A gold IRA is one of the many ways that people choose to save for retirement. Instead of investing in stocks and bonds, like other IRA accounts, a gold IRA account invests in physical gold, including gold bars and gold coins. Other precious metals, including silver, platinum, and palladium, are often held in gold IRAs, too.
Generally, those who have a gold IRA want to diversify their assets and create a hedge against inflation.
What Makes a Gold IRA Different?
It's likely that you are familiar with the terms "traditional IRA" or "Roth IRA." With those IRA accounts, the individual invests into it by using stocks or bonds, mutual funds, or other types of securities. A gold IRA is a bit different, however.
A gold IRA, or any type of precious metals IRA, must be self-directed, and it must be made up of physical precious metals. This type of retirement savings follows the same IRS rules that other types of IRAs must follow, too.
Many people who open a gold IRA also choose to invest in "paper assets," which are other gold-related investments. They might include buying stocks in gold mining companies, investing in precious metals futures, or putting their money into precious metals mutual funds.
What Is Required for Precious Metals to be Eligible for Gold IRAs?
Because there are strict rules, not all precious metals are qualified to be included in a gold IRA. The IRS has specific rules in place for the purity of gold and other precious metals before they can be included in this retirement account.
Specifically, precious metals IRA rules from the IRS dictate that gold must be 0.9950 pure, silver must be 0.9990 pure, and both platinum and palladium must be 0.9995 pure.
Here is a chart that explains more:
Keep in mind that there are a number of precious metals that are not allowed to be added to a gold IRA. These include collectibles as well as the following:
Opening a Gold IRA: What You Need to Know
If you are considering opening a gold IRA, there are certain things you should be aware of. First, you must choose a custodian to hold your retirement assets. The reason for this comes down to the IRS rules regarding gold IRAs.
According to these rules, the gold must be placed into an IRS-approved precious metals depository. You cannot purchase gold, keep it in a random account, and expect to use it in the same way as you would an IRA.
Instead, there are IRS-approved depositories that serve as storage places for your physical metal investments.
Here are some of the approved options (in alphabetical order):
Brinks
Brinks is a well-known cash and valuables management company that operates in more than 100 countries around the world.
CNT Depository
CNT made a name for itself by serving as the largest seller of raw gold to the US government. It has been storing valuables for decades, and has close relationships with governments across the globe.
All of the precious metals stored by CNT Depository are insured by the famed Lloyd's of London.
Delaware Depository Service Company
One thing that really makes Delaware Depository Service Company stand out is the tax benefits everyone receives who stores gold and other precious metals in this depository.
Delaware is one of the only states that doesn't charge tax for storage.
First State Depository
Another Delaware depository is First State Depository. Customers get the same tax advantages as listed above, and the company serves individual investors, IRA custodians, and financial institutions.
HSBC Bank USA
HSBC Bank is one of the world's most prominent holders of precious metals, the largest bullion clearer on the planet, and the #1 dealer in both silver and gold since 2003.
JP Morgan Chase Bank NA
An IRS-approved depository since 2011, JP Morgan Chase Bank NA offers risk management solutions to clients as well as impressive vaults in New York, Singapore, and London.
Texas Bullion Depository
Operating under the watchful eyes of the State of Texas Comptroller's Office, the Texas Bullion Depository is known for it's state-of-the-art secure storage and for being the depository of choice for a number of investment firms, including Noble Gold.
Do Your Research Before Choosing a Custodian
It's important to do a bit of research before choosing a custodian you can trust with your precious metals.
The best choices are those that have a long history of working with gold IRA companies and those that hold physical gold in the most secure methods. Also, keep in mind that there are various fees you may encounter when setting up a gold IRA, and these may vary depending on the custodian you choose.
Gold IRA Accounts - The Pros and Cons
One of the great things about Gold IRAs is that they allow you to diversify your portfolio and give you an alternative when looking for a retirement account.
During times of economic uncertainty, it's always nice to know that, historically, gold has moved in a positive direction when compared to stocks, and generally, the value of gold rises when the value of the dollar falls.
All of that is positive, of course, but there are some cons of choosing a gold IRA. For instance, there are often substantial costs upfront to establish your gold IRA.
Additionally, unlike stocks, gold doesn't pay interest or dividends, so holding it in an IRA doesn't give a tax-advantage. Finally, keep in mind that gold is not a liquid asset.
Final Thoughts
There is no doubt that a gold IRA is a good way to diversify your portfolio as you near retirement. It can protect your money if there is a crash of the stock market or if inflation skyrockets.
Just remember that you should do your research before opening an IRA account, and it's always a good idea to talk to a financial advisor or professional before making an important financial decision like this.
You can get all types of gold IRAs, including Roth gold IRAs, SEP gold IRA's, and more, but you should make sure you are choosing the right one for you.
Frequently Asked Questions About Gold IRAs
Are gold IRAs a good investment?
Gold IRA's can certainly be a great investment for those who want to hedge against inflation and diversify their retirement portfolio. When we look at the historical behavior of gold, it has been one of the only assets to retain its value during times of economic uncertainty, which makes it a good option for those looking for stability.
However, as with any investment, there are risks when using gold IRAs. These include fluctuations in price, high storage fees, and no dividends.
Gold is a good asset for those looking long-term, and isn't a great choice for everyone. Though we believe everyone should have gold and precious metals in their retirement account, we also recommend balanced portfolios, too, such as also adding stocks and bonds. This allows for maximized growth and security all in one portfolio.
How much does a gold IRA cost?
The cost of a gold IRA depends on a few factors, most notably, the provider. Expenses involved with a gold IRA include set up fees, which range from around $50 - $150, maintenance fees, which range from $75 to $300 per year, and annual storage fees, which range from $100 to $300.
Also, it's important to keep in mind that most companies have a small markup over the spot price of gold. This generally ranges from 5% to 10%, but I've certainly seen higher fees, too. Additionally, some custodians apply transaction fees.
All of these costs can make gold IRAs more expensive than traditional IRAs. So, it's best to do some comparisons before committing to anything. The best choice is to only work with a company that has transparent pricing, so that you can avoid unnecessary costs.
Do you pay tax on gold IRA?
There are tax advantages to investing in a gold IRA, and they are similar to what you get with a traditional or Roth IRA. Taxes do apply when withdrawals are made.
With a traditional IRA, contributions are tax-deferred, but the withdrawals are taxed the same as income. A Roth gold IRA, however, is made with after-tax dollars. This means that you can take tax-free withdrawals after you turn 59 1/2.
Taking the money out of the account before the required age of retirement comes with additional taxes and penalties. Additionally, if you take a physical distribution of your gold, the fair market value of the gold determines the taxable amount.
What is the minimum investment for a gold IRA?
The minimum investment amount for a gold IRA depends on the provider. Generally, this ranges from around $5,000 to $25,000. There are some companies that allow for smaller amounts. Additionally, there are companies that reduce fees or offer better prices if you invest more.
About Tim Schmidt Sr.
Tim Schmidt is an Entrepreneur and Serial Investor. Since 2012 he's been an advocate of alternative investments using a Self Directed IRA. His work has been featured in Yahoo! Finance, USA Today, Business Insider, and Tech Times, among others.
