Many people invest in gold and other precious metals as part of their retirement plans. If you are an investor who wants to diversify your retirement portfolio, you can take advantage of the tax benefits of a precious metals IRA.
What Is a Gold IRA?
A gold IRA is a tax-advantaged retirement account that facilitates long-term investments in precious metals. Gold is the most common and valuable of those investments. However, gold IRAs are also known as “precious metal IRAs,” and they can contain:
Gold IRAs are meant to turn at least part of an investment portfolio into a golden nest egg. Not all IRAs enable direct investments into precious metals. They are commodities, and they don’t produce dividends, unlike most investments in most IRAs. However, they are a popular avenue for diversification. Precious metals, especially gold, are seen as “safe haven” investments. Safe haven investments tend to rise in price when traditional financial instruments like stocks tend to fall. During times of economic uncertainty, gold is a more valuable asset.
How Does a Gold IRA Work?
If you want to store gold in an IRA, a gold IRA is the only way to do it. This separate IRA works very much like a standard IRA. A gold IRA follows the same regulations, and you have the same contribution limits that you would with any other IRA. The main difference is the assets that can be placed inside them.
Traditional IRAs can hold paper assets like stocks, bonds, and ETFs. Gold IRAs can contain the four precious metals recognized by the IRS. The precious metals can be stored in your account as bullion, which means bars and coins.
While gold IRAs aren’t meant for paper assets, they can hold stocks directly related to the mining and production of precious metals. Those stocks include companies that mine and produce gold and gold mutual funds that track gold bullion and stocks. There are also gold ETFs that specifically track gold indexes.
Advantages and Disadvantages of Gold IRAs
- Long-term Stability. Gold and other precious metals aren’t so liquid. While most other IRA holdings aren’t either, gold is well-suited to long-term retirement savings. It’s an asset that you usually wouldn’t want to touch often, protecting your wealth through its unique value proposition.
- Taxes. In terms of tax benefits, there are no differences between gold IRAs and other IRAs. Traditional and Roth IRAs provide the same corresponding benefits to gold IRAs. Traditional gold IRAs are tax-deductible, and taxes are paid in retirement. Gold Roth IRAs are funded with after-tax dollars, but you don’t pay taxes on withdrawals in retirement.
- Self-Directed. As self-directed accounts, they give you complete control of your precious metals investment portfolio. You manage your holdings directly and make all the important decisions.
- No Passive Income. Typical IRA investments can produce dividends and interest, which are sheltered from taxation. Unfortunately, gold IRAs don’t produce these forms of income, which means you can miss out on other opportunities to expand your wealth. The only income you’re sheltered from taxation for is capital gains from an increased price of gold IRA holdings.
- Higher Fees. Custodians for gold IRAs have to store and insure your deposits securely. They also need to securely transport holdings in armored vehicles. Gold IRA vaults are incredibly well-secured, but that comes at a cost that they pass onto you. Custodial and other fees thus tend to cost more than regular IRA fees.
Things to Consider When Investing in Precious Metals
There are several unique considerations to investing in precious metals.
As a self-directed IRA account, you need to open a gold IRA and contribute investments into it. You usually cannot move precious metals into it, but you can fund the account with a transfer or rollover from another retirement account.
You manage the holdings in a gold IRA through an IRA custodian. A custodian is a financial institution that the IRS has approved for holding gold. They are responsible for its storage, which follows strict security protocols. The custodian also adds or removes from the account as per your requests.
After you find a custodian, you will need to choose a precious metals dealer. Typically, your custodian can recommend one. Once you’ve opened an account and made these choices, you’re free to fill your account with the precious metal investments of your choice.
How to Open a Gold IRA Account
Opening a Gold IRA is easy, but you’ll want to choose the right account. Your account provider will lay out all the steps for creating a new account. For example, iTrustCapital makes it easy to get started with a Gold IRA account in a few simple steps:
- Visit their website to create your account
- Verify your identity and email address
- Choose the account you want to open
- Add funds to your account (transfer, rollover, or cash contribution)
- E-sign your application
- Purchase assets to add to your account
FAQs About Gold IRAs
You can only buy physical gold for a gold IRA. With a regular IRA, you can invest in indexes that may include gold stocks or other instruments. However, you cannot actually have gold in an IRA that is not a gold IRA.
Gold investments are sheltered from capital gains while they are inside a gold IRA. Gold IRA investment taxes are due when you cash out on them. When you do that, the dollars you receive are taxed using the regular marginal income tax rate. However, you receive the regular tax advantages provided by your IRA type.
Gold investments are treated as collectibles and have the corresponding 28% maximum tax rate. This tax doesn’t apply to gold held in a gold IRA.
This depends on the account provider. Usually, there is a minimum investment amount to open a new gold IRA.
As an example, iTrustCapital charges relatively low fees for its gold IRA. They have a minimum investment of $2,500 to start, while many other providers will ask for $5,000. They also don’t charge an account opening fee and instead just charge their regular trading and account management fees. Those fees cover everything from the account setup to all necessary IRS reporting and even include unlimited storage. Normally, you need to pay more for storage if you want to invest in more gold bullion.
Gold IRAs can hold all 4 of the precious metals the IRS allows for gold, silver, platinum, and palladium.