Gold investments remain some of the preferable retirement investment options, and for a good reason. The precious metal has the potential of bringing more returns than regular stocks, especially when the right investment vehicle is used. Gold IRA is one of the increasingly popular options for retired and non-retired investors alike.

What is a gold IRA?

gold ira rollover

Gold IRA is one of the best ways to save and protect retirement benefits. The individual retirement account gives investors several options, such as tax deferments and Roth IRA investment, where tax deductions occur afterwards. It differs from traditional stocks and bonds and allows investors to use physical gold such as bars, coins, and bullions for investment. There can be other metals in a gold IRA investment, which makes it easy for those looking for portfolio diversification. Other qualified metals are silver, platinum, and palladium. Although the self-directed gold IRA accounts allow multiple investment options, they cannot hold jewelry.

A custodian and an approved depository are essential in starting such an investment. You should also know how to buy the actual precious metal and transfer them to the depository so the custodian can account for them. It is important to note that the distribution rules and contribution limits in a gold IRA are the same as the ones in a traditional individual retirement account. The only difference is that the IRAs hold actual assets and not paper assets.

Gold IRAs are also known as precious metals IRAs and have been around since 1975. The self-directed IRAs were formed in 1974 as part of the Employee Retirement Income Security Act and have steadily become more popular since then. Other investors seeking to put their money in other areas apart from the traditional stocks and bonds portfolios have continued to explore the IRA investment vehicle because of the kind of flexibility and value it offers.

How to invest in gold IRA

Investing in a gold IRA requires an investor to look for a self-directed IRA that is managed directly with a custodian. The custodian is an institution that must be approved by the IRS. Most financial and mutual fund companies do not offer self-directed services, which means adequate research in due time is essential. The custodian can also recommend a reliable precious metal dealer who will supply you with the assets you need. However, since they all deal with different investment choices, they may not offer physical gold. Confirm first before putting your money in, and decide whether you want the investment to be a traditional IRA, which is a tax-deductible option, or a Roth IRA, which allows tax-free distributions.

Retirement savers should also know the allowable contribution plans, whether 401(k), 457, or 403(b). The dealer can then complete the transactions on your behalf after you choose the type of investments you prefer for the IRA account. The physical gold, silver, platinum, and palladium must meet the purity and weight standards set by the IRS. They must also be kept in a depository approved by the IRS. If investing in gold coins, they must be given by specific government mints. The precious commodity futures tend to come at a higher price.

Factors to consider when setting up a precious metal IRA

The type of account: The most common options when dealing with gold investment is creating a new IRA account, transferring the existing IRA, or using any other retirement account.

The rollover option works for 401(k) accounts or any other type, provided it is for a retirement plan. A tax adviser or accountant can help you make an informed decision when considering these and other precious metals like silver, platinum, or palladium. Understand the types of accounts that can be rolled over and eligibility status before making such a move.

Account custodian: IRA custodians work under self-directed companies that act as fiduciary. They are responsible for setting up the accounts, accepting the allowable contributions, and producing account statements. Multiple IRA custodians are available, which makes it easier for investors to choose who to work with depending on the precious metal chosen. It is possible to communicate with them remotely, but they charge different fee amounts that must also be considered. Most of them have also established a relationship with dealers they can recommend, but you can still choose a custodian of your choice.

Precious metal dealer: Retirement accounts owners setting up self-directed accounts can still choose any dealer to work with by comparing prices, products, and customer service.

Bullion products: Specific bullion bars are eligible for IRA accounts. Some of the common products include gold, American Silver Eagles, Canadian Maple Leafs, Philharmonics, Gold American Buffalos, Gold Australian Kangaroos, Mexican Libertad Coin, and Australian Silver Kookaburras. Different gold bars and rounds with at least .995% fineness and silver rounds and bars with at least .999% fineness may also be eligible.

Palladium bullion and platinum products are also eligible. All these options make portfolio diversification easier and reduce investment risks.

Depository: The precious metal must be stored in an approved depository, but you can still choose any you are comfortable with from the approved list.

These factors will help an investor make the right choice between gold and silver investment or any other precious metal. You have the purchasing power, but the custodian handles payment while the dealer handles the shipment of the precious metals to the selected depository. The custodian will then give account statements periodically to show the holdings and their value. The IRA owner can liquidate the precious metals in the account any time they see fit or take the required minimum distributions in the form of bullion coins.

The whole process is straightforward and can be completed within days or weeks, whether there are investment partners or not.

Precious metals eligible for gold IRAs

The Internal Revenue Tax Code may seem like it makes it difficult for precious metal asset investors to capitalize on IRAs, but the rules they have in place are essential in setting up and maintaining the accounts. IRA account transactions have federal income tax stipulations and purity standards that differentiate them from paper assets like stocks, bonds, and mutual funds.

