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Are Gold IRAs a good idea
A Gold IRA is a special Individual Retirement Account that helps investors diversify beyond the usual Stocks and Bonds. These IRS-approved accounts let you buy physical Precious metals like Gold, Silver, and even Platinum.
Holding metals in a Gold IRA means you can take advantage of special tax breaks and simplify the storage and insurance process. Plus, you can continue to hedge against Inflation, volatility, and economic downturn.
For these reasons, a Gold IRA can help investors introduce tangibility and safety to their Portfolios. However, they’re not without their downsides.
So, before you buy a bunch of Bullion, you should consider this question: "Are Gold IRAs a good idea?"
Let’s take a look.
What is a Gold IRA?
We'll start with the obvious question, "What is a Gold IRA?"
Sometimes called a Precious metal IRA, a Gold IRA lets you add physical Precious metals to your retirement Portfolio. But they’re not limited to metals – they can hold a range of assets that aren’t available in “regular” accounts.
Congress first permitted IRAs to hold a limited number of physical assets alongside securities in 1997. Like other IRAs, you can choose between two flavors:
- Traditional IRAs let you make tax-free contributions, but tax your retirement withdrawals
- Roth IRAs tax your contributions but let you make tax-free withdrawals in retirement
Technically, Gold IRAs are a kind of self-directed IRA, or SDIRA. These accounts give you more control over your Investment choices by widening your asset pool and letting you take charge of making your trades. Permissible Investments include a handful of Precious metals, potentially alongside derivatives and commodities.
How does a Gold IRA work?
Next, let’s take a look at how does a Gold IRA work.
Gold IRAs work a lot like a regular IRA. You select a suitable Broker, open your account, and start making trades that fit your Investment needs.
However, if you’re looking to purchase Precious metals, the accounts operate a bit differently. That’s because the IRS sets strict guidelines for how Gold IRAs are to operate to ensure investor safely. Every Precious metal IRA needs:
- An IRS-approved Custodian or Trustee to create and administer your account
- An authorized metal Broker to conduct metal transactions
- An IRS-approved Depository to hold your physical Gold
Bear in mind that the IRS also strictly regulates the Precious metal assets you can add to your Gold IRA.
Currently, permissible metals are limited to Gold, Silver, Platinum, and Palladium. Each metal must fit various requirements regarding purity, size, and certification. That means that jewelry and Gold-based art aren’t allowed; you generally have to stick with Bullion and approved Coins.
Additionally, the IRS doesn’t permit individuals to hold Gold in their own possession or even their own bank. To qualify, Gold IRA assets must be safely secured in an IRS-approved Depository – not under your mattress.
How to Open a Gold IRA
Historically, opening a Gold IRA has required a lot of extra effort due to the IRS’ custodial requirements. But in the last decade, the popularity of both Gold Investments and online Brokers has simplified the process. Now, opening a Gold IRA is almost as quick and easy as managing any other Retirement account.
Step #1: Select Your Custodian
Your account Custodian is the entity that will manage your self-directed IRA. Nowadays, Custodians take care of all of the time-consuming paperwork to clear your account with the IRS.
But since it’s a self-directed account, you’re on your own for Investment research. You’ll also have to decide whether you prefer a traditional or Roth account – or even both.
Step #2: Choose a Depository
Next up, you may have the option to select your Depository. The IRS maintains a list of eligible “nonbank trustees and Custodians”. Alternatively, your Custodian may have an established partnership with a particular Depository, simplifying the process.
Step #3: Fund Your Account
Funding your account is one of the most important steps in adding Precious metals to your Gold IRA. Since you can’t transfer your existing Bullion into your account, you’ll need cash in the account to make IRS-approved Gold purchases. You can fund a Gold IRA either by adding cash or rolling over an existing Retirement account balance.
Step #4: Purchase Your Gold
Next comes the exciting step: using contributed funds to actually buy physical assets. To do so, you’ll need to find an authorized metal Broker that sells IRS-approved assets.
Remember that assets must meet certain weight and purity standards. But don’t stress too much – many online Brokers make it clear which assets are IRA eligible. Most even coordinate with your chosen Custodian to ensure your items arrive safely.
Step #5: Wait for Your Assets to Arrive
If all that sounds complicated, take a deep breath. Modern IRA providers often operate within a streamlined network to simplify Gold-buying procedures. Once you make your Gold selection, all that’s left to do is wait for it to arrive.
We’ve established that getting ahold of your Gold is likely to be easy. But that still doesn’t answer our crucial question: Are Gold IRAs a good idea for investors?
When Are (and Aren’t) Gold IRAs a Good Idea?
Due to the complexity and potential drawbacks of Gold IRAs, they may not be perfect for every financial situation. However, many investors find them useful tools to realize their dreams of owning Gold in a tax-advantaged account.
Here are a few crucial considerations to help you decide for yourself.
Diversification Potential
Diversification is a key component of many Portfolios.
