open a new gold IRA.
Meanwhile, the IRS sets the maximum annual contribution limits for each type of gold IRA. These are the limits in 2024:
- Traditional gold IRA: $7,000
- Roth gold IRA: $7,000
- SEP gold IRA: $69,000 or 25% of your annual compensation, whichever is smaller
How Does the Investment Limit Impact an Overall Investment Strategy?
The contribution limits for traditional and Roth gold IRAs are relatively low, and while the limits for a SEP gold IRA are much higher, the eligibility requirements for this type of account are strict. You shouldn’t use a gold IRA as your only retirement investment; rather, it should complement a larger, more diverse investment strategy.
Financial professionals typically recommend saving at least 15% of your pre-tax income each year for retirement. If you want to contribute more than $7,000 toward gold investments each year, you can consider investing in gold in other ways, such as by purchasing physical gold with plans to sell it down the line.
Common Myths and Misconceptions of Gold IRAs
Gold IRAs have become a hot topic in the investing world in recent years, but unfortunately, misinformation about them abounds. Review these common myths and misconceptions to ensure that you fully understand gold IRA pros and cons:
- You can store the gold at home: In reality, you cannot store your IRA assets yourself; you need to store them in an approved depository.
- You can’t pick the gold you invest in: You have total control over the gold investments you include in your IRA, as long as they meet IRS requirements.
- Gold IRAs are a scam: Gold IRAs are a reliable way to invest in gold for retirement.
- You can only hold physical gold in an IRA: While many people choose to invest in physical gold with a gold IRA, others prefer to invest in gold ETFs and gold mining companies.
When assessing the advantages and disadvantages of gold individual retirement accounts, make sure you’re basing your judgment on facts, not misconceptions. If you have any questions about gold IRAs, explore our reliable resources at Learn About Gold, or contact a gold IRA provider.
FAQs
Why Should You Invest in a Gold IRA?
You should invest in a gold IRA if you want to diversify your retirement portfolio, benefit from the relative stability of gold investments, and know you’re investing in a tangible, inherently valuable asset.
Can You Take Physical Possession of the Gold in Your IRA?
You cannot take physical possession of the gold in your IRA. You’ll need to store it in an IRS-approved depository or storage facility.
However, you can visit the depository whenever you’d like to check on your investment. If you’d rather invest in gold that you can take physical possession of, consider purchasing gold products outside of an IRA through one of the gold IRA providers above. You can also learn more about home storage gold IRAs.
Is It Possible To Add Other Precious Metals to a Gold IRA?
Yes, you can hold other precious metals in a gold IRA. Choose between a range of gold, silver, platinum, and palladium products to hold within your retirement account. The name “gold IRA” is just a nickname for a self-directed IRA that invests in gold.
Can You Convert Your Existing IRA to a Gold IRA?
You can convert an existing IRA into a gold IRA. In fact, you must have an existing IRA, 401(k), 403(b), 457(b), or Thrift Savings Plan that you can roll over into a gold IRA. You cannot fund a gold IRA with money in your bank account.
How Much Does It Cost To Start a Gold IRA?
Starting a gold IRA typically costs between $100 and $400. These costs come from the fees associated with rolling over your IRA and storing the gold in your account. The main fees you’ll owe include:
- Account set-up fees
- Custodian fees
- Storage fees
- Maintenance fees
Your gold IRA provider should explain all of your fees upfront so that you can properly explore gold IRA pros and cons before funding your account. If you’d like to find a gold IRA provider best suited to your needs, fill out our gold IRA partner matching quiz today.
