Gold is a tangible, enduring asset that has been steadily increasing in value during political upheavals, inflation, and collapsing stock markets. Many investors looking to diversify their holdings beyond traditional bonds, mutual funds, and stocks still prefer to include physical gold in their portfolio.
It is one of the very few commodities that IRAs are allowed to invest in. So if you are looking to get into bullion and coin buying, you should understand the fundamentals of Gold IRA.
What is a Gold IRA?
In simple terms, a gold IRA is an individual retirement account that lets you invest in physical gold. With this account, you can easily diversify your investments and hedge against inflation. And just like other IRAs, a gold IRA is also a tax-advantaged retirement saving account.
Generally, physical gold is deemed an alternative investment, which is not allowed in a traditional IRA. As gold IRAs are usually self-directed IRAs, and follow the IRS rules, they can hold any alternative investments.
However, the government provides the outline of what kind of gold can be held in an IRA account as well as where the physical gold is to be stored.
The majority of gold IRA companies make it easier to meet these regulations and include precious metals (such as gold, silver, and platinum) into your personal retirement savings.
Why invest in a Gold IRA?
There are plenty of reasons to invest in a gold IRA, but the most important one is the tax benefits gained. When you purchase gold and hold it in your retirement account, you will have a chance to take advantage of tax-free or tax-deferred gains that are not offered by other investments.
Although the traditional IRA can be an excellent way of saving for retirement, it may not be an ideal option if you want some degree of flexibility in your portfolio.
An additional reason to invest in a gold IRA is portfolio protection. Unlike other investments, gold can be an excellent portfolio diversifier in times of economic crisis and can balance the rest of your holdings in your retirement account. Gold will not crash when stocks do, so having physical gold in your investment portfolio can help protect your holding against potential losses with foregoing liquidity and returns.
Finally, investing in a gold IRA gives you fast liquidity because, unlike assets such as real estate and stocks, it is incredibly easy to liquidate gold.
What can you store in a gold IRA?
Before you start buying a gold IRA, you should understand that the IRS has very strict rules concerning the type of hold you can store in your gold IRA. According to the regulations, you can only store gold bars that are 99.5% pure.
In addition to gold bars, you can also store gold coins such as the American Buffalo, the American Gold Eagle, the Australian Gold Kangaroo/Nugget, and the Canadian Maple Leaf coins.
Note that the IRS does not allow storage of some of the popular gold coins in your IRA such as the United Kingdom Sovereign and the South African Krugerrand coins.
Gold collectibles also cannot be stored in your IRA. So, be sure to review the authorized list of gold items with your custodian before storing gold in your gold IRA.
If you store non-permitted gold in your retirement account, the IRS will cancel it and categorize it as a withdrawal, thus you would owe income tax on the value of the gold in your IRA, and if you are below 59.5 you will be subjected to an additional penalty of 10% for early withdrawal.
How to rollover a 401k to a gold IRA?
A popular option to fund your new gold IRA account is to use funds held in another retirement account, like a 401k, IRA, 457b, 403b, or a Thrift Saving Plan. How easy this process is depends on the gold IRA company you choose, as the company will initiate the process by contacting your administrator with a formal request to roll over funds into your gold IRA.
You can initiate the rollover process yourself, note that if you are below 59.5 years old, you will have two months to finalize the process or you will have to pay income on the withdrawal as well as an additional 10% penalty.
To avoid this risk, you can let your gold IRA company facilitate the entire process on an institution-to-institution basis.
The advantage of allowing your chosen gold IRA company to manage your rollover is that the process is taken care of by experts who can eliminate the possibility of paying an early withdrawal penalty and income taxes.
Before initiating your rollover from a 401k to your new gold IRA account, it is important to find out how much of your existing savings you want to transfer to your gold IRA. This can be discussed with a financial planner or use the rule of thumb that recommends between 5% and 10% of your portfolio assigned to precious metals.
What to consider when buying gold with a gold IRA?
Points to consider before purchasing gold with a gold IRA.
Why open a gold IRA?
Investors prefer investing with a gold IRA for many common reasons. The investments can be in form of gold, palladium, silver, or any other precious metals, and you can have a diversified portfolio rather than investing all your funds in one asset
Also, as there are portfolios of different IRA accounts.
Decreasing supply
The production of gold has been decreasing over time. This means that the value will keep on increasing.
More and more people are interested in gold, but you should limit your supply or investment if you want to taste profits.
The working criterion of precious metal IRA
To get started, you need to access an IRA or self-directed account. You can do this with a retirement account in order to invest in gold.
