What is a Gold IRA?

What is a Gold IRA?

A gold IRA is a type of self-directed Individual Retirement Account. Gold IRAs are similar to traditional IRAs, with a golden twist; instead of funding retirement savings with stocks and bonds, a gold IRA is funded through a self-selected catalog of precious metals. Although called ‘gold’ IRAs, they can be funded by any IRS-approved precious metal.

Gold IRAs are a popular retirement investment choice for a variety of people, including:

• Savers who want to invest in precious metals to better diversify their retirement portfolio.
• Investors looking to hedge their savings against inflation.
• Retirees who want to protect their wealth against geopolitical and economic instability.

How Does a Gold IRA Work?

Self-directed gold IRAs are created, funded, and maintained similarly to traditional IRAs. Here’s an overview of the process:

• Create a Self-Directed Gold IRA. This includes filling out the necessary paperwork and contacting the appropriate money management businesses to establish a self-directed IRA in your name.
• Fund your IRA. Use personal funds, or rollover funds from another IRA or a 401(K) to give your account investment power.
• Find a Custodian. The IRS requires that gold IRA investors have an authorized custodian to maintain their retirement assets. Once you find a suitable custodian to manage your account, this person or company will act as a helpful resource for the remaining life of your retirement account.
• Invest Your IRA with Precious Metals. Select precious metals assets to store in your retirement account.
• Store Your Precious Metals. The IRS does not allow gold IRA investors to store their gold at home. Once your precious metals are selected, you’ll find an IRS-approved depository to safely store your assets.

Gold IRAs: Traditional vs ROTH

A gold IRA is considered self-directed—it’s funded by alternative assets instead of stocks and bonds–and there are two types to choose from.

• Traditional IRA: The money that funds a traditional IRA is deposited pre-tax. Once an investor withdrawals their IRA savings (at age 59 ½ or older, otherwise they face a penalty), the sum of the withdrawal is taxed.
• ROTH IRA: A kind of mirrored version of the Traditional IRA, the money that funds a ROTH IRA consists of after-tax dollars. Alternatively, the final sum withdrawn from a ROTH IRA is not taxed.

Some investors recommend that young people—or people who believe that they will make significantly more income as they age—invest in a ROTH IRA, as their accounts will grow for decades without the burden of taxes. Older investors—or people whose income will not vary significantly with time—may want to invest in a traditional IRA, as they can deposit more money into their account without paying taxes on these larger deposits.

If you’re in the process of creating a self-directed IRA, consider starting with our list of top-rated gold IRA companies.

Funding a Gold IRA

Now that you’ve created a self-directed IRA for precious metals, it’s time to fund your account so that, when you’re ready, you can use it to purchase precious metals. You have a few options for funding your account, including:

• Make a cash contribution
• Transfer assets from an existing IRA
• Rollover funds from a 401k (often called a “Gold IRA Rollover”)

Finding a Custodian

Once your self-directed IRA is created, you’ll need to hire a custodian to manage your account. Custodians are non-negotiable; in fact, the IRS requires that self-directed IRAs be managed by a custodian.

In addition to their general management duties, custodians can help you:

• Track taxes: The taxes associated with a gold IRA can be confusing, but your custodian will know how to properly record and manage any associated taxes.
• Find gold dealers: To properly fund your account, custodians can help you track down gold dealers who will sell you IRA-approved precious metals.
• Find depositories: Once your gold is purchased, it will need to be stored in an official depository or vault. Your custodian can help you store your gold in trusted depositories

What Kind of Gold Can I Buy?

Now that you have a self-directed IRA and a custodian to look over it, you’re ready to purchase gold. For some gold IRA companies, your custodian also can serve as a broker, managing precious metal purchases for your account and recommending a depository to store them. Otherwise, you’ll need to purchase your gold directly from a trusted gold dealer.

The IRS requires that precious metals meet certain fineness specifications to qualify for a self-directed IRA, including:

• Purity: A coin or bar’s purity is a measurement of how much of a single metal element is present in the piece.
• Mint: The coin or bar must be minted or accredited by a recognized government mint or manufacturer.
• Collectible Status: The IRS does not allow gold to have a “collectible status,” as this would affect the market price of the gold.

Purity

The IRS requires different purity ratios for each precious metal that can fund a self-directed IRA. The chart below details each metal’s required purity:

*Exception: The American Eagle coin is allowed for IRA use, despite its purity of 91.67%

Mint and Collectible Status

To meet the minting requirement and avoid coins or bars with collectible statuses, we recommend you purchase your precious metals through an esteemed precious metals dealer. These “gold dealers” often feature online marketplaces that filter out non-IRA-approved precious metals products, ensuring that each metal you choose can be used in your IRA.

