What is a Physical Gold IRA Account and How Does It Work?

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Let's consider the type of IRA you need to have if you’re considering gold. An individual retirement account (IRA) that has precious metals needs the right designation. Such are precious metal IRAs.

Like traditional IRAs, your precious metal account is designed for both retirement and wealth protection. The difference is in what’s held within each account.

Though you won’t find a way to use gold for common purchases, gold is useful when creating a retirement plan.

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Why Are Gold IRAs Effective Investments?

Gold is a great investment in your home safe, in a regulated bank, or as an equity certificate. Neither crypto nor fiat currencies have impacted the relevance of gold.

As it stands today, no other asset has a 5,000 year track record of success as a store of value like gold.  It’s important to understand, however, that awe and beauty aren’t why gold is in demand. 

World governments are in an agreement regarding the role gold plays as a universal currency. It doesn't require electricity or an enormous, unpredictable tech infrastructure. This precious metal is also an industrial item.

Its use in electronics and manufacturing gives it purpose and a place within the global market. Diversity is another facet that makes gold a worthy investment in the long and short run. Holding it alongside other investments has proven to be a wise choice.

Why Put Gold in Your IRA?

Individual Retirement Accounts (IRA) protect your retirement as well as your family's financial security.

These special accounts allow you to set aside tax protected savings that you can use in the future.   

With these long term accounts it's important to allocate a significant portion to assets that are solid and reliable, so you have a secure and worry-free retirement. 

a couple listening to a financial advisor

You can have cash in an IRA, but that is devaluing at a rapid pace and inflation is out of control

You need an asset that's dependable, retains it's value, and even increases in value over time, and there is no better asset for this than gold. 

With the world's economy struggling through lockdowns, shortages, wars, and inflation, uncertainty has never been higher and investors are protecting themselves by placing physical gold in IRA's. 

A gold IRA investment prospers from these crisis that negatively affect most other assets. 

Risk is knowing the economic dangers and doing nothing to protect yourself and your family. 

Safety is knowing the economic dangers and taking action to protect your financial future, and this is easy to do with a gold IRA.

How Does a Gold IRA Work?

The Internal Revenue Service (IRS) is responsible for governing the regulations that lead IRAs and precious metal holdings. Investors who prepare for retirement are given a few incentives by the IRS. You must be dedicated to ensuring retirement savings, however.

To pull your gold IRA off, you need to follow strict guidelines, or your assets won’t qualify. For example, only the value of the metals you hold is accounted for.

The IRS does not credit intrinsic value, which is derived from assets that are considered collectibles. The factors that establish “IRS-eligible gold” include:

  • Size

The size-specific requirements are based on the weight of each item you store. Large gold coins and approved bars come in various, legal shapes, so you have options.

  • Weight

Gold cast into bars of up to 400 troy ounces are not eligible for an IRA. Each item stored in a gold IRA can have a maximum weight of 1 ounce.

The smallest weight approved by the IRS is 1/10 of a troy ounce. Therefore, to hold 400 troy ounces, for example, you need 400 individual coins or bars that each weigh a single ounce.

  • Condition

The gold items you store must be taken care of. You’ll need protected sleeves or transparent casings. The IRS only credits mint-condition items that get stored with a certificate of authenticity.

Items that are considered collectibles are reported to the IRS should you sell them. However, they don’t qualify for retirement accounts regardless of their condition.

  • Purity

The purity of gold is never 100%, so there is some leeway. This is because it’s malleable and thus needs small traces of compounds like nickel to keep gold molecules bonded.

The IRS accepts items with a purity rating of at least 99.5%. This is .4% less than what most accounts call for, so you will be able to find several products that are IRA-qualified.

What Are the Direct Benefits?

The financial benefits of gold come from its ability to hold value and then rise in value over time. Holding such an investment in a retirement account improves your potential profitability.

Gold will give you potential gains, but when held in a deferred account, its yearly gains are protected from government interest. However, you need an IRA set up.

Your IRA is set up to give you the best possible chance of reaching the goals you’ve set for retirement. 

Like with any individual retirement account, a gold IRA offers the following:

  • A Hedge Against Taxes

Traditional IRAs allow you to deposit money into a retirement account before taxation. You won’t worry about taxes for as long as you honor your account’s set rules. Reducing your yearly taxation will also give you a head start on retirement.

In addition to having pre-taxed income deposits, you get to use those deposits for tax deductions. What you deposit as contributions each year will reduce your taxable income, and this results in extra cash on hand.

  • Safeguarding Your Retirement

You should only open an individual retirement account if you can commit to leaving it alone. The benefits you get, as they relate to your gold holdings, are only granted because you’re making a legal commitment toward retirement.

Your IRA account is itself, a public consent that you don’t intend to withdraw from your fund until its maturity date. That date is when you’ll retire and is also determined by your age. An IRA will only work if retirement is your central goal.

  • Protection From Whims and Fancies

Millions of investors prepare for retirement and yet face the challenge of not squandering their wealth. Normal savings accounts don’t often work because they remain highly accessible to you.