Simply put, diversification is the act of spreading money around to reduce your concentration in different assets or sectors. That way, when the market plunges, your asset mix ensures you still see some profits (or at least limit your losses.)
Gold IRAs offer a unique level of diversification because they permit alternative asset classes. Adding Precious metals like Gold to your Portfolio can hedge against market volatility and smooth out long-term risks.
Value Versus Volatility
Gold’s ability to hold its value is well-known, and this is one of the main reasons it’s pitted against the U.S. dollar during market downturns. It’s also one of Gold’s most noteworthy attributes, since Gold can be used in lieu of paper currency in many situations.
However, Gold has also seen a few periods of extreme, short-term price fluctuations. In some cases, that means Gold rises. In others, it struggles to beat even Inflation – let alone the Stock market’s returns.
Added Costs
Opening a Gold IRA may carry expenses that other Retirement accounts don’t have, such as:
- Account setup fees to open your account
- Seller’s markups
- Storage and insurance fees
- Custodian or management fees
- Cash-out costs to close your account
That said, the size and frequency of these fees may vary. You should always assess the potential costs before signing up for an account.
Precious Metals Don’t Earn an Income
By themselves, physical metals don’t earn an income – that means no interest, dividends, or “extra” payments of any kind. In other words, the only way to profit is by selling your Gold for more than you paid. Unfortunately, if Gold appreciates slowly, you may actually lose money compared to your annual fee structure.
Contribution Limits
Gold IRAs are limited by the contribution restrictions imposed on all Individual Retirement Accounts. These state that investors can only contribute a set value across all their IRAs in a given year. For 2022, that limit is set at $6,000; it will rise to $6,500 in 2023.
In other words, if you have four Retirement accounts, you’ll have to divide $6,000 across all four accounts. (Though it doesn’t have to be an even split.)
Required Minimum Distribution Considerations
Traditional IRAs (but not Roth IRAs) also have to contend with RMDs, or Required Minimum Distributions.
Essentially, after age 72, the IRS requires that you pull a minimum dollar amount from your IRA each year based on your life expectancy. This ensures that you have to pay taxes on your thus-far tax-deferred retirement savings.
But because metals aren’t particularly liquid, making these distributions can be a bit tricky. And if the value of Gold has recently dropped, you may be forced to cash out at a loss.
How Much Money Do You Need to Start a Gold IRA?
Typically, Gold IRAs carry higher fees than traditional or Roth IRAs.
Generally, you can expect to spend $50 to $150 upfront just to open the account. (Not including the cost of purchasing Gold.)
From there, you can expect to pay between $100 and $300 each year just to maintain the account. The exact costs depend on the Custodian, Depository, insurance policy, and amount of Gold you own.
Fortunately, you’ll get a small break in terms of commissions – most Gold IRAs don’t charge transaction fees. That said, you’ll probably pay a markup on the Gold itself so the dealer can make a profit, too.
All in all, you can expect to pay between $100 and $300 to set up your Gold IRA, plus extra to actually buy the Precious metal.
Are Gold IRAs a Good Idea for Your Portfolio?
We’ve looked at several aspects of Gold IRAs but we still haven’t answered the question, “Are Gold IRAs a good idea?”
As alternative Investments, Gold IRAs come with unique features and risks that help them stand apart from the crowd. Additionally, you have to consider Gold itself – its ability to hedge against crisis pitted against its higher costs and slower growth. (Compared to the stock market, anyway.)
Ultimately, the only one who can decide if a Gold IRA is a good idea for your Portfolio is you. If you want to diversify your Investment Portfolio with physical Gold, a Gold IRA can provide a safe path to Precious metal ownership.
In the mini-reviews below we highlight three of the best Gold IRA companies available. All of these companies are focused on customer education and they all have outstanding customer reviews. As you continue your exploration of Gold IRAs, reach out to one or more of these companies and request their free educational materials.
If you have questions about how a self-directed Precious metals IRA fits into your Investment Portfolio, ask the representatives at these Gold IRA companies. They are experts on the Precious metals sector and they will answer all of your questions without pressuring you to make an Investment.
Augusta Precious Metals
Year founded
BBB rating
Minimum Investment
2012
A+
$50,000
Augusta Precious Metals is committed to educating their customers. The company provides extensive educational materials on its website and investors with $100,000 or more to invest can schedule a 1-on-1 teleconference with Devlyn Steele, the company's Harvard-trained director of education. Many of Augusta's customers state that the company worked with them patiently until they were comfortable making an Investment in Precious metals. Augusta minimizes the fees you will pay for a Gold IRA and they never charge an IRA maintenance fee.
Birch Gold
Year founded
BBB rating
Minimum Investment
2003
A+
$10,000
Conservative politician Ron Paul chose Birch Gold Group as his Gold IRA company. Dr. Paul has been an advocate of real money and sensible economic principles for decades so his endorsement of Birch Gold is significant. Birch offers extensive educational resources on its website including a calculator that shows how performance on a 60/40 Portfolio of Stocks and Bