Buying gold in an IRA is a tax-advantaged method to purchase the historically valuable precious metal. By utilizing a gold IRA, you can diversify your retirement savings beyond conventional assets like stocks and bonds.
A gold IRA is a retirement account that holds physical gold and other IRS-approved precious metals for you under a custodian. The rules for a gold IRA work the same as they do for a conventional IRA, such as a Traditional or Roth IRA, but instead of holding paper assets, they contain physical precious metals.
By utilizing a gold IRA for your retirement investing, you can bring physical precious metals to your portfolio and provide advantages to your account that are impossible with conventional investments. Plus, you can choose to withdraw your gold or a cash equivalent when you reach your IRA distribution age.
What Gold is IRA-approved?
Learning how to buy IRS-approved gold in an individual retirement account (IRA) can help you diversify your retirement savings and better protect your hard-earned savings. It's a valuable way to hedge against inflation and economic downturns.
You can hold gold in an IRA in a few different forms:
- Rounds (coin-like, but not minted by any government, and have no face value)
Gold coins also come in a few different forms, including:
Restrictions for Gold Held in a Gold IRA
The IRS provides specific rules for allowing gold in an IRA. Bars or coins must meet IRS standards for fineness. The IRA trustee and not the IRA holder must also hold the gold, and it must be kept in a depository that's approved by the IRS . Gold coins or rounds must be at least 99.5%, or 0.995, pure to be held in an IRA. The American Gold Eagle is the exception, as you can have this type of coin in your account even though it is around 92% pure. Foreign minted coins that meet the minimum for fineness are accepted in these accounts.
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How Do You Buy Gold in an IRA?
Most conventional IRAs do not provide the ability to invest in gold and other precious metals. In fact, it wasn't even possible to own gold in an IRA until the late 1990s. The Taxpayer Relief Act of 1997 changed that, opening self-directed IRAs (or SDIRAs) to alternative assets such as precious metals. This same act also put restrictions on the types of pieces you could hold in these accounts .
What Is a Self-Directed IRA?
An SDIRA is a type of retirement account where the account holder gets to make investment decisions like where and how much to invest. You have more control over investment decisions if you have an SDIRA instead of a conventional IRA.
An SDIRA provides flexibility in terms of investments, allowing you to invest in things other than the most common paper assets like CDs, mutual funds, stocks, and bonds . Because of their flexibility, self-directed IRAs are the best way to invest in precious metals, such as gold, in a retirement account. A gold IRA is a type of self-directed IRA in which gold is the primary investment.
Steps to Buying Gold for an IRA
You will typically need to take a few steps when buying gold in a self-directed IRA:
- Set up an account with a custodian that manages SDIRAs: A custodian is a financial institution responsible for storing assets you have in your account. Not all custodians handle self-directed IRAs, so it is important to verify this before opening an account. In the case of a gold IRA, the custodian will hold paperwork for the account, but an approved depository will store the physical gold. The IRS requires custodians to manage all retirement plans to maintain tax-deferred status . Custodians can be :
- Brokerage firms
- Credit unions
- Savings and loan associations
- Trust companies
- Move funds from an existing account: As with other conventional IRAs, you can transfer funds from a retirement account into a gold IRA without paying tax penalties. You can rollover the following types of accounts into gold IRAs:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Eligible 401(k), 403(b), 457, TSP, etc.
- Select the precious metal: In addition to gold, you can have a precious metal IRA with investments such as palladium, platinum, and silver. Gold ranks high in popularity in terms of precious metal IRAs thanks to its extensive history of maintaining value. Buy your gold: Once you have your self-directed IRA set up, you can purchase your gold investments. The investor is responsible for selecting precious metal dealers for the precious metals that go into their IRA. However, established custodians may have lists of dealers they work with that they can share with you. You can also choose the specific types of coins, bars, and bullion stored in your account.
