Updated July 28, 2023

What is Gold IRA

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Looking for a way to diversify your retirement portfolio? Discover the benefits of a Gold IRA and how it could secure your financial future.

If you want to safeguard your retirement portfolio, a gold IRA may be the answer.

By investing in physical gold, you can potentially protect your savings against market volatility, inflation, and economic uncertainty. All while enjoying the tax advantages of an IRA.

But is a gold IRA right for you? Before you decide, you should know what they are and how they work.

In this detailed guide, learn what a gold IRA is, the pros and cons, and the rules and regulations you need to know.

What is a Gold IRA?

A gold IRA is a special type of retirement account that lets you invest in physical gold and other precious metals. You get tax benefits on your gold investments.

But you cannot use a regular IRA. Instead, you must open a self-directed IRA in order to hold gold coins and bullion.

Gold IRAs also must follow strict IRS rules. This includes how you can fund it, what kind of coins are allowed, and where they can be stored. We'll go over that in a bit.

But don't worry, you don't need to figure this out yourself. A reputable gold IRA company will help you navigate the entire process, so you stay compliant with the IRS.

Types of Gold IRAs

Like regular IRAs, there are many types of gold IRAs. Most gold IRA companies will let you open a Traditional Gold IRA, Roth Gold IRA, SIMPLE, and SEP Gold IRA.

Each one has its unique benefits and tax advantages. Here's how contributions and withdrawals work for each type:

ContributionsWithdrawals After Retirement
Roth IRAContributions are post tax and are not tax deductibleEarnings and withdrawals are not taxed
Traditional IRAContributions are pre-tax and are usually tax deductibleWithdrawals are taxed
SEP IRAEmployers can make pre-tax contributions and are usually tax deductibleWithdrawals are taxed
SIMPLE IRAEmployers must contribute, and employees can make pre-tax contributionsWithdrawals are taxed

Besides gold, most gold IRAs let you invest in other precious metals too. Silver, platinum, and palladium are other popular options.[1]

Goldco is one gold IRA provider that offers a large range of precious metals. You might consider investing in other precious metals like platinum and palladium to diversify your Gold IRA.

How Does a Gold IRA Work?

To invest in a gold IRA, you need to work with a specialized gold IRA company to open a self-directed IRA account. The gold IRA provider will help you buy IRS-compliant coins and store them properly.

Here are the steps to opening a gold IRA account:

1. Choose a gold IRA custodian
This is an important decision because this company will be your partner in this journey. You'll be trusting them with your retirement savings. They will take care of everything from helping you purchase coins to taking distributions.

Not sure where to start? Some of the most reputable and trusted gold IRA companies are Augusta Precious Metals, Goldco, and Birch Gold Group.

How much does it cost to start a gold IRA?
Most gold IRA companies require a $10,000 to $50,000 initial investment to open an account. You'll also pay a one-time setup fee, usually ranging $50 - $200. In addition, the custodial and storage fee typically cost $200 - $300 per year.

2. Rollover your existing retirement account
If you have an existing 401(k), IRA, or other retirement account, rollover is the easiest way to fund your new gold IRA.

You can convert just a portion of your portfolio. But if you would like to invest more, there's no max limit for rollovers.

Usually, your gold IRA company will help you with the rollover paperwork. They'll even talk to your current custodian for you, making it as painless for you as possible.

You can also fund a gold IRA with new money. Then you must follow the annual contribution limit, which is $6,500 in 2023 ($7,500 for 50 or older).[2]

3. Buy gold coins
Once you have the cash in your gold IRA, you can use it to buy gold. Your gold IRA company will have a variety of IRS-compliant coins for you to choose from. Just place the order with them and they'll purchase it for you.

4. Store in depository
You don't have to worry about this step. Your gold IRA partner will make sure your coins are safely secured in an IRS-compliant depository. They may have a few options you can pick from.

5. Make withdrawals (when it's time)
When you want to withdraw, talk to your gold IRA company. The same withdrawal rules apply as for any IRA. You cannot withdraw before age 59-1/2 or there's a penalty.[3]

You can choose to take your distribution as physical gold coins and get them shipped to you. Or liquidate coins and get the cash.

Can I sell the gold in my gold IRA?
Yes, you can sell your gold coins at any time if you see a good opportunity. As long as you keep the funds from the sale in your gold IRA account and don't withdraw them, you won't be taxed or penalized. This lets you potentially take advantage of market opportunities without incurring penalties.

