Gold IRAs allow investors to hold assets like gold, silver, palladium, or platinum in their retirement portfolio. Investing in a gold IRA can offer a hedge against inflation and tax benefits that could provide stability and growth to boost their long-term wealth.
Although it can be beneficial for young adults and retirees, there are still disadvantages to consider, such as price volatility, limited annual contribution, high management and maintenance fees, and limited accessibility – which may not be suitable for all investors.
Overall, investing in a gold IRA can be beneficial for anyone looking for a safe and reliable investment alternative. If that sounds like a plan to you, I can't recommend Augusta Precious Metals enough. It's our top-rated gold IRA provider and one of the companies with the best user ratings we've ever reviewed.
If you want to build your long-term wealth with your retirement savings – putting all your eggs in one basket is a no-no. Investing in a gold IRA is one of the great ways to diversify your portfolio and reduce your overall risk when the market goes down.
Whether you're an experienced investor or a beginner, this guide will help you understand what gold IRAs are, how they work, their benefits and recurring fees, how to set one up for your retirement, and how to choose a reputable custodian.
What Is A Gold IRA?
A gold IRA is an individual retirement account that allows you to invest in physical gold as well as other precious metals like silver, palladium, and platinum. It’s backed by actual assets (gold bars, coins, etc.) that can help protect your retirement savings against inflation and economic instability. You can usually open a gold IRA account easily to protect your hard-earned money through a custodian or broker.
Unlike traditional IRAs—which are frequently invested in stocks, bonds, and mutual funds—investing in gold offers three main benefits to your retirement portfolio:
- First, gold is an effective tool for diversification given that it has historically improved its value over time and has performed well in times when the stock market performs poorly.
- Second, gold IRAs can provide tax advantages like tax-deferred growth and tax-free withdrawals when you turn 59 ½ (otherwise, you’ll have to pay a 10% early withdrawal penalty).
- Lastly, it can also be a wise investment choice if you want to protect and maximize your retirement savings.
Before creating an account, there are things you have to keep in mind if you're considering a gold IRA for your retirement:
Eligible IRA Precious Metals
If you are thinking about purchasing gold, then it must be 24-carat gold, which is what we consider “pure” gold. However, no gold is really 24 carats; that’s just an approximation. There are different levels of purity in gold that most people consider as 24 carats, and, even though the differences in purity are rather small, the differences in value are not.
The minimum level of purity or fineness of gold to be eligible for a gold IRA is 0.995 fine or pure, according to IRS standards and regulations. This is known as nine nine five gold and is actually just 23.88 carats. Other purer denominations include four nines gold which is 0.9999 or 99.99% pure, which is 23.9976 carats, much closer to 24, and also more valuable. One of the purest forms of gold you can buy is five nines gold (99.999% pure or 23.99976 carats) which is produced and sold as a special coin by the Royal Canadian Mint, advertised as the world's purest gold coin.
The following table summarizes this information to make it easier to visualize.
|Purity (%)||Purity (decimal)||Carats|
|100%(doesn’t really exist)||1||24|
Likewise, silver must also be at least 0.995 fine, while both palladium and platinum must be at least 0.9995.
Custodian, Storage, And Set-Up Fees
Opening a gold IRA account comes with different kinds of fees. For example, Advantage Gold comes with a $50 set-up fee, a $95 annual account fee, and a $150 storage fee. These fees can eat away the profits you make when investing in gold, so it’s better to do your research and consult with your financial advisor for your decisions.
How Does The Gold Or Silver IRA Work?
A gold or silver IRA works by letting its investors hold actual gold as their retirement investment. As an investor, you need to choose a specialty custodian or a brokerage firm to manage your account in exchange for fees to secure and protect your investments. Your gold or silver in your IRA is real, physical gold (not just a piece of paper), and it must be kept in a secure storage facility run by your custodian, which is the equivalent of a bank’s vault.
Gold IRA Contributions
When it comes to your gold IRA contributions, there are rules similar to those of normal IRA accounts. For example, you also have contribution limits on gold IRAs.
For example, if you’re employed, you can’t go over your annual contribution limits of $6,500 if you’re under 50, or $7,500 if you are 50 years old or older.
Gold IRA Distributions
When you’re ready to withdraw or start taking distributions, you can choose your distributions either in the form of physical gold or whatever other precious metal you invested in, or you can sell it off and take your distribution in cash.
However, you should know that the IRS also imposes early withdrawal penalty fees if you want to claim your gold before retirement, just like in a normal IRA. You must wait until you reach the age of 59 1⁄2, otherwise, you may be subjected to a 10% early withdrawal tax.
6 Steps To Start Investing In A Gold IRA For Your Retirement
Here are some steps to invest your retirement savings in a gold IRA account.
#1 Choose A Reputable Broker And Custodian
Before you start investing in a gold IRA account, you must choose an approved and reputable custodian and broker that you can trust. The broker provides a platform to help you buy and sell your precious metal, while the custodian is the financial institution where your purchased gold or silver is actually stored.
