Physical Gold vs Gold IRA—What’s the Difference?
Broadly speaking, gold dealers offer two ways for you to invest in gold: selling you physical bullion and helping you set up a gold IRA.
- Physical gold: Physical gold—also referred to as bullion—is gold you own as a tangible product. Usually sold as coins or bars, you can store your gold either at home or in a professional security facility such as a vault or bank.
- Gold IRA: A gold IRA is a self-directed retirement investment account that invests in gold, silver, and other IRS-approved precious metals. Gold IRAs are similar to traditional IRAs, with the difference being that gold IRAs hold their investments in precious metals as opposed to traditional investment assets.
Physical gold and gold IRAs aren’t mutually exclusive investments. If you’d like to invest in both assets, you can!
How to Buy and Store Physical Gold
It’s surprisingly straightforward to buy gold online. Here’s what the process looks like step-by-step:
- Research gold sellers online.
- Choose precious metals based on element (e.g. gold, silver, or palladium), purity, shape (e.g. bar, coin, or round), design, and amount.
- Receive your physical gold from the depository via secure mail.
- Store and secure your physical metals.
When choosing what gold to buy, it’s important to confirm its authenticity and purity so that when you’re ready to sell your gold, you’ll be able to get its maximum value back. Be sure to find out where each product was minted, its model or design, purity, weight, and its market value before markup.
And while it’s tempting to try and find gold for cheap by going to yard sales and thrift shops, it’s not recommended. Legitimate gold dealers will only sell officially minted precious metals; they can’t scam you by saying something is higher purity when it’s not.
Once you make your purchase, most online gold sellers will ship your coins or bars directly to your home. In order to guarantee the product made it to your doorstep, you’ll need to be home at the time of delivery to sign the receipt.
As soon as your precious metals arrive at your door, it’s time to decide how to safely store it. If keeping it at home, consider using a fire- and theft-protected safe to protect your gold against worst-case scenarios. You can also choose to store it in an insured safe deposit box with your local bank or credit union.
Regardless of where you store your gold, buying physical gold means that it’s on-hand and easily accessible. If you ever need or want to sell it, physical gold can be easily liquidated into cash for the current market value.
How to Invest in a Gold IRA
Investing in a gold IRA requires a few more steps than buying gold directly. Here’s what to expect:
- Find a custodian–the company that will store and protect the physical gold behind your IRA.
- Find an approved broker or gold dealer that offers IRS-approved precious metal assets.
- Transfer money into your gold IRA account.
- Purchase precious metal products through your broker. They’ll transfer it to your custodian directly.
- Manage your IRA until retirement. Once you are at least 59.5 years of age, you can start requesting cash withdrawals on the value of your investments.
The first two steps—finding a licensed custodian and approved broker—might seem intimidating. Luckily, there’s a shortcut: the gold dealers on our list offer both gold brokerage and custodial services, either internally or via partnerships, making them one-stop-shops for your investment needs.
If you’d like to do your own research, you can save yourself some time by finding a broker first and then asking for their custodian recommendations. Brokers need to work closely with custodians—brokers are responsible for the quality of your gold where custodians are responsible for storing it—so many brokers will have a list of trusted partners accessible on request.
After setting up and funding your gold IRA (with cash or transferred funds), it's time to use that money to buy precious metals. While with physical gold you have freedom to choose your purity level and type of coin, the IRS requires that gold IRAs only invest in metals that meet certain requirements:
Coins
- Purity: 99.5%
- Most collectible coins are excluded
- Proof coins must be encapsulated, in mint condition, and include a certificate of authenticity
- Non-proof coins must be in brilliant, uncirculated condition
Bars and Rounds
- Purity: 99.5%
- Must be produced by an accredited/certified source or a national government mint and meet fineness requirements
- Small bullion bars must be manufactured to exact weight specifications
Although you won’t see any of your assets in person, they will be stored by your chosen custodian and will form the basis of your gold IRA.
Like traditional IRAs, you can’t withdraw funds from a gold IRA until you reach 59.5 years of age. If you withdraw funds sooner, your withdrawal incurs a 10% penalty.
Gold IRAs may also include additional fees, such as storage fees and custodial fees. Be sure to get a quote from your broker and custodian before investing.
Compare Top Gold IRA Companies
Choosing the Best Gold Investment
There are pros and cons to both physical gold and gold IRAs. When deciding which investment is right for you, it’s important to understand the strengths and weaknesses of both assets.
Physical gold is a great option for investors who want their assets to remain relatively liquid. Although not as liquid as direct cash, gold’s inherent value makes it easy to sell in a pinch.
Investors like owning gold to protect their savings against geopolitical turmoil. For example, the United States is not backed by any physical assets; the American dollar is considered a “fiat currency” because it derives its value from the government’s word alone. If the government were to fail as a result of a natural disaster or war, physical gold could outlast the value of the dollar.
Gold IRAs are great for long-term investors who want to diversify their retirement portfolio while still benefiting from tax breaks. Similar to traditional IRAs, gold IRAs are not taxed until withdrawal, making every dollar saved go that much further when investing in your retirement.
Gold IRAs are often more secure than gold purchased directly because it is stored by an insured custodian. Instead of having to consider how to keep your gold safe from thieves or what happens in the event of a natural disaster or theft, if anything happens to the physical gold in your IRA, it’s covered by insurance.
To get a head start on your gold investment journey, check out our list of top gold companies to learn more about physical and gold IRA investing and to find out who is the best investment partner for your future.
