What is a Gold IRA?

If you’ve kept your ear to the ticker tape, you know inflation continues to run above the Federal Reserve’s target of 2%. In addition, market volatility is high, and uncertainty remains the underlying theme of the U.S. economy.

Diversifying your retirement investment portfolio away from stocks, bonds and cash can help guard against losing money during an economic downturn. Gold and other precious metals can help you ride out these turbulent times because of their low correlation to stocks. If stocks and the dollar fall and inflation rises, gold typically appreciates.

As a result, you might be concerned about your nest egg. If so, it could be time to ask: What is a gold individual retirement account (IRA)? Keep reading to find out.

What is a Gold IRA?

The gold individual retirement account, also known as a precious metals IRA, was created by the Securities and Exchange Commission (SEC). The gold IRA functions similarly to a traditional IRA, except your investment is with gold bars and bullion (coins) or the precious metals of silver, platinum or palladium.

You also could invest in paper assets — stocks of gold mining and production companies, gold mutual funds invested in bullion or stocks and gold exchange-traded funds. However, the accounts are designed to hold physical precious metals.

How Does a Gold IRA Work?

Gold IRAs are similar to traditional IRAs. One big difference is you don’t go to a bank or financial institution to open a gold IRA. Instead, you set up your account with a gold IRA custodian and purchase your gold from a precious metals dealer.

Still, gold IRAs follow the same rules and regulations for tax advantages and contribution limits as traditional IRAs. You can open a pretax IRA, Roth IRA or simplified employee pension (SEP) IRA. The contribution limit for 2024 is $7,000. For those 50 and older, the limit is $8,000, with a $1,000 catch-up amount.

However, gold IRAs are self-directed, which means they permit alternative investments, such as gold and other precious metals, in retirement accounts. The IRS doesn’t allow a traditional IRA to invest in commodities like gold.

The account can hold only physical bars and coins. As such, you must buy gold that meets an IRS standard for quality and buy, transport and store your gold through a precious metals dealer or custodian. You also are required to do so at a facility sanctioned by the IRS.

You cannot store the gold at home or in a nearby safety deposit box. If you open a gold IRA, buy bars or coins and have them shipped anywhere other than an approved facility, that will be viewed as a distribution from your IRA. In turn, you will pay a tax and possibly a penalty if you haven’t reached age 59½.  

How to Set up a Gold IRA

It is more complicated to open a gold IRA than a traditional one. Alternative investments are often riskier than investments in stocks and bonds. They also lack liquidity, and you could fall victim to fraudulent dealers and custodians. The first step to take, then, is doing your homework.

You’ll need to find a reputable precious metals company and an IRS-approved custodian, which could be the dealer. While you want to make sure you know who is selling you the gold, the custodian is your key. 

This person is responsible for setting up the IRA and keeping your metals properly and securely stored. Make sure you know as much as you can about your custodian. Learn about the process, check with friends and read reviews.

Once you’re ready to open a gold IRA, take these six steps:

• Choose a gold IRA company or dealer.
• Open your self-directed IRA with a custodian.
• Fund your account.
• Pick the precious metals to invest in.
• Select an approved and secure depository.
• Complete the transaction.

It takes time and patience, but due diligence can help you get the investment you want and avoid scams.

Types of Gold IRAs

There are three types of gold IRAs:

• Traditional gold IRA: This takes pretax contributions that are tax deductible and appreciate tax-free. It taxes distributions as capital gains, and the account has a required mandatory distribution (RMD) at age 73.
• Roth gold IRA: This takes after-tax contributions that appreciate tax-free and aren’t taxed at distribution. There’s no RMD; your gold or precious metals can stay in your account as long as you’re alive.
• SEP gold IRA: This retirement account is for business owners or the self-employed. It’s like a traditional gold IRA, except it has higher contribution limits. You can contribute the lesser of 25% of your income or $69,000.

Deciding which gold IRA is right for you depends on your circumstances. Consulting a financial professional can help you decide whether a gold IRA makes sense for your financial situation.

Benefits and Risks of Gold IRAs

Like any investment, gold IRAs — traditional or Roth — have benefits and risks. Consider these:

Benefits

• Taxes: There is deferral with deductions and tax-free appreciation in a traditional gold IRA and tax-free appreciation and distributions in a gold Roth IRA.  
• Hedge on inflation: Gold’s value typically rises when prices increase.
• Hedge on volatility: Gold’s low correlation to stocks diversifies your portfolio and guards against fluctuations in the market.
• Made for holding: Appreciation over time is made for long-term investing.
• Control: It’s self-directed, although your metal selection may be limited.

Risks

• High minimum investment: Dealers require tens of thousands of dollars.
• Higher fees: Markup, setup, custodial care, storage and selling fees surpass traditional IRA fees.
• No tax-advantaged income: There are no dividends or accumulated interest despite appreciation. The tax break on capital gains comes later.
• No access to your metals: Metals are held in secure storage.
• Lack of liquidity: It’s not easy to sell and turn into cash.

Precious Metals You Can Hold in a Gold IRA

You should have your answer to what a gold IRA is by now. However, it then becomes necessary to learn the precious metals you can hold in a gold IRA. Not all coins are allowed.

The IRS only permits gold, silver, platinum and palladium to be held in a precious metals IRA, and those metals must meet a purity standard. The IRS requires gold to be 99.5% pure, silver to be 99.9% pure and platinum and palladium to be 99.95% pure.

For holding gold, silver, platinum and palladium coins, your precious metals IRA can include the Canadian Maple Leaf and the American Eagle coins for gold, silver and platinum. You also can have the following: 

• Gold in PAMP Suisse bars and Austrian Philharmonic and Australian Kangaroo coins 
• Silver in the Australian Kookaburra and Mexican Libertad coins 
• Platinum in the Australian Koala and Isle of Man Noble coins

Other bars and bullion from national government mints and approved refiners are permitted, but collectible coins that are graded or certified are not.

Compare Top Gold IRAs

When investing in a gold IRA, available metals, fees, education, ease of setup, customer support, reputation and more are important. Here is a comparison:  

Consider Whether a Gold IRA Is Right for You

Gold or precious metals IRAs allow you to diversify your investment portfolio to help protect your retirement nest egg from inflation and market swings in an uncertain economy. Consult your financial professional for help to determine whether a gold IRA should be in your financial future.

Frequently Asked Questions