Some companies that offer Gold IRAs also handle custody of your physical gold, while others outsource it to third-party custodians. What matters most when choosing a company is for it to be experienced and have a good reputation so you can ensure your savings are in good hands.
#2 Choose The Type Of Gold IRA Account
There are three types of gold IRA accounts – Traditional IRA, Roth IRA, and Simplified Employee Pension (SEP) IRAs. Traditional gold IRA contributions are tax-deductible, Roth gold IRA contributions are made with after-tax dollars, so they offer tax-free withdrawals, and SEP gold IRA has a higher contribution limit of up to 25% of your self-employed compensation.
Deciding which gold IRA account to choose depends on how it can benefit you on your retirement. Each has its advantages and requirements, so you have to start exploring to know which can be the most beneficial to your particular situation.
If you believe you’ll be in a lower tax bracket in the future or after you retire, it’s better to choose a traditional IRA since those accounts defer taxes until you make your withdrawals.
In the opposite scenario, if you think you’ll retire in a higher income bracket, choosing a Roth gold IRA is better since you’ll pay income tax now, when you’re in a lower tax bracket, and get tax-free withdrawals in retirement.
If you’re self-employed, the best account to go for is a SEP Gold IRA.
#3 Set Up Your Gold IRA Account
Once you have chosen a custodian and the type of gold IRA to open, you must now set up your own gold IRA account. To do this, you must fill out an application and submit some personal information, including your name, social security number, and address. After providing your details, you will then need to make an initial deposit to your account, which ranges from $1,000 to tens of thousands, depending on the custodian you choose.
#4 Choose Your Type Of Investment
After opening your gold IRA account, you must decide which gold investments to put your savings into. This may include gold bars, coins, or bullion (or perhaps another metal if you chose a precious metal IRA). Keep in mind that your gold investments must be approved by the IRS in your gold IRA account for them to be qualified.
#5 Buy Your High-Quality Gold
After deciding which gold investment you will hold, it’s time to make a purchase. You can do this through your broker’s platform, which could be either a web-based, mobile, or desktop app or, in some cases, through the phone.
This step is not too different from buying shares or stocks when you contribute to a normal IRA.
#6 Store And Monitor Your Gold Purchases
After you buy your gold, silver, platinum, or palladium investments, you won’t just take the metal home with you. It’ll be stored in an IRS-compliant depository. Your custodian will offer you storage options for your assets to protect them from theft, damage, or loss.
You can sometimes choose between aggregate storage, where many investors’ gold is kept together in the same place, or non-aggregated storage, where your gold is kept in a dedicated storage space separate from all other investors.
Once they are stored and locked in place, it's important to monitor and keep track of their value and the market trends of your portfolio.
5 Best Gold IRA Companies You Might Want To Invest With
Investing in gold can be a smart way to help diversify and maximize the growth of your portfolio. However, looking for a trustworthy gold IRA company can be a hefty task. Hence, listed below are the top gold IRA companies in America.
- Augusta Precious Metals: Rated #1 “Best Overall” Gold IRA Company in 2022 by Money Magazine.
- Goldco: Best for customer service support with white glove treatment.
- Birch Gold: Best for small IRA investors
- Advantage Gold: Best for low fees and first-time buyers.
- American Bullion: Best for storage options.
Contribution Limits Of A Gold IRA Account
As mentioned before, there are limits to how much you can contribute to a gold IRA. Traditional gold IRAs, Roth IRAs, and SEP gold IRAs have different contribution limits that usually vary by age. You’ll find those limits, as of writing this post, in the table below.
|Traditional Gold IRA||Under 50||$6,500||As long as you have earned income|
|50 years or older||$7,500||As long as you have earned income|
|Roth Gold IRA||Under 50||$6,500||Earn an income of less than $153,000 for individuals and $228,00 for married couples.|
|50 years or older||$7,500||Earn an income of less than $153,000 for individuals and $228,00 for married couples.|
|SEP Gold IRA||N/A||Up to 25% of your self-employed earning or $66,000 (whichever is greater)||Small-business owners and self-employed individuals|
Special Fees To Consider In A Gold IRA Account
A gold IRA may be worth the wait to generate positive returns in the long term. However, you must understand the additional expenses it comes with.
- Custodian fees: having a custodian to look after your gold means that they will typically charge an annual fee for the service they provide. Depending on the custodian and the total value of your account, this fee might range from $50 to $300.
- Retirement account set-up fee: some brokers and custodians charge a one-time setup fee to open a new gold IRA account, while others don’t. Depending on the financial institution, the fee may vary from around $50 to $150.
- Markup fees: brokers usually charge more than the average market price when you buy gold from them to make a profit. This is known as the markup fee, and it depends on what kind of investment you buy, whether gold bullion, coins, or bars.
