How Does a Gold IRA Work?

Many investors consider gold as an attractive asset when it comes to investing for their retirement. Gold offers various benefits such as portfolio diversification. It is also used as a hedge against inflation.

With a traditional retirement account, you can obtain some gold exposure via mutual funds or stocks. However, it does not allow you to hold the physical metal. To do so, you should set up a gold IRA.

Gold IRAs are quite different from regular individual retirement accounts. They have extra rules and special fees.

What’s a Gold IRA?

It is a form of SDIRA (self-directed individual retirement account) that allows investors to own physical gold bullion. As I mentioned earlier, you cannot hold physical gold within a traditional IRA. Rather, you can have different assets that offer gold exposure such as gold ETFs (exchange-traded funds) or stocks from companies that mine gold.

Furthermore, opening an SDIRA allows you to invest in other assets like cryptocurrencies, real estate, and precious metals. Investors also enjoy the same tax benefits as holders of Roth and traditional IRAs. The withdrawal rules and contribution limits are also the same.

However, the Internal Revenue Service (IRS) implemented additional requirements for record-keeping and tax reporting for self-directed gold individual retirement accounts. This is because of the complex nature of the assets they possess.

How Can You Invest in a Gold IRA?

Now that you know what a gold IRA is, what do you need to do to start investing? 

The first step is to open an SDIRA account that you and a custodian can manage directly. The custodian should be a Trust company, bank, or brokerage that is approved by the IRS. It is important to note that many mutual fund firms and financial services that oversee regular IRAs do not cover the SDIRA version.

The next step is to find someone who deals in precious metals. Since you will be purchasing physical gold, you must ensure that the dealer is reliable. Some custodians already have affiliations with certain bullion dealers and can recommend one to you.

You should know that custodians differ. They do not all offer the same choice of investment. So, ensure that the custodian offers physical gold before you go ahead and open the account.

Your gold IRA can be set up as a Roth or traditional IRA. In a Roth individual retirement account, the distributions are tax-free while in a traditional IRA, the contributions are tax-deductible.

After setting up the account, you need to fund it. You can do this with a contribution, which is subject to a contribution limit, or a transfer. If you already have a 457, 401(k), or 403(b) plan, you can rollover funds to your gold IRA.

After that, you need to select your preferred investment and then the custodian and bullion dealers will assist in completing the transaction. You can choose either ingot or bar, but the metals must meet the IRS standards in terms of weight and purity. 

The metals should also be stored in a depository that the IRS approves of. And if you choose coins, you can only hold those issued by some government mints. To make things easier, you can utilize this done-for-you gold IRA kit.

The Types of Metals You Can Hold in a Gold IRA

Although the name of the account connotes that it can hold gold, account owners can hold other physical precious metals in it. The approved precious metals are:

  • Gold
  • Silver
  • Palladium
  • Platinum

There is a limit to the kind of bullion and coins that you can hold in a gold IRA. The IRS placed this limit to ensure that investors purchase superior-quality metals whose value will stand the test of time.

For instance, gold must have a purity level of 99.5% if you are purchasing it in the form of:

  • Credit Suisse bar that is produced in an approved facility.
  • Chinese Panda coins.
  • American Buffalo coins.

American Eagle coins are excluded from this rule. Their purity level is 91.67% and you can hold them in a gold IRA.

For silver bars and coins, the acceptable level of purity is 99.9% while palladium and platinum bars and coins should be 99.95%.

Your gold IRA custodian will help you choose the bars, coins, and other bullion forms that meet IRS requirements.

Benefits of a Gold IRA

Investing in gold helps you diversify your retirement portfolio on the basis of tax deferment. This implies that when you roll over or transfer funds from your already existing retirement account into the gold IRA, there will be no tax implication. Also, opening the account helps you to benefit from the $6000 annual contribution if you’re under 50 years and $7000 if you’re above 50 years. 

The major benefits of investing in a Gold IRA are:

Portfolio Diversification

When you invest a fraction of your retirement funds in precious metals, it diversifies your portfolio. Precious metals are uncorrelated assets with proven records of holding their value even when currencies, markets, and governments fail. Hence, when stocks are falling, the prices of gold and other precious metals will likely rise. As a result, you won’t lose out on all sides.

Tax Benefits

You will enjoy the same tax treatment that regular IRA owners enjoy. For instance, your contributions will be tax-deductible and qualified withdrawals do not attract tax.

Greater Control

Because a gold IRA is self-directed, you can easily manage your assets as well as make your own investment decisions.

Long-Term Holding

To make a profit from gold, you need to hold it for a longer period. A gold IRA offers a secure option for buying and holding physical gold. The assets won’t be touched for decades until you attain the age of retirement. By then, the value of gold would have increased.

Gold is historically known to store wealth. For instance, in 2000, the metal cost around $200 per ounce but by 2017, it climbed to more than $1200 per ounce. 

The Bottomline

Gold investments, just like any other investment, are not without risks. Therefore, you must make wise decisions. Still, setting up a gold individual retirement account helps to diversify your retirement account. It also offers hedging benefits against currency devaluation, economic and political crises, and inflation. You can request a free kit to get started.


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