It is these retirement accounts that enable you to invest in gold and other precious metals and must have an accredited custodian.
Once you have funded your IRA account, you will be given an option to choose the precious metal of your choice.
Should you buy Gold Bullions or Coins?
One of the most popular and common questions new investors ask themselves is “should I buy gold bullions or coins?” The truth is, whether you are experienced or new to gold investment, deciding which form to invest in should be given the utmost consideration.
I would advise that you do due diligence since there is no definitive wrong or right answer. This will eventually come down to the circumstances and needs.
Regulations can also have a say on your choice as some popular gold coins are prohibited by the IRS.
But there are various factors to be considered, including the product premiums and the size of your investment, storage facilities, how long you want to keep your gold, and how you plan to realize your investment value.
Where to store your gold?
There are only three places you can store your physical gold – a third-party storage company, a bank safe deposit box or store it at home.
Each solution has its risks, although storing at home is the riskiest of the three options. When you store your physical gold at home, if you lose it, that is it, so insurance is important.
Storing in a safe deposit box can be ideal because it is inexpensive. However, although accessing your investment can potentially be limited during bank opening hours. This can be very inconvenient because there are often huge market shifts on Friday afternoons.
Also, the bank will not insure whatever is in the safe deposit box, and thus to have peace of mind you will have to purchase separate insurance.
The best option is to store your gold with a private company, an alias depository. Your gold IRA service provider will recommend a reliable depository to store your gold.
What to look for with a gold IRA investment company?
- The legitimacy of the gold IRA company
Make sure that the company is insured and licensed, as it will give you peace of mind knowing that your retirement investment is in safe hands. Positive reviews can help you identify a legitimate service provider.
Make sure that the company is mandated to operate in your state and review its Better Business Bureau rating.
- Fees and minimum investment
The fee is the most important factor in setting up and maintaining your IRA account. Ensure that you know how much it will cost you to open and maintain your account.
In addition to this, find out the minimum investment required for each account. You don’t want an IRA account that has a high minimum investment than you can’t afford.
- The reputation of the gold IRA company
A good company should have a rich operation history, extensive experience as well as reputation in the industry. Check out testimonials and reviews from trustworthy sources as well as reputable platforms like the Business Consumer Alliance.
- Storage facilities for your gold
Find out the type of depository facilities the service provider has partnered with to give you the security that your gold.
Who offers the best deals?
It is important to look beyond only the basics in order to find the best service providers to invest with. If you are looking for a gold IRA company that offers the best investment deals,we have analyzed for of the leading players in the market:
- Augusta Precious Metals: Best overall
- Goldco Precious Metals: Best for transparent pricing
- Birch Gold: Best customer service
- Regal Assets: Best for IRA rollovers
Pros and Cons of a gold IRA
Just like any other investment, there are pros and cons, as an advantage for one person and a disadvantage for another.
Pros
- Diversified investments
One of the biggest advantages of of this type of IRA account is the flexibility it provides to diversify your investments. You can mix gold with other traditional assets like bonds, stocks, or real estate to diversify your portfolio. Or you can invest in different precious metals such as gold, silver, palladium, and platinum.
- Tax benefits
The tax advantage is perhaps a major advantage of gold IRAs. Contributions to conventional IRAs are usually tax-deductible while withdrawals from Roth are tax-free.
If you plan to hold on to your gold for a long period of time, a precious metal IRA can help save you from paying huge tax bills.
- Hedge against inflation
Gold is traditionally known for providing protection against inflation because it usually holds its value. Even if the price rises, it is often in relation to the cost of living, making gold a perfect asset to hedge against inflammation.
Cons
- High fees
Fees are usually involved during account setup, maintenance, and storage. It is essential that you understand these fees before investing in a gold IRA.
- Funding restrictions
The IRS has some very strict rules regarding how to maintain an account. For instance, you cannot move gold you already own into the gold IRA. This means you can’t buy and transfer gold to your IRA personally.
All transactions involving precious metal IRAs must be carried out through a custodian. This can add to already high fees.
FAQs
Q: Who holds the gold in the IRA?
A: Physical gold can be held by the owner or custodian of the gold IRA service provider on behalf of the customer. Although investors prefer custodian over storing at home for peace of mind.
Q: Can I store my physical gold in my house?
A: Yes, you can store your gold at home, but this can be costly and risky. The best option is to use a depository or custodian because most storage facilities are safe and insured.
Q: What types of gold can you store in a gold IRA?
A: You can store coins, bullions, and bars. However, the gold you store must be approved by the IRS.
There are many companies on the market who can manage the process to purchase gold.