- Storage fees: the gold in your IRA must be kept in a secure location because you cannot physically possess it. The storage facility will charge a storage fee for this service, ranging from $50 to $250 annually.
- Early withdrawal fee: if you decide to withdraw from your gold IRA before you turn 59 ½. then you’ll be subjected to pay the IRS a 10% early distribution or early withdrawal penalty fee.
It's important to do your research on different custodians, brokers, and dealers to understand their fee structures and ensure that your retirement savings are getting a fair deal. Additionally, you may also want to read the fine print for any hidden fees or charges on your gold IRA account.
Pros Of Gold IRA Investing
The key benefit of investing in a Gold IRA is diversification. A gold IRA account can help you diversify your retirement portfolio by putting your money in an asset not tied to the stock market, like a mutual fund. This can protect your savings from market volatility and unstable economic circumstances lowering your overall risk of a financial loss.
#2 Tax Benefits
Depending on the type of gold IRA account you choose, there are tax benefits that you can receive from investing in gold. These include tax-deferred growth (you won't be taxed until you withdraw) and tax-free withdrawals (you pay taxes when you’re young, not when you retire). Thus, having a gold IRA account lessens your tax liability while boosting the growth of your retirement savings. This can make a big difference over the years, thanks to the compounding effect.
#3 Hedge Against Inflation
Another way that you can take advantage of investing your money in a gold IRA is that it can be used as a hedge against inflation. Even if your purchasing power is decreasing, the value of gold tends to increase during an economic crisis – which can potentially protect your hard-earned money from the decreasing value of the US dollar.
Cons Of Gold IRA Investing
#1 Price Volatility
As great as it sounds, contributing to a gold IRA does not mean you’ll get rich easily. While the value of gold has historically increased over the long run, it can still be volatile in the short term, leading to financial losses if you’re forced to sell when the price is low.
#2 Storage And High Premium Fees
Storage fees are something unique to gold IRAs, i.e., something normal IRAs don’t charge since they don’t have to allocate space and resources to watch over your investments in stocks and bonds. This leads to additional costs since you’re required to pay for safe storage facilities and insurance.
#3 Limited Returns And Accessibility
Gold may provide growth potential for your portfolio, but it might not have as many returns as other investments like bonds and stocks. You may also have a hard time choosing the right investment company since not all of them offer gold IRAs to investors.
How Much Does It Cost To Invest In A Gold IRA?
For starters, the initial setup of your gold IRA account ranges from $50 to $300, not including your purchases, insurance, and storage of the actual gold. After accounting for that, and depending on the custodian and account type you select, the cost of investing in a gold IRA may vary from around $150 to $500 (and sometimes more).
Additionally, the price of gold at the time you buy it for your gold IRA depends on market conditions. Hence, it’s better to deal with a trustworthy broker to ensure you receive a fair price on your investment.
Opening a gold IRA account can be a challenging task, but it can help you prepare for retirement by holding physical gold and other precious metals that increase their value over time. There are three basic types of gold IRAs—Traditional, Roth, and SEP—to protect your retirement savings from inflation and market crashes, as well as to provide tax-free contributions or withdrawals at the age of 59 1⁄2.
Aside from its advantages, there are things you have to consider on opening a gold IRA account which are high annual fees, price volatility, and limited contributions. Overall, diversifying your retirement portfolio with a gold IRA can be a wise investment choice for long-term wealth and growth.
If you're thinking of investing in gold for your retirement, check out our Augusta Precious Metals review and find out about the company we consider the best in the gold IRA sapace.
Gold IRA FAQs
Are gold IRAs worth it?
Yes, gold IRAs can be a good investment for retirement, especially if you want to add more diversification to your retirement portfolio. It also offers tax benefits and protection against inflation. Though, it may have a few disadvantages, including contribution limits, low returns, and early withdrawal penalties.
Is a gold IRA tax-free?
Yes, some gold IRAs are tax-free. It depends on the type of account you have. For example, your withdrawals in retirement will be tax-free if you have a Roth gold IRA. However, if you have a traditional Gold IRA, you will pay taxes on your withdrawals in retirement.
Can you physically hold gold in an IRA?
No, you cannot hold gold in a regular IRA or a 401(k). If you want to physically own gold, then you must have a gold IRA account, meet certain requirements, and you must be able to pay additional fees and must. Additionally, you must also work with an approved custodian to manage the unique storage needs to hold your physical gold bullion.
How long does it take to open a gold IRA account?
It takes at least one business day to open a gold IRA account and receive the account number, but it takes only up to 15 minutes to complete the application process.
Can I cash out or withdraw from my gold IRA account?
Yes, you can cash out or withdraw from your gold IRA account. If you do so after you turn 59 1⁄2, you won’t pay early withdrawal fees. Your withdrawals may also be taxed depending on your account type. If you withdraw early, i.e., before turning 59 ½, then you’ll be charged an additional 10% penalty.