Disclaimer: We are reader supported. We may be compensated from the links in this post, if you use products or services based on our expert recommendations. Please read our Advertising Disclosure.
What is a gold retirement account?
This is more technically known as a gold IRA. If you assume that the IRA part stands for an individual retirement account, then you're right.
Investors can use gold IRAs to qualify for retirement investment tax benefits. This is a self-directed account where you can invest in coins and bullion. You can obviously invest in gold, but you might also be able to invest in silver, platinum, and palladium.
If you open a gold IRA, it has to be separate from any other retirement accounts you have, such as conventional IRAs or a 401(k) plan.
Precious metal IRAs have specific rules that must be adhered to, although normal IRA rules apply regarding distributions and contribution limits. Gold IRAs are possible through the right brokers and custodians.
Before we get started:
We understand how difficult it is to pick a company that you can trust with your hard earned savings. That's why we create informative and useful information to give you as much knowledge as possible to make the right decision.
We created a list of our highest recommended investment companies, to make comparing and choosing the company best suited to your needs as easy as possible.
Or...
Get a FREE Gold Investing Kit from our #1 recommendation, by clicking the button below:
Protect Your Wealth & Tax and Penalty Free!
Three Things To Know About Gold & Silver Retirement Accounts
There are three things you should know right off the bat about gold IRAs:
Getting To Know Gold Retirement Accounts
An IRA is a tax-advantaged account you can use to save for your retirement or other plans. If you already have a traditional or Roth IRA, then you might already be familiar with them.
A gold IRA lets you specifically invest in gold, precious metals, and related investment options separately from other IRAs. You can set up your gold or precious metal IRA using pre-tax funds.
However, you can also use post-tax funds, just like you would with a Roth. The IRS requires brokers and custodians to be involved since physical precious metals are bought and stored for this kind of account.
Normal IRAs let you invest in paper-based asset classes, be it stocks, bonds, mutual funds, or real estate ownership. Precious metal IRAs emphasize alternative investment classes, namely precious metals.
Gold is the most common choice, but silver, platinum, and palladium are other possibilities your broker might offer you. Gold IRAs aren't restricted to just physical metals, however.
While you'll likely do most bars, coins, and other forms of bullion, there are certain paper investments gold IRAs can include, so long as they're related to gold.
Examples include ETFs, precious metal commodity futures, precious metal mutual funds, and even stocks in companies known to mine gold.
Things You Need To Consider
You can't use the same broker who sets up a traditional or Roth IRA for you to do a gold IRA. It's a specialty account, and it requires a precious metal broker that can handle the documentation and tax reporting.
While the assets and brokers are different, some IRA rules are consistent. You can't exceed the annual contribution limits. Withdrawals and distributions also follow the same rules.
At the time of writing, you could contribute $6,000 every year. If you are age 50 or up, then you can kick in an extra $1,000. That would make the annual contribution cap $7,000 if you're old enough.
If you want to take distributions, your age will matter greatly. Withdrawals before age 59 1/2 are subject to normal taxes plus a penalty of 10%. You can take withdrawals after that age with fewer penalties if any.
It is possible for fees to add up with a gold IRA if you do not pick a good company to work with. There are two kinds you'll commonly face. They come from your broker and your custodian.
Broker fees vary, but there might be an application or setup fee plus an annual account maintenance fee.
Many brokers run specials where they waive fees. Examples might be first-time clients or investors who put enough money into their accounts to hit a certain threshold.
Storage is the other fee you'll often face. The IRS requires gold IRA precious metals to be stored inside approved depositories or vaults. They'll likely charge you an annual storage fee.
They might also charge you extra if you want segregated storage. This keeps your precious metals in a specific space where they don't intermingle with other investor holdings. Not all depositories offer this option.
Kinds of Gold IRAs
Conventional IRAs are more of a category than a specific account. They come in a variety of forms, including traditional, Roth, SIMPLE, and SEP. Gold IRAs also come in various forms, so you have choices that you should know about.
These retirement accounts are ones you fund using pre-tax dollars. Any contributions you make happen before you pay taxes on them, and the earnings they accrue are also tax-deferred.
The withdrawals get taxed when it's time for you to retire.
Contributions you use to fund these are done using post-tax dollars. There's no immediate tax benefit to doing this. Taxes are paid when you take retirement distributions.
These are available to self-employed professionals and small business employees. You get taxed on retirement withdrawals but not on your contributions.
There are IRS limits to contributions, typically 25% of your overall compensation or $61,000, whichever happens, to be less.
Choosing a Quality Broker and Custodian
You have to choose a broker and custodian for your gold backed IRA account. The choice of broker is far more important since your choice of custodian might be limited to the options your broker offers you.
There are several factors to consider for a potential broker:
Different brokers have their investment minimums. Some are as low as a few thousand dollars, but others might stipulate at least $50,000. This is an investment option that is more widely available to high-net-worth individuals than others.
