If you are interested in saving for the future, and investing in an asset like physical gold, a gold IRA, also referred to as precious metals IRAs, is a perfect option.
You can't hold gold or other precious metals in a regular IRA account. Instead, you have to have what is known as a gold IRA. Gold and other precious metals, or even gold coins, silver bars, platinum, and palladium, can all be used to fund the gold IRA, as long as it follows very specific regulations set by the IRS.
I've been researching and using physical metals in investments for a long time, and if you want to know how to get started with a gold IRA account, I am ready to help.
Is it Possible to Hold Physical Metals in an IRA?
One of the most common questions I get, especially in volatile economic times, is if you can fund an IRA with gold and other precious metals. The answer is this: yes, you can, as long as it's a gold IRA.
With a conventional IRA, including traditional IRAs, Roth IRAs, or SEP IRAs, you are limited to assets like stocks, bonds, mutual funds, and other investments. So, you can add a gold ETF or stock in a mining company, but you can't add physical gold.
With a self-directed IRA, including a gold IRA, you can hold different investments in the account, including physical assets like precious metals.
Understanding Gold IRAs
As mentioned, a gold IRA is a type of self-directed IRA, which allows an investor to use gold, silver, platinum, and palladium to fund that account. This gives you a hedge against inflation and is historically safer in times of economic uncertainty. Like conventional IRAs, you can get traditional gold IRAs, Roth gold IRAs, and SEP gold IRAs.
A gold IRA is managed by a custodian. This is a company that specializes in precious metal. They make sure that the metals that go into an IRA meet standards set by the IRS, and that it is stored correctly in an IRS-approved depository. Most people who choose to have a gold IRA do so because they know that it is a secure way to add more diversity to your retirement account and also get the tax advantages of a conventional IRA.
How Do You Start the Process of a Gold IRA?
Setting up a gold IRA is fairly simple. You set up an account, fund it, and then purchase the metals. Here is a closer look:
- First, you have to open a self-directed IRA. To do this, you must go through the process of finding a custodian, which is the company that manages the IRA. There are many custodians out there, and some might be better for you than others.
- Next, you need to fund the account. You can do this by cash contributions, or by transferring or rolling over money from a 401(k) or conventional IRA.
- Once the account is funded, you can then start buying metals. You can't add metals you already own to a gold IRA. It can only be purchased by the funds that are in the IRA.
- Finally, you store your gold. With a gold IRA, you can't store the gold at home or in a bank. Instead, you have to store it in an IRS-approved depository.
There are obviously more details to each of these steps, but those are the basics. The best gold IRA companies out there can help to walk you through every step. I've reviewed many of them, and I urge you to check those reviews out before you settle in with a custodian.
Different Types of Gold IRAs
There are three main types of gold IRAs you can use for retirement savings, and they are similar to conventional IRAs.
Traditional Gold IRA
A traditional gold IRA offers tax advantages from the start. Contributions to this type of IRA is tax-deductible, and the value of the gold is tax-deferred.
You can start taking withdrawals at the age of 59 1/2, but they are considered income, and you must pay taxes.
Roth Gold IRA
When you choose a Roth gold IRA, the account is funded with money that you already paid taxes on. However, the value of the account grows tax-free and when you start taking withdrawals at 59 1/2, which are also tax free.
SEP Gold IRA
The last type of gold IRA is known as a SEP gold IRA. This is the IRA that business owners and self-employed investors use. They can be set up as a traditional ira or a Roth IRA.
With a SEP IRA account, the contribution limits are higher than a traditional gold IRA or a Roth gold IRA.
Rules That Must be Followed with a Gold IRA
If you want to have a gold IRA, there are certain rules that the IRS has in place that you must follow. Here is a full rundown:
Purity Standards
With the exception of specific coins, all gold that is held in a gold IRA must have a purity of at least 99.5%. Other precious metals that go into a gold IRA have similar requirements.
Manufacturer Requirements
The precious metals in your gold IRA can be in the form of coins, bars, or rounds, but it must come from the national mint or from a certified manufacturer. You cannot use collectibles in a gold IRA.
Custodian Rules
All gold IRAs must be managed by a custodian. I have reviewed many of the top custodians out there, and I recommend reading these reviews before you choose one.
Storage Requirements
Another thing you need to consider is where you will store your precious metals. You cannot store the metals for a gold IRA in your home or bank. Instead, you have to store it at an approved depository. Here's more on how much gold IRA storage can cost you.
Many gold IRA companies have preferred depositories, but you can usually choose a different one if you want to.
Withdrawal Penalties
Finally, if you take money out of your gold IRA before you are 59 1/2, you will be subject to a 10% penalty by the IRS.