IRS Rules for Gold IRA

Gold IRAs have a lot of rules and regulations by the IRS. In general, here are the rules to stay compliant:

  • Gold coins and bars must be 99.5% pure (with an exception).
  • Gold coins must be from a national government mint.
  • Collectible coins are not allowed.
  • Gold must be stored in an IRS-approved depository.
  • You can only fund a gold IRA by rolling over an existing retirement account or with new money. You cannot transfer gold coins you already own.
  • Annual contribution limits with new money are $6,500 for 2023; $7,500 for 50 or older.
  • Withdrawing early before age 59-1/2 has a 10% penalty.

Your gold IRA partner will make sure you're not breaking any rules. But it's still important to learn and fully understand for yourself before opening a gold IRA.

Where is the Gold Stored?

Your gold coins in a gold IRA must be stored in an IRS-compliant depository. You cannot store IRA gold at home in a safe or even in a bank deposit box.

Gold IRA companies usually use Delaware Depository, Brinks Global Services, and International Depository Services. These are all approved by the IRS.

You will have to pay an annual storage fee for holding your gold in one of those depositories. It's usually $100 - $150 per year.

If you take physical possession of your gold, that will count as a withdrawal. And there may be tax implications and penalties.

Is a Gold IRA a Good Idea?

A gold IRA could be a good investment for you if:

  • You're nearing retirement and want to preserve your nest egg.
  • You're worried about long-term economic conditions and want to hold a physical asset with intrinsic value.
  • You want to diversify your retirement portfolio beyond stocks and bonds.

However, it's not a good idea to invest all of your retirement savings into a gold IRA. It should only be a small part of a broader investment strategy.

Let's talk more about that next.

How Much Should You Invest in a Gold IRA?

Experts typically recommend only keeping 5% - 15% of your portfolio in gold. This means if you have $1 million in your retirement account, you should only convert $50,000 - $150,000 into a gold IRA.

You don't want to invest too much into precious metals because gold doesn't offer the same growth potential as stocks. And it doesn't generate income.

If you have too much in gold, you'll miss out on the growth opportunities from other investments. And it may be harder to achieve a sustainable income stream to support you in retirement.

However, keeping a small portion of your portfolio in gold could help protect you when the stock market is down.

With that in mind, let's talk about the pros and cons.

Benefits of a Gold IRA

Many people see gold as a strong investment option. It's had a long history of use, is accepted worldwide, and holds value well. Some even like gold for the simple reason that it's an investment they can see and touch.

Here are some reasons why you might consider investing in a gold IRA for your retirement.

What makes gold investment appealing to you?

Protect against stock market volatility
Gold has low correlation to the stock market, so it's often seen as a safe haven asset. During stock market downturns or economic uncertainty, stocks may lose value. So investors may choose to invest in gold instead to protect against that.

By investing in gold along with stocks, you can diversify your portfolio and protect against major losses.

Hedge against inflation
Some experts believe that gold holds its value better than the dollar. Throughout history, inflation has made the dollar consistently lose value over time. This means the money you have today will be worth less in the future.

But gold tends to retain its intrinsic value. It will continue to be valuable years, or decades, down the future. This makes it a good hedge against inflation.

Tax Advantages
A gold IRA give can save you money on taxes. The gains on your gold investments are either tax-deferred (for Traditional Gold IRAs) or tax-free (for Roth Gold IRAs).

By taking advantage of these tax benefits, you can potentially save money and maximize your retirement savings.

How is a gold IRA taxed?
For a Traditional Gold IRA, your withdrawals (distributions) are taxed as regular income based on your tax bracket. If you have a Roth Gold IRA, your qualified withdrawals are tax-free.

Cons of a Gold IRA

It's just as important to know the potential disadvantages of a gold IRA, so you can make the best choice for your future. Here are the cons:

No high growth or income
Gold doesn't have the high growth potential of stocks. And it doesn't generate interest or dividends. Those are all important for growing money needed for retirement. Gold can only preserve instead of building wealth.

Value can decrease too
Gold can be volatile over the short term. When the economy is good, gold could fall in price. If you must take your required minimum distribution (RMD) at a time when gold is down, you could even have to sell at a loss.

Higher fees
Gold IRAs have more fees than regular IRAs. On average, the account's annual fee and storage fee will run from $200 to $300. Also, there are fees when you buy and sell gold as well. So that eats into your profits.