- Store your gold: Many SDIRA custodians will give you multiple approved depositories to choose from to keep your gold safe and secure. The physical gold and precious metals in your gold IRA are not put into your physical possession unless you decide to take an in-kind distribution. Taking distributions of the gold in your IRA has tax implications and early withdrawal penalties if you’re not at the eligible distribution age of 59.5 years.
What Are the Pros of Buying Gold in an IRA?
Buying gold in an IRA has several advantages over the conventional investments of stocks and bonds typical of most retirement accounts, including the following.
Control Over the Future
Gold provides control over the account holder's financial future and retirement. It has an excellent historical track record, maintaining its purchasing power as the currency undergoes inflation. Gold keeps pace with and may even outperform inflation over the long term.
While physical gold also safeguards finances in terms of inflation, it can get complicated to keep gold at home. You would either need to install a floor or wall safe at home, or you would need to open and pay for a safety deposit box at the bank. This means your gold could be stolen during a break-in or a bank robbery or lost in a disaster.
Gold IRAs avoid this problem by storing your gold and precious metals in a protected depository (think Fort Knox) while you retain ownership of your gold and control of your future.
A Powerful Hedge for a Retirement Portfolio
Many financial advisors recommend people keep retirement assets in a combination of different types of assets: bonds, stocks, mutual funds, exchange-traded funds (ETFs), CDs, and/or money-market funds. While it’s possible to create a somewhat diversified portfolio using only paper assets, this menu leaves out a large number of potential savings vehicles that can further diversify savings.
Gold’s price tends to be highly uncorrelated with either stocks or bonds. Gold doesn't typically decline in lockstep with bonds or stocks, and its price movements are sufficiently contrary that it offers a real hedge against those most-common asset classes.
Unlike stocks and bonds, gold is a physical asset that holds intrinsic value. A share of stock in a company is worthless if the company goes bankrupt. A company-issued bond might be worth pennies on the dollar if the company goes out of business. National bonds are subject to sovereign default and the risk of fluctuating currencies. Gold’s value exists apart from promises to pay or a credit rating.
Insurance for Disasters
Gold in an IRA protects your purchasing power and, by extension, your financial future against unforeseen dangers. Much like fire or disease for which you buy insurance, there are just some things you cannot accurately predict when it comes to finances. A gold IRA can help protect you from geopolitical and financial dangers, including the following:
- Government spending, debt, and default
- Inflation Market uncertainty and volatility
- Political instability
- Systemic collapse or financial collapse
Gold is the only asset class or investment that can protect against all of these possibilities, thanks to the historical and intrinsic value gold holds .
A Balanced Approach to a Diversified Portfolio
While the price of gold can change like any other asset, it offers a balance when invested with other assets. If you balance both paper-based investments and gold, a loss with one asset could be offset by another asset’s gain. If the price of gold does decrease, other assets often experience gains .
Gold IRAs allow you to diversify your retirement savings by owning this valuable metal; it protects you from unforeseen financial downturns by minimizing loss, preparing you better for retirement.
If you'd like to learn more about how you can buy physical gold and silver within an IRA, you can talk with one of our preferred Gold IRA partners. Please call (800) 385-7331 or click here to request a free info kit.
- Congress. 'Taxpayer Relief Act of 1997,' https://www.congress.gov/105/plaws/publ34/PLAW-105publ34.pdf. Accessed September 21, 2020.
- Investopedia. 'Should You Get a Gold IRA?,' http://investopedia.com/articles/personal-finance/091814/analysis-should-you-get-gold-ira.asp. Accessed September 21, 2020.
- U.S. News. 'A Guide to Self-Directed IRAs,' https://money.usnews.com/money/retirement/iras/articles/a-guide-to-self-directed-iras. Accessed September 21, 2020.
- IRS. 'Approved Nonbank Trustees and Custodians,' https://www.irs.gov/retirement-plans/approved-nonbank-trustees-and-custodians. Accessed September 21, 2020.