Gold IRAs are specialized individual retirement accounts (IRAs) that allow investors to hold gold as a qualified retirement investment. Instead of stocks or bonds, it holds gold bars, coins, and bullion. In addition to gold and silver, it can also hold other precious metals. A gold IRA is typically used by people who want to diversify their assets and hedge against inflation. IRAs are mainly designed to defer taxes on earnings, which means that gold has no earnings while sitting in your custodian’s safe. When you reach 70.5 or 72 (depending on when you were born), you’ll have to take a required minimum distribution (RMD) from the gold IRA, which will involve selling the gold. Investing in a diversified portfolio could help you hedge against inflation. IRAs can be opened through a broker-dealer or other custodian.
How to Invest in Gold IRA?
In order to hold physical gold in an IRA, the first step is to open a self-directed IRA (SDIRA) with a custodian. Custodians are IRS-approved financial institutions (banks, trust companies, brokerages), but many financial services and mutual fund companies don’t offer self-directed IRAs.
Your custodian may be able to recommend a precious metals dealer that can make the actual gold purchases for your IRA.
Ensure that your self-directed IRA custodian offers physical gold as one of their investment options before you open an account. SDIRAs can be set up as traditional IRAs (tax-deductible contributions) or Roth IRAs (tax-free distributions).
Funding the account can be done through a contribution, a transfer, or a rollover from a qualified plan, such as a 401(k), 403(b), or 457.
You can then select investments for the account, and your custodian and metals dealer will handle the transactions.
You can’t just buy any bar or ingot, either. The purity and weight of physical metals must meet IRS “fineness” standards, and they must be stored in an IRS-approved depository with insurance. In terms of coins, you can only purchase bullion coins from government mints.
Also Check: Why should I consider investing? 8 pieces of Advice for Young Investors
Pros and Cons of a Gold IRA
You can diversify your portfolio with a gold IRA, as we mentioned earlier. Historically, gold has tended to move opposite of stocks during extreme market downturns. As gold tends to move in tandem with stocks during optimistic times, it can be used as a hedge against serious financial market crises as well as inflation. In general, gold’s value increases as the dollar’s value decreases.
It is true that equity investments can be adequate hedges against inflation, but fixed income investments like bonds may not. For retirement savings, fixed-income investments are usually safe. However, investing in gold may be a better option if inflation is a concern for you.
However, gold IRAs have some drawbacks. In order to establish a gold IRA, there are significant upfront costs. Aside from that, gold doesn’t pay dividends or interest, so holding it in an IRA defeats one of its main purposes. In addition, gold is not a liquid asset. When you reach retirement age and have to make RMDs, making a withdrawal can be challenging.