Types of gold and other precious metals that can be included in the IRAs

gold coins allowed in gold IRA

Examples you can use to invest in gold include:

  • Australian Nugget Coins
  • PAMP Suisse Bars
  • Uncirculated Buffalo Gold Coins
  • American Eagle Coins
  • Canadian Maple Leaf Coins
  • Philharmonic Coins

Examples of silver products are:

  • Silver bars and bullions produced by an approved refiner or government mints
  • Silver American eagle coins
  • Kookaburra coins
  • Libertad coins
  • Canadian maple leaf coins

Platinum examples:

  • Platinum bars and bullions produced by government mints or approved refiners
  • Isle of Man Noble Coins
  • Australian Koala Coins
  • Maple Leaf Coins
  • Eagle Coins

Examples of palladium products:

  • Specific bars and bullion produced by the government or other approved refiners
  • Canadian Maple Leaf Coins

Collectable coins are not allowed in the IRAs. The Belgian Franc, Chilean Peso, Austrian Corona, French Franc, Italian Lira, Swiss Franc, and Dutch Guilder are some of the examples. Make sure you buy the acceptable coin for the storage facility.

Choosing Gold IRA companies

Choosing a Gold IRA company to handle your precious metals requires that you do your due diligence because the kind of task they will be responsible for is specialized. Some of the considerations to take seriously are:

Track record: A gold IRA company with a good reputation will have good reviews on reputable platforms, such as Better Business Bureau or Business Consumer Alliance. Find out what other customers say about the company, especially the number of complaints they have had.

Transparency: Transparency is the most important thing to consider because the distribution rules in gold in an IRA investment have several costs that could come as a surprise if you are not prepared properly. A good company will help you understand all the costs upfront to help you avoid the unwelcome surprises that could interfere with your investment portfolio.

Flexibility: Investors putting money in gold in an IRA portfolio have different needs and preferences. The company should be able to provide customer service that befits each client and not a standard approach for everyone.

Qualifications: Licenses, registrations, and insurances are all part of the qualifications that every IRA company should have to protect your investments properly. Make sure you verify all those documentations before agreeing to work with them.

We have a page dedicated to gold ira companies, where you can check out more information, and get insight into the top gold ira companies we recommend.

Required minimum distribution regulations for gold IRA

After the age of 71 years, required minimum distributions or RDMs are taken from a traditional gold IRA, but not from a Roth one. The assets must have enough liquidity for the required distributions to be taken. This rule may make it harder for gold and silver IRAs to qualify since precious metals are not very liquid. You may be forced to sell some of the holdings to get the cash for the distributions, but other IRAs can also be considered.

Special considerations for IRAs

Since a gold IRA is a speciality account, it does not need conventional brokers to run it. The custodian firm must be qualified to deal with the tax code requirements and maintain all the documentation involved in maintaining it. IRA investors must meet the annual contribution limit, which was set at $6000 for the year 2021. Account owners over 50 years can invest an additional $1000, making their contribution $7000. There are also some penalties that you must consider to have a smooth process with IRAs—for instance, withdrawing from IRAs before age 59½ attracts an additional 10% penalty tax.  The physical gold, silver, platinum, and palladium must always be kept in an IRS-approved storage facility. An example of a facility approved by the IRS could be a bank. It is possible to keep the assets with third parties, but they should never be kept at home; otherwise, they will attract tax penalties.

Benefits and Risks For Gold IRAs

When considering gold IRAs for investment, you must consider the previous gold trends and the chances that you could get value from them. On the one hand, gold and other precious metal have a steady demand in the jewelry industry, but on the other hand, they are very illiquid, and you may not have the cash available when you need it. The pros and cons should, therefore, play a big role in your decision to open any type of IRA account.

Advantages of IRAs Long-term benefits

Being illiquid means the asset class is a long-term investment. You will not have access to the funds for years, possibly decades, which makes it an excellent option for retirement investment. You can start investing in gold in your 50s and have enough funds to live on in your old age.

Tax relief

Like other individual retirement nest egg accounts, a gold IRA also provides various tax benefits. The contributions made to the self-directed IRAs are usually tax-deductible, while withdrawals from Roth IRAs are tax-free. These are subject to specific conditions that should be considered.

Better asset control

Since they are self-directed accounts, the gold IRAs allow you to manage your holdings and make all the decisions without the interference of partners or other parties.

Disadvantages of gold IRA

Limited tax benefits

With gold and other precious metal bullions, there are no dividends, interest, or other benefits. The tax benefits do not apply to the growth of the investments. You only get significant profits when you sell the metals.

Restrictions with funding

You cannot use the precious metals you already own when setting up an IRA account. You must spend on the purchase of the assets, shipping, insurance, transportation, and storage of the precious metals. You will also rely on a custodian to handle the transactions on your behalf.

High fees

Although banks can keep the IRA assets, they must have special depositories. You cannot keep the gold or silver coins at home, which means you must spend on the ideal storage. Other factors like insurance and management fees that are usually higher than the regular stock market requirements also increase the IRA fees.

Checkbook IRAs

A checkbook IRA does not require a special custodian to manage, but setting one up is a more complicated process. The account holder must be an LLC (limited liability company) and must have a business checking account. The type of precious metal used in the IRAs accounts also differ.

Gold IRA alternatives

  • Gold stocks or funds, which can be in a regular brokerage account or traditional IRA
  • Trading gold options in the commodity market
  • Purchasing gold coins or bullions and storing them individually