Pros and Cons of Gold IRAs
As with any type of investment account, there are pros and cons of investing into a gold IRA.
Pros of a Gold IRA
- Wonderful tax benefits
- Serves as a hedge against inflation
- Very low risk of theft or loss
Cons of a Gold IRA
- Generally have more fees than a regular IRA
- You cannot store your gold at home
- There are more steps to follow to get started
Is a Gold IRA Right for You?
There are many great reasons to invest in gold through a gold IRA, but this is a type of investment strategy that might not be right for everyone.
Here are some things to consider if you are thinking about making an investment into a gold IRA:
A Gold IRA Might be Right for You If...
- You want an investment that has tax advantages
- You are saving for your retirement
- You want to diversify your investment portfolio
- You won't make withdrawals until you are 59 1/2
A Gold IRA Might Not be Right for You If...
- You want to store your gold and other metals at home or in a bank safety deposit box
- You want to invest in gold for only a short time
- You want to be able to access your gold easily in case of an emergency
- You will need to take withdrawals before you are 50 1/2
Consider The Following:
A gold IRA will make sense for someone who wants to make a long-term investment, and not someone who will need to take the money out early.
If you think you will need to take out money from your IRA before you are at retirement age, this might not be the best option for you. You can still invest in physical gold, and still get a lot of the benefits, but it's probably not a good idea to hold it in an IRA.
Some of the other ways that you can invest in physical gold is to buy gold exchange-traded funds, known as ETFs, or you can set up a regular IRA and include gold mining stocks. However, with both of these options, you don't get to actually hold physical gold.
Also, keep in mind that gold IRAs will give you great tax benefits, bring more diversity to your portfolio, and gives a hedge against inflation. However, there are restrictions and rules that you must follow, and there are higher fees when compared to a conventional IRA.
Gold IRAs vs. Physical Gold
When you are thinking about making an investment into gold, you have two main options.
You can invest in gold through a gold IRA, or you can buy precious metals from dealers and hold it outside of a retirement account. Let's take a look at how they compare:
Gold IRA
- Comes with great tax benefits
- Gold has to meet specific IRS standards
- You must wait until you are 59 1/2 to make withdrawals without a penalty
- You have to store the gold in an IRS-approve depository
- Best choice for long term investments
Physical Gold
- No tax benefits
- You can buy any type of gold you want, including collectible coins
- You can liquidate the gold anytime without issue
- You can store your gold in your home or bank
- Best for short term investment plans
Which Is Best?
Buying gold outside of an IRA is more flexible for people, but the tax benefits that come with a gold IRA are very attractive to many investors. The IRS rules also help to ensure the gold you buy for a gold IRA is of the highest quality.
It doesn't matter how you purchase gold, however. It's always a good investment. Here's a full breakdown on physical gold vs. a gold IRA.
Frequently Asked Questions About Gold IRAs
Here are some of the most common questions that people ask about gold IRAs:
Can I buy gold with money from my IRA?
Yes, you can buy gold with IRA money by using a self-directed IRA, which is a gold IRA. This allows you to invest in all types of precious metals including gold, silver, platinum, and palladium. To do this, you must work with a gold IRA custodian. The physical precious metals must meet specific rules that are set by the IRS, and it must be stored in an IRS-approved depository.
Is it possible to convert my current IRA to a gold IRA?
Yes, it is totally possible to convert a conventional IRA into a gold IRA through a transfer or a rollover. This process generally is simple, and you can move the funds from your current IRA into a self-directed IRA. In general, you can do this without penalties or triggering any additional taxes. The custodian you choose can help you facilitate this transfer and ensure you remain in compliance with IRS rules.
How can I rollover my 401(k) into a gold IRA?
You can rollover your 401(k) into a physical gold IRA by first opening at self-directed IRA. Once you have a gold IRA opened, you can contact your 401(k) administrator to transfer the funds into the new account. When the transfer is complete, you can then work with your chosen custodian to buy IRS-approved metals and choose a depository.
Is there any way I can store the gold in my IRA at my home?
You cannot physically hold the precious metals that are in the IRA account. Per the IRS, the physical gold you have has to be stored in a depository, which means it is safely stored until you get to retirement age. If you do want to take possession of the gold that is in your gold IRA account, it is considered a distribution, which means you will have a large penalty and have to pay additional taxes. Once you reach retirement age, you can get the physical gold, but it would then be taxed as income.
What's the best way to buy physical precious metals?
Precious metals dealers often allow you to purchase gold and other precious metals online. There are many options out there. If you do choose to buy gold online, just be smart about it, and only buy from a company that has good reviews and fair pricing.
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.
