If you’re nearing retirement, you may be asking yourself: Why make an investment in a gold IRA? While many different types of retirement accounts exist, gold and precious metals IRAs are a commonly overlooked option for people who want a sweet nest egg to last them through their golden years.
Below, our experts at Learn About Gold discuss the benefits of investing in a gold IRA. We’ll also discuss the tax benefits, how you can roll over your existing IRA into a gold IRA, and potential drawbacks to investing in gold IRAs.
What Is a Gold IRA?
A gold IRA contains physical gold bullion bars or coins. It has the same tax advantages as any other IRA that the Internal Revenue Service approves. In fact, a retirement investment in precious metals can provide many benefits.
Most gold IRAs have a value that depends on the current market price of gold and the commissions or fees that the custodian charges the investor. A custodian is the financial institution that holds the account’s investments and ensures compliance with government and IRS regulations.
It’s important to note that when you have a gold IRA (or any other precious metal IRA, like silver, platinum, or palladium), you cannot control or store the metal yourself. Instead, you must have an IRS-approved trustee (non-bank depository) that keeps it safe.
Nevertheless, self-directed IRA accounts are an excellent choice for many people, as they provide diversification and the benefit of nontraditional investing.
Why Should You Invest in a Gold IRA?
Let’s talk about why people choose to invest in gold IRAs instead of traditional IRAs. A self-directed gold IRA offers many benefits, including:
Portfolio Diversification: One of the many reasons people invest in precious metal IRAs with gold and silver is because they offer an excellent way of diversifying their wealth portfolios. By putting gold in an IRA, you can spread out your retirement portfolio with more than just paper assets, like stocks or bonds. This diversification mitigates risk.
Increasing Value: Throughout the years, physical gold has often had a much more stable value than other assets. By investing in gold, you can protect your retirement accounts from risks like stock market drops or other types of currency that are subject to devaluation.
Hedge Against Inflation: Gold IRAs hedge against inflation, which is another reason people choose to invest their retirement nest egg in a self-directed gold IRA. Consider the recent 40-year inflation high that America is currently undergoing. When the price of products and services rises, the purchasing power of money drops. Many people purchase gold and other precious metals to protect against inevitable inflation.
Tangible Assets: Unlike traditional stocks and bonds, purchasing physical gold gives you a tangible asset. You have direct ownership, even if traditional gold IRAs prevent you from storing the physical gold at your home. This gives you peace of mind knowing that your retirement savings are backed by something real, not just a piece of paper.
Real-World Applications: Another excellent benefit to gold investments is that the precious metal has many real-world applications, like jewelry, dentistry, and electronics. So even if gold prices drop, you can rest easy knowing there is still demand for your investment as a physical commodity.
Safe Haven Asset: During economic uncertainty, many investors consider precious metals like gold as a safe haven. Why? Because gold bullion and gold coins are stable investments that generally hold value even when other assets lose money. Investing in a gold IRA allows you to mitigate risk and save your wealth even during times of market volatility.
Tax Advantages: One of the best benefits of investing in a gold IRA is the tax advantages. When you invest your retirement savings in a gold IRA, you can deduct the full amount of your contribution from your taxable income in that same year.
What Are the Tax Benefits of a Gold Individual Retirement Account (IRA)?
If you buy physical gold for an IRA, you can enjoy tax benefits just like a traditional IRA. As an investor, the amount you contribute to your gold IRA is eligible for you to deduct from your taxable income that same year. While no limits exist as to how much you can invest, there is an eligibility threshold. However, your gold IRA will accumulate interest tax-free until you’re ready to retire.
For example, if your income is below $150,000 per year (as a single taxpayer) or $300,000 per year (for married couples filing jointly), you can contribute up to $5,000. In addition, the value of the actual gold in your IRA does not apply to this threshold limit.
Once you decide to liquidate the account and withdraw your funds, you won’t face any tax gain based on the price of gold on the date of the sale. Many people choose to put gold in an IRA to help protect their profits from considerable tax bills.
You can also deduct the cost of your annual IRA maintenance fee. Generally speaking, fees increase based on the amount of physical gold in your IRA. But whether the value of the gold in your IRA increases or decreases, you can still deduct your entire maintenance fee.
In addition, a traditional IRA with precious metals like gold bullion coins or bars qualifies for tax-deductible contributions. Alternatively, a Roth IRA with gold qualifies for tax-free distributions and qualified withdrawals.
Can You Roll Your Other IRAs into a Gold IRA?
Yes, you can take existing retirement accounts and roll them over into a gold IRA using two different methods:
Rollover: With a rollover, your IRA custodian will give you the funds you want to withdraw. You then have 60 days to deposit them into your new gold IRA. People under age 59.5 who don’t deposit the funds into the new IRA will be subject to a 10% penalty on their withdrawal.
Transfer: A transfer differs slightly from a rollover. Your IRA custodian will take the money you wish to invest in your new gold IRA and send it directly to the new custodian. As no physical cash leaves the account, the process is hassle-free. You also don’t have the same risk of missing the 60-day window and paying a 10% withdrawal fee.