Your IRA, however, is kept by a fiduciary that manages and oversees the retirement funds it holds.

You not only need to contact someone to make withdrawals, but you can’t open your account without their help. These agencies will keep your savings far from your whims and fancies.

Getting Your Gold IRA Started

You can get an IRA started with little work. Your decision or commitment toward retirement is what comes first. Having current savings or a steady income is also a prerequisite to making this account successful.

If you haven’t already spoken to a financial advisor about retirement, now is the time. Consider putting a plan together and incorporating IRAs to diversify your portfolio. Look to IRAs as a strategy that supports a larger plan.

You can start with these easy steps:

Choose a Custodian—Your Financial Investment Agency

A regulated financial agency will work on your behalf when buying gold investments for your IRA. The IRS will not trust your private purchases or any records you have of your holdings. You need a regulated agency to mediate.

These get audited by the IRS each year. Custodians work with the right compliance, leading to an accounting that has credibility. When held in a safe, the IRS cannot verify your holdings, their quality of them, or where they came from.

Only regulated dealers are licensed to act as custodians that mediate your IRAs. These agencies handle all of your transactions and ensure that the gold you hold is approved.

Like regulated banks, credit unions and non-depository banks also offer services as custodians. The IRS will use these agencies to verify the value and status of your investment account.

Choose the Type of IRA

You have a few different IRA types to choose from. Traditional IRAs are common. They use the pre-taxed income to fund your account. You can then use your contributions as deductibles during tax season.

For even more flexibility, there are IRA accounts that have no penalty or fee for making withdrawals. These are called Roth IRAs, but they require after-tax income. Neither do Roth contributions go toward reducing your taxable income each year.

With both Roth and traditional IRAs, you have the right to choose the assets. This is known as self-directing. It means that, within the given legal limits, you decide on what your account will hold.

Though collectibles are not allowed, self-directed IRAs can hold show horses, cars, and even property. Your gold IRA is a self-directed IRA. Other IRAs will work traditionally but for self-employed professionals or businesses.

Those who are self-employed qualify for SEPs.  Businesses, instead, qualify for SIMPLE IRAs. The SIMPLE IRA is how companies offer retirement plans to employees.

As for anyone who wants to transfer their current retirement funds into an IRA, you need a rollover. The Rollover IRA not only receives existing IRAs you have, but it can legally absorb any 457(b), 403(b), or 401(k) you’ve opened.

This is an option if you find that an IRA can better diversify or protect your retirement portfolio.

Fund Your Account—The Options Available

You know that through a rollover account you can transfer retirement savings into an IRA, but what those funds become is open to discussion. You aren’t limited to rolling over or depositing cash only.

The moment you instruct your custodian, you can have any number of asset classes received into your account. In some cases, you need to provide titles to property. In other cases, cash deposits, at specific amounts, get used to buying gold products.

The types of gold items accepted by the IRS give you enough to diversify. These products have to be qualified by the Internal Revenue Service. Bullion coins and bars are among the items that qualify.

With bullion products, you have the option of holding raw gold but in the form you choose. Coins minted by the U.S. Treasury are always accepted within IRA accounts. Bars have to be from an accredited depository like the U.S. Mint. 

You don’t, however, have to buy physical gold. Through exchange-traded funds (ETFs), you can invest in the gold industry. Be it by following the spot price of gold or following the performance of gold miners, ETFs work like hedge funds.

The difference is that they cover precious metals like silver and platinum. When you hold ETFs in gold, your contracts get honored based on the actual price of gold at that moment. This applies to the weight of any jewelry you’ve deposited.

Set Your Contributions on Autopilot

An auto-IRA receives automatic direct deposits. In the case of a gold IRA, the automated deposits will be in gold. You decide on how much, but you need to also have that money set aside.

Whatever the amount is, your custodian will immediately convert it into the gold products you signed up for.

Be it coins, bars, or more ETFs, the specific unit you want is bought at the rate you want it to happen. It all occurs without a second thought on your part.

Diversify Your Portfolio—Use More Than Gold

Making the most of your IRAs might call for you to consider more than gold. Platinum, silver, and even palladium work as well as gold. Precious metal IRAs, however, need to be managed by reliable brokers.

Your custodian acts as a broker when you aren’t sure of where to get the right products from. Just be aware that you’ll need separate IRAs for your portfolio.

Though you can stuff gold, silver, or platinum all into one IRA, you’re limited by how much that IRA is worth. 

A $6,000 limit is imposed on your IRA if you're under 70 years of age. The total gold that you can have in a single IRA can’t be valued over $6,000 as it’s being deposited. Those who are 70 or older have a yearly limit of $7,000 per IRA.

If you devise a plan to open multiple IRAs, they can each be assigned for each of the top precious metals. No matter how many IRAs you have, precious metals should consist of at least 10% of your financial portfolio.

Your Financial Strategy for Retirement

Speaking with a trusted custodian can give you a better understanding of your financial future.

There are endless ways to balance your portfolio for the right security. However, only an accredited custodian can manage your assets and work within the regulations of the IRS.

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