Gold IRA investing: What is it and how to get started

A gold IRA, also known as a precious metals IRA, is a self-directed individual retirement account (SDIRA) that allows investors to hold physical gold and other precious metals, like silver, platinum, and palladium, in their retirement portfolio. Unlike traditional IRAs that allow you to invest in paper assets (e.g., bonds, stocks, funds, etc.), gold IRAs allow you to hold tangible gold bars (also known as gold bullion) or coins and still allow for tax-deferred growth. Like other IRAs, they can be set up using pre-tax funds or as a Roth gold IRA, using after-tax funds. However, these precious metals need to meet purity standards referenced by the IRS and need to be held in a specialized custodian in an IRS-approved depository.

As mentioned above, gold IRAs require a specialty custodian rather than a traditional broker. Banks, trust companies, and certain federally insured credit unions can act as custodians; most traditional brokers do not offer self-directed IRAs (SDIRAs). Overall, a gold IRA works much like a regular IRA, but instead of holding traditional assets like stocks and bonds, it allows you to own physical precious metals within a tax-advantaged retirement account. 

Here’s a breakdown of how it works:

1. Open a self-directed IRA: Standard IRAs (like a traditional or Roth IRA) don’t usually allow direct ownership of physical gold, so you’ll need a SDIRA through an IRS-approved custodian that specializes in alternative assets. You might want to do some extra research on the IRS’ specific rules for gold IRAs and custodians.

2. Fund your account: You can fund your account by rolling over or transferring funds from an existing retirement account (e.g., a 401(k) or Roth IRA) or by adding new contributions. IRA contribution limits for tax year 2025 are $7,000 if under 50 or $8,000 if 50+.¹ It is also important to note that contribution limits are combined across all IRAs.

3. Choose IRS-approved precious metals: You can purchase gold, silver, platinum, or palladium coins or bars that meet the IRS purity standards. You might want to keep records for compliance and personal reasons.

4. Select a dealer and storage: You can purchase the metals through an approved dealer. The metals must be stored in an IRS-approved depository and cannot be stored in your home. These facilities ensure security, insurance, and general safekeeping. It is important to note that this may come with additional fees.

5. Hold the metals until retirement: Like traditional IRAs, withdrawing before age 59½ will result in penalties (with some exceptions). You can sell the metals for cash within your IRA and take withdrawals during retirement, or take physical possession of the metals as distribution (taxes may apply depending on your account type).

Before deciding if a gold IRA investment is right for you, you might want to consider the potential advantages and disadvantages this retirement savings account has to offer. This can help you better determine if this aligns with your retirement savings strategy, financial goals, risk tolerance, and investment horizon.

Here is a breakdown of some of the pros and cons of investing in a gold IRA:

• Portfolio diversification: Adding physical gold or precious metals to your portfolio can help balance stock- and bond-heavy portfolios, reducing overall volatility, adding diversification, and giving you options for alternative investments.

• Tangible asset ownership: Unlike paper assets (which are typically offered in other retirement investment accounts), a gold IRA lets you own physical gold or other precious metals.

• Possible hedge against inflation: Gold has historically held its value during periods of high inflation or currency weakness, which can help protect purchasing power.² However, it is still important to note that past performance is not a reliable indicator of future results.

• Same tax advantages as other IRAs: Gold IRAs offer the same tax advantages as other IRAs, so a traditional gold IRA will grow tax-deferred, while a Roth gold IRA will allow for tax-free withdrawals in retirement.

• Safe-haven asset: During times of market turbulence, geopolitical risk, or economic uncertainty, gold is often seen as a more stable asset.

• Potential for long-term growth: While gold doesn’t generate income (like dividends or interest), it has shown appreciation over time, particularly in uncertain economic cycles.

• Fees and storage costs: Gold IRAs can lead to extra costs, including custodian fees and dealer markups, which can eat into your returns.

• Limited liquidity compared to stocks: Selling gold may take longer than liquidating stocks or ETFs.

• No dividends or interest generated: Gold doesn’t pay dividends or interest; gains only come from price appreciation.

• Storage restrictions: Metals must be kept in an IRS-approved depository, not at home.³ Depositories often come with extra storage fees.

• Market risk: Gold prices can still be volatile, and returns may underperform stocks or other assets over long periods.

• No passive income: Gold does not generate passive income, unlike interest-earning bonds or dividend-paying stocks.

If you are looking to gain exposure to gold or other precious metals but don’t want to open a gold IRA, you might also want to explore different options, including:

• Precious metals ETFs or mutual funds.

• Mining company stocks.

• Diversified holdings in traditional retirement accounts.

These types of assets may be typically offered through other retirement account types (e.g., traditional or Roth IRAs) and might have a more simplified investment process without the excess fees associated with gold IRAs. However, you may still want to consider doing some extra research on the specific type of asset to see if it aligns with your financial goals.

A gold IRA is a retirement vehicle allowing physical holdings of gold and other precious metals. While they may offer similar benefits to other types of IRAs, it is important to understand the rules, benefits, and limitations of this account type before getting started. If you are unsure if a gold IRA fits into your retirement planning strategy, you might want to seek professional advice from a financial advisor.

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No. Standard IRAs typically only allow paper assets like stocks, bonds, or funds. To hold physical gold, you need a self-directed IRA (SDIRA) structured as a gold IRA.

Only IRS-approved gold that meets specific purity standards (in practice, this often means 99.5% for gold bullion) is allowed. This includes certain gold bars and coins, such as American Gold Eagles or Canadian Maple Leafs.

Yes, gold IRAs follow the same tax rules as traditional or Roth IRAs. Contributions to a traditional gold IRA may be tax-deductible, while Roth gold IRA contributions are made with after-tax dollars but allow for tax-free withdrawals in retirement.

The IRS requires that all physical metals in a gold IRA be stored in an IRS-approved depository. You cannot store the gold at home. These facilities ensure security, insurance, and compliance, though they typically charge storage fees.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

Sources

¹ https://www.irs.gov/publications/p590a 

² https://doi.org/10.1016/j.resourpol.2022.103009

³ https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras