Is a Gold IRA a Good Idea?

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There is very little as important to your financial future as planning for your retirement.

When done right, retirement planning can ensure that you can leave work at a time of your choosing, can live the life to which you have grown accustomed, and don't have to work well into your retirement.

Of course, there is a wide array of potential financial vehicles that can guide your retirement, and you can invest your money in a slew of different ways, and since you only get one shot at retirement, you need to get it right.

One potential investment opportunity is a gold IRA. Gold IRAs have many advantages and may have an important place in your retirement planning.

However, you have to make sure you know what you are getting into when making these financial planning determinations.

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What is an IRA?

An IRA is a financial account that is set up with the explicit purpose of holding retirement of assets that can be used for retirement. There are many types of IRAs that contain a variety of different tax advantages.

However, IRAs typically have at least a few things in common: 

They have certain tax advantages. Making deposits into IRAs often reduces your overall tax burden and allows your retirement savings to grow tax-free. Money is taxed at some point, and that can either be when the money is withdrawn or first deposited.

There are overall contribution limits. These limits often vary based on the type of IRA that you use.

IRAs must be approved by the federal government to be eligible for tax advantages. The IRS typically is heavily involved in the regulation of IRAs. 

IRAs can hold multiple financial assets, including stocks, bonds, and physical assets.

IRAs are often self-directed, meaning that you can work on your own or in conjunction with a financial advisor to determine where the money is spent.  

IRAs benefit extensively from compounding interest. The more money you put in, the more interest is generated, which results in additional investment gains. 

Withdrawals from an IRA are strictly regulated by your age. Early withdrawals may be possible in certain emergencies, but you will then likely have to pay taxes and a penalty.
IRAs are not the only type of retirement vehicle at your disposal - far from it.

However, they are one of the more popular ones, as they are relatively easy to set up, offer extensive tax advantages, and can ensure that your money is professionally managed. 

Many types of IRAs are offered by financial professionals. These IRAs vary based on numerous factors, including your income level, age, and risk factor. One such example is a gold IRA.

What is a Gold IRA?

As the name implies, a gold IRA is an IRA that contains physical gold as its primary asset. This means that you can continue to buy more gold to put into the IRA.

When it comes time to make withdrawals from the IRA, you will sell the asset and reap the financial benefits. That money will be used to fund your retirement. 

a couple listening to a financial advisor

To be clear, a gold IRA is not an IRA that is used exclusively to buy stocks in gold mining or selling companies, though you can do that with a gold IRA. A gold IRA is simply a mechanism to buy actual, physical gold. 

This gold can be any type of gold, including bars, coins, or other forms of bullion. It has to be purchased from and stored in an IRS-approved regulatory location. This means that you can't own the gold, use your gold, or buy gold off of the internet. 

Instead, you have to work through a specifically approved broker. Gold IRAs do get more complicated than standard IRAs, and there are certain regulations that you have to be aware of.

The most important of these is that you need to make a gold IRA purchase through a bank or brokerage firm that is explicitly registered to fund and manage gold IRAs.

You can't do this on your own, and you will have to work through a broker to make this happen. Regular IRA brokers and managers may not be able to help you manage a gold IRA, so you will have to contact one of these specialty brokers to do that. 

A gold IRA is a self-directed IRA. This means that the funder of the IRA is involved more directly in determining where the funding for such an IRA goes. Furthermore, keep in mind that regular contribution limits still apply to IRAs.

As such, you can only buy enough of the physical asset so that it hits those contribution limits. You also have to respect normal withdrawal limits, so you cannot begin to sell those assets and use them to fund your retirement until you are 59 1/2 years old. 

There are many forms of IRAs, including traditional, Roth, and more. The good news for people interested in gold IRAs of these types is that you can buy a traditional or Roth IRA.

This means that you can take the normal flexibility that comes with an IRA and apply it to a gold one.

How Can You Setup a Gold IRA?

Setting up a gold IRA usually starts by talking with your financial advisor.

They may not be able to set up a gold IRA, but they can usually walk you through the process, help you find a registered broker, and discuss the pros and cons of making such an investment. 

gold coins protected by a lock

Ultimately, the decision about whether or not to start a gold IRA lies with you, but you should make this decision in conjunction with a financial professional who understands the risks and has experience in making these investments. 

Once you decide to set up a gold IRA, you'll need to contact a trained professional. This individual must be registered and certified as able to open and fund gold IRAs, or you must work with one of the many agencies that fund gold IRAs. 

You must also select the type of IRA you want, including traditional or Roth. Most people will select a traditional IRA, but there may be advantages for you to select a Roth IRA, so you should consult with a retirement expert before making this decision.   

Once you have opened your IRA, you can begin to fund it. 

Funding a gold IRA works like funding any other IRA, meaning that you can regularly make contributions to the account and allow its managers to buy gold that will be stored in an IRS-approved location.

What are the Benefits of a Gold IRA?

Gold IRAs offer many positives that cannot be matched by other types of IRAs - including IRAs that sell precious metals. There is no question that a gold IRA may have a place in your retirement account. 

First and foremost: Gold IRAs can diversify your portfolio. Most individuals have IRAs that are funded by relatively traditional financial instruments, including stocks and bonds.

By opening a gold IRA, you can mix the amount of funding that you have in your IRA. This reduces the amount of financial pain you will endure in the event of a massive stock or bond market crash. 

The idea behind a gold IRA being helpful to retirement savings is strengthened when you look at the history of gold. Gold tends to rise when stocks crash and during periods of recession.

Gold has always been valued for its safety. This makes it an excellent hedge against a total market crash. 

Indeed, one of the primary arguments behind investing in a gold IRA is the fact that gold tends to act as a hedge against negative market conditions, including market crashes or inflation.

The current state of the economy is one in which inflation continues to create major problems. Gold tends to rise in value when inflation occurs. This has happened repeatedly over time.

As such, gold is a safe investment for maintaining the overall value of your portfolio in times of very high inflation.

Some investors mistakenly think that gold is not a particularly liquid investment. However, in most cases, this is just fine for an IRA: An IRA is meant to be bought and held over a long time.

As such, gold - like other precious metals - would seem to be uniquely suited for investment.  Plus, your precious metals broker often has a buyback program that will help your liquidate your holdings when necessary.  

And gold has a huge global market, so liquidating your physical precious metals is easy to do.

As a self-directed investment, you are heavily involved in the management of your gold IRA account.

This gives you greater control than most people have over investments, and it allows individuals to closely monitor the overall performance of their IRA to ensure that it is appropriately meeting retirement standards. 

Finally, the value of gold has increased significantly over the past year, five years, and twenty years. While past performance is no guarantee of future growth, it is worth considering that gold has seen a significant price increase of late.

As such, it is worth considering an investment.

What are the Potential Drawbacks of a Gold IRA?

First, gold IRAs don't earn money like other financial assets. Stocks, bonds, and even savings accounts will earn a limited amount of interest or dividends. This immediately removes two of the three ways that a financial asset can earn money for you.

As such, the only way that gold (or any other physical asset) can earn money for you is if its value appreciates significantly. This can happen with gold, but there are no guarantees. 

This lack of dividends and interest costs you in other ways. This type of interest tends to grow in a tax-free manner. As such, you will lose one of the tax benefits of having your money in a regular IRA. 

Even if the value of gold does appreciate, there is no guarantee that you will make more money with a gold IRA than you would with a more traditional investment, like putting your money into a stock or bond.

As such, you may suffer a significant opportunity cost that comes with investing your money in a less-than-adequate financial instrument.  Furthermore, gold cannot move as easily as other stocks, bonds, or electronic-based financial instruments.

Selling gold can take more time if you do not choose a reputable precious metals dealer. As such, if you need money right away, you may be stuck.  There are also additional challenges with gold that don't exist with stocks or bonds.

Chief among them is that you need to pay for more than just the purchase price, as you will have to pay for storage costs and insurance in case something happens to the asset.

This can make buying gold more expensive, and those costs cannot be recouped another way. You can pay others to store and insure your gold, but they will ultimately charge you service fees. 

Finally, you can't move money out of your gold IRA if you haven't reached the withdrawal stage of your IRA. You also can't move any personal gold into your IRA if you already own that gold - you have to buy it as part of the IRA.

You also cannot personally store or access the gold - this has to be done only via an IRA-approved bank. This limit the flexibility of a gold IRA and means that you can't put jewelry or other gold assets you've already purchased into the IRA.

Is a Gold IRA Right for You?

At the end of the day, this is a very difficult question to answer. There is no question that a gold IRA offers major benefits, including some benefits that cannot be matched by other types of IRAs or investment vehicles.

However, there are also serious drawbacks, and you need to be aware of what these challenges are before you invest your limited retirement dollars in such an investment vehicle. 

Just like anything else, it is probably a bad idea to invest exclusively in gold to fund your retirement.

However, there is no question that it may have a place in your retirement portfolio, given its ability to serve as a hedge against economic uncertainty and the way it rises during periods of economic turmoil.

As such, it may be worth investigating investing at least some of your money in a gold IRA, if only as a way of protecting yourself against periods of economic strife. 

The most important thing is that you do your research and talk with a trusted financial professional. From there, you can decide if a gold IRA is right for you.

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