Is a Gold IRA a Good Retirement Plan?
Are you unsure of how to fund your retirement portfolio? Some of the most common types of investments for retirees include:
- Traditional gold IRA
- Roth IRA
- Gold mutual funds
- Gold ETFs (Exchange-Traded Funds)
- Purchasing physical gold and silver
- Stocks and bonds
Ultimately, the final decision about how you’ll invest your retirement funds is yours to make. However, more retirees are choosing to diversify their investments by funding gold IRAs. Many finance experts agree that spreading investments across multiple holdings is one of the best ways to mitigate risk.
If you only have one form of investment, funding a precious metal or gold IRA can provide diversification and peace of mind. Then, if your other investments — like gold ETFs or stocks — lose value, you still have a nest egg in your gold IRA.
If you’re unsure which gold investments are the best choice for your financial situation, reach out to our Learn About Gold team with your questions.
Do Possible Drawbacks Exist to Investing in a Gold IRA?
Ask any personal finance expert: investing comes with inevitable risks. Despite gold and precious metals being a generally safer investment than mutual funds or the stock market, that doesn’t mean you’re guaranteed to profit. Before you begin investing in a traditional or Roth gold IRA, consider the potential drawbacks:
High Fees: Among the biggest drawbacks to funding an IRA with gold or precious metals are the high fees and expenses. For example, investors must pay annual custodian fees, third-party storage fees, and one-time initiation fees. However, gold IRA companies have varying fee schedules, so do some research before you commit.
Funding Restrictions: Gold Individual Retirement Accounts have multiple restrictions. First, you can only fund your IRA with IRS-approved precious metals, which are restricted to gold, silver, platinum, or palladium.
In addition, you can’t move gold or other precious metals that you already own into an IRA. Any transactions must occur through the official custodian. Also, whether you acquire gold bars, bullion, or coins, the physical metal itself must go into an IRS-approved depository for storage. You cannot opt for home storage.
Investor Responsibility: With a self-directed IRA, you are the one responsible for making the investment decisions. If you have knowledge of personal finance and investing, this is beneficial to you. However, if you’re not well-versed in the world of self-directed IRAs, gold companies, and how to manage an investment portfolio, think twice.
Required Minimum Distributions: You can access your gold IRA funds penalty-free after you turn age 59.5. However, when you turn 72, you’ll have to withdraw a specific amount from your IRA every year, known as the required minimum distribution (RMD).
Gold is a physical asset. Therefore, investors with their retirement savings in a gold IRA will have to liquidate some of those assets to meet the RMD. That means you may have to sell gold at a loss.
No Dividends or Yields: Unlike investing in the stock market or holding paper assets like mutual funds or gold stocks, the physical gold in an IRA doesn’t produce any dividends or yields.
How To Choose a Gold IRA Company for Your Investment
Before purchasing gold for your IRA, you’ll need to find a reputable company to act as your custodian. Not every precious metals dealer can handle gold IRAs, and you’ll find far too many unethical companies that will happily take advantage of naïve investors.
Consider the following factors when comparing finance companies to handle your gold IRA:
Transparency: A reputable company will offer complete transparency and disclosure regarding their fee schedule, expenses, and services. The setup and rollover processes should be simple and hassle-free.
Information: The best companies that handle gold IRAs have a website with a wealth of educational resources and information for investors.
Reputation and Reviews: Another important factor to consider when choosing a gold IRA company is its reputation and reviews. Check third-party review sites like the Better Business Bureau and read customer testimonials.
Fees: Before you invest your money with a gold IRA company, spend a few minutes reading the fine print regarding fees and costs. An honest company will be upfront regarding their fee schedule for investors.
What Is a Gold IRA?
A gold IRA (Individual Retirement Account) holds IRS-approved gold, like gold bars or bullion coins. It can also contain gold stocks, gold mutual funds, or gold ETFs.
How Does Gold IRA Work?
Investors purchase gold and use the metal to fund their IRA accounts. The gold products must meet IRS-approval and stay at a third-party depository. A traditional IRA holding gold is tax deductible. Conversely, qualified withdrawals from a Roth IRA holding gold are tax-free.
How Can You Invest in a Gold IRA?
You can start funding your gold IRA by investing with us here at Learn About Gold. Fill out our online form, and our finance experts will get in touch with you promptly and walk you through the process. Then, you can either buy gold outright or roll over or transfer an existing IRA into a gold IRA.
What Is the Minimum Investment Amount for a Gold IRA?
The IRS doesn’t have a minimum investment requirement for opening gold IRAs. However, some companies require clients to contribute a minimum investment to open an account with them, so be sure to read the fine print before you invest.
Invest in a Gold IRA with Learn About Gold
So, what’s the takeaway? Why invest in a gold IRA? If you’re planning for retirement, opening a gold IRA in addition to your existing investments is an excellent way to diversify your portfolio and mitigate risk.
Gold is a physical asset that holds its value, and it provides an excellent hedge against inflation. To keep exploring the benefits of investing in gold IRAs or to start funding your own gold IRA, contact our team at Learn About Gold now.