You can expect great customer service when they're trying to get your business. However, the right broker will also treat you well while they are managing your account and then again when you are closing out.
Given that you might do a rollover worth tens of thousands of dollars to start a gold IRA, you need someone you can trust to treat you right.
Since precious metal investing is so different than stocks, bonds, and mutual funds, you should learn all you can about this particular industry. Many precious metal brokers will offer free client educational resources you can use.
Take advantage of them to learn about the history of gold investing, how it works, and where the market is moving.
Most brokers can't legally guarantee you a buyback program, but many of them will offer the option. This can simplify things for you when you need to make a withdrawal or distribution.
If they're able to buy the metals back straight out of the vault, they won't have to ship them to you so you just get cash instead.
Gold IRA Risks
Are precious metal holdings the right move for creating a dedicated IRA? That can be a tough question to answer. There are certainly risks involved with investing in precious metals.
Storage
The IRS mandates that gold IRA precious metals be stored in a depository. That means you will pay storage and maintenance fees every year for what the custodian does for you.
There is always a risk of error, accident, theft, or loss that could cost you, although the right insurance might mitigate this risk.
No Dividends
Gold will never pay you a dividend. Many companies with shares of stock issue dividends, and bonds have yields that pay out frequently. Precious metals are an entirely different asset class and simply will never do that.
Earnings at Risk
The only real way to profit from gold is if the value goes up. Historically speaking, gold values trend up over time. Then again, it does so in spurts, and if it's not up in value when you have to do a mandatory withdrawal, then you might lose money.
Liquidation
When you get to the point of having to make required minimum distributions, you might not get a check or direct deposit like a traditional IRA would do. Since gold IRAs involve physical metals, you would instead be shipped your bullion, bars, and coins.
Brokers with buyback options can simplify this, but you might find yourself suddenly responsible for the safety and storage of physical products that are hard to cover with homeowners' or renter's insurance.
Gold IRA Upsides
While there are certainly risks to gold IRAs that you need to be mindful of, there are also potential upsides. They're not guaranteed to happen, as any investment has risks. However, the possibilities are there.
Hedge Against Inflation
When inflation goes up, the spending power of the dollar goes down. Precious metals don't lose their value as quickly, because their value is more physical than abstract. The 1970s were a case in point about this, and it's happening again these days.
Safe Harbor From Economic Turmoil
From economic upheaval to a political crisis, stock markets can buckle for many reasons. Precious metals tend to do their best when it seems like everything else is on shaky ground.
Those close to retirement who had significant precious metal holdings in 2008 were able to keep their portfolio afloat long enough to see the rest of their assets rebound in value.
Growth in Value
Watching precious metal values go up and down can be a stressful roller coaster in the short run, but they usually trend up in the long run.
This is particularly true if you're thinking decades instead of years. Investor demand drives a lot of upward growth in precious metal values, but so too do industrial applications, needs for jewelry resources, and supply chain disruptions.
Diversification
Precious metals tend to do well when paper-based asset classes and currencies don't. This is a big reason why they provide the other three benefits already listed in specific circumstances.
However, it does mean that precious metals make for great portfolio diversification anytime in your investing life.
Who Are Gold IRAs Right For?
Given the high minimum investments much precious metal brokers list, gold IRAs are more designed for investors who have already accrued some substantial net worth in their portfolios.
Your investment allocation should be based on your specific objectives and risk tolerance, along with the advice of a certified financial planner or advisor.
However, you should generally focus first on growth through other asset classes and then use precious metals to protect your investment portfolio as you get closer to retirement.
While gold and other precious metals can grow in value over time, the primary benefit to your portfolio is maintaining value in the event of a market crash close to your retirement date.
When the Great Recession happened, people who retired with precious metal holdings in their portfolio usually recovered more of their assets faster than those who didn't.
They simply had more valuable assets to rely on while waiting for the stock market to come back.
How much you should invest in precious metals is another good question. Conventional wisdom suggests that any investor place 5% of their assets in precious metals or gold-related stocks and mutual funds just to benefit from exposure to the sector.
Over time, you would aim more towards 10% to 15% to have a layer of protection for your overall portfolio while still enjoying the benefits of investing in stocks, bonds, and real estate.
Key Conclusions
A gold IRA lets you employ traditional IRA tax advantages to invest in precious metals. Using such an account can help you diversify your retirement portfolio.
However, you also need to be aware of the risks inherent to investing in gold, including fees, storage, and potential loss of value. You'll also have to deal with a broker and custodian.
They manage your account and handle the storage while the account is active. Normal IRA brokers usually can't help you, and there are fees for these services.
You can get a Free Gold Investors Guide from our top gold and precious metals company recommendation by clicking the link above or you can read our article of the top companies we reviewed this year:
>> CLICK HERE to read our list of the Top Gold Investing Companies. <<
I started BMOGAM Viewpoints as a way to compile all my views on investing in one place. I own my home, have some real estate, and own a few stocks like most people, but what really drives my interest in investing is I have a strong love of precious metals, especially gold.