Harder to liquidate
Unlike stocks, you can't sell gold with a press of a button and get cash right away. So if you suddenly need to sell, you won't be able to liquidate super fast. Especially if you get your distribution as actual physical gold coins.

What to Look For in a Gold IRA

With several gold IRA providers to choose from, how do you pick the best one for you? Here are some common questions you should ask when considering a gold IRA:

Do they provide education?
Commitment to education is the most important factor for us. They should prioritize educating you rather than pushing a hard sell. You should feel confident that you're getting all the info needed to make an informed choice.

What kind of coins are available?
The gold IRA company should offer a variety of IRA-compliant coins. And if you want to diversify your portfolio further, you can see if they also offer silver, platinum, and palladium.

By holding a mix of precious metals, you can potentially benefit from their price movements, since they don't always correlate.

What's the minimum investment?
Most gold IRAs require an initial investment of $15,000 to $50,000. Providers may also provide more perks for those who invest more, like waived fees or even free silver offers.

Want to invest only a little in a gold IRA? Try American Hartford Gold. They let you start a gold IRA with only $10,000 minimum.[4] They have an A+ BBB rating and thousands of 5-star reviews.

Is the minimum requirement of $15,000 too steep for you?

How long have they been in business?
While it's no guarantee of quality, longevity generally means more experience. After all, it shows they've successfully maintained their business operations and have earned a good reputation.

Gold IRAs are still a relatively new concept. Birch Gold Group is one of the oldest precious metals IRA companies founded in 2003.

What do their customers say?
Check popular resources such as the Better Business Bureau, Trustpilot, and the Business Consumer Alliance to see what real customers are saying about a particular provider.

Is your IRA gold safe?
Storage is an important factor when it comes to a Gold IRA. You aren't allowed to store IRA-related gold at home, so you'll need a depository.[5] But Gold IRA providers will have relationships with depositories already and include it as a part of their service.

Do they have a buyback program?
A buyback program means you can sell your gold back to your gold IRA company. This means you won't have to go to the trouble of selling your gold on your own. Of course, you won't be required to sell to them—you'll simply have the option.

How much can you put in a gold IRA?
Contributions limits are set by the IRS. For 2023, the maximum annual contribution to a gold IRA is $6,500, or $7,500 if you are 50 or older.[6]

Avoid Gold IRA scams

Like any investment, some bad actors might try to take advantage of your inexperience. FINRA recommends keeping an eye out for these signs when investing in precious metals:

  • Avoid aggressive salesman: You want to work with a company that focuses on education, not one that pressures you into opening an account.
  • Research the Gold IRA company: The NFA provides a free tool to search for salespeople who have had disciplinary action.
  • Check the fees: Most IRA companies charge fees for storage and maintenance. But if some fees don't make sense, do inquire at similar companies to compare.

Bottom Line

With a gold IRA, you can find a way to add healthy diversification to your retirement investments. And it could be a way to save money on taxes.

There are lots of IRS regulations to follow, but gold IRA providers will help you set up, rollover your account, and store your gold. Remember that investing in a gold IRA is the beginning of a relationship that can last decades, so there's no need to rush it.

References

  1. ^ Internal Revenue Service. Publication 590-A Contributions to Individual Retirement Arrangements (IRAs), Retrieved 7/13/2022
  2. ^ Internal Revenue Service. Retirement Topics - IRA Contribution Limits, Retrieved 7/23/2023
  3. ^ Internal Revenue Service. IRA FAQs - Distributions (Withdrawals), Retrieved 7/23/2023
  4. ^ American Hartford Gold. Does American Hartford Gold have a minimum Gold IRA initial contribution amount?, Retrieved 7/23/2023
  5. ^ Internal Revenue Service. IRA FAQs: Investments "If my IRA invests in gold or other bullion, can I store the bullion in my home?", Retrieved 7/13/2022
  6. ^ Internal Revenue Service. IRA FAQs:Contributions, Retrieved 7/13/2022

Jeremy Harshman is a creative assistant at CreditDonkey, a credit card comparison and reviews website. Write to Jeremy Harshman at jeremy.harshman@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

Note: This website is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content. You do not have to use our links, but you help support CreditDonkey if you do.

Goldco

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Best Gold IRA Companies

By Jeremy Harshman - Tips
Planning to retire? Find the top precious metals IRA companies in this in-depth review.
What makes gold investment appealing to you?
75% Maintained its value over the long term
6% Hedge against inflation
12% To diversify my portfolio
6% High liquidity
Source: CreditDonkey. Totals may not add to 100% due to rounding.
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