Shop Gold Dealers

Where Do I Store My Gold?

The IRS requires any precious metal assets in a self-directed IRA to be physically stored in a federal- or state-sanctioned depository.

Gold depository professionals will recommend you store your assets in one of two formats:

• Segregated: A segregated vault records and stores your physical assets separately from other customers. When you withdraw your metals in the future, they are the exact same metals that you put into storage on day one.
• Commingled: A commingled vault will mix all of its customers’ assets into one storage facility. When you deposit your assets, a depository professional will note the type, purity, weight, and value of your assets before mixing them in with others’ metals. When you withdraw your metals at a later date, you might receive metals that are different from the ones you deposited; however, the quality and value of your new metals will be the same as the old metals.

For surefire depository recommendations, speak to your self-directed IRA custodian or gold dealer about their affiliate and third-party storage partners.

How Do I Withdraw Funds from My IRA?

You can withdraw funds from your gold IRA in much the same way you would withdraw funds from any IRA, with an extra step. The “funds” you withdraw from a gold IRA are not in cash, but in the physical gold you stored in your account as principal. To liquidate your withdrawn physical gold, you have to sell the metals.

The remaining gold IRA withdrawal rules follow the same regulations as any other IRA:

• Age: With some exceptions, you must be 59 ½ before withdrawing IRA funds, otherwise you incur a 10% penalty on the amount you withdraw.
• Time: Your IRA must be active for five years before withdrawing funds.
• Traditional IRA: If your self-directed IRA is traditional and not a ROTH IRA, you will have to pay taxes on the sum of your withdrawal.

Common Gold IRA Fees

Gold IRAs can come with a few fees, since you’re working with at least one company to manage your account, purchase (and sometimes sell) precious metals on your behalf, and provide storage services.

In addition to the purchase price of the precious metals themselves, you may see these fees (fee estimates vary by company and services included):

Custodial Fees:

• Account creation | ~$50 one-time fee
• Wire transfer fees | $25 per wire
• Maintenance | ~$150 annually
• Account closure/cash-out | ~$250 one-time fee

Gold Dealer Fees:

• Markup | percentage of purchase
• Transaction | ~$40 per purchase

Storage Fees:

• Depository storage | varies
• Insurance fees | varies

Is a Gold IRA a Good Investment?

If you’re interested in saving for retirement, a gold IRA offers several benefits not found with a standard, stock-and-bond-based IRA.

Diversification

Investors like to invest in gold for two reasons: as a means to diversify one’s portfolio and to hedge against inflation. As the contemporary investment portfolio is a balancing act of high- and low-risk assets, gold is valued for its steady returns and relatively low risk.

The historical rise of inflation means that a single dollar will represent less and less value. As gold steadily rises in value, any cash invested into gold will better store that initial purchase value over time.

Liquidity

Although no asset is quite as liquid as cash, gold stands in as a close second. In an IRA funded by traditional assets, each stock, bond, or other asset must be sold, funds must be transferred, and a bank must approve a savings account withdrawal for an investor to reap their rewards.

Gold, on the contrary, is relatively easy to “flip” into cash. Gold investors can either sell their gold directly for cash or barter it for other valuable services or products.

Stability

Due to its rarity, beauty, and use in various electronics and machinery, gold will always represent a store of value. In times of war, extreme recession, or natural disaster, everyday stores of money such as cash may lose their value as a means to trade.

Gold is different. Some investors feel that gold and other precious metals are inherently valuable enough to remain a stable means for trade, even in the face of uncertainty.

Gold IRA vs Physical Gold

In this article, we’ve focused on investing in gold as a portfolio asset, but there are other ways to invest in gold, namely, buying physical gold.

Gold IRAs are great for long-term investors who want to take advantage of tax breaks (in the case of a gold ROTH IRA), or generally want to diversify their retirement portfolio. Physical gold can be a great option for investors who prefer quick liquidity and managing their gold directly.

Should You Get a Gold IRA?

If you’re looking for an alternative investment to help fund your retirement portfolio, a gold IRA is the perfect place to start.

Now that you’re armed with the basics, it’s time to get started on creating a gold IRA by checking out our list of customer-favorite gold IRA companies. Our list of gold IRA companies all provide step-by-step services and products for creating and funding an IRA. You can easily compare essential company information from our comparison page, making it all the easier to gather a list of your favorite gold IRA companies to start acquiring free quotes.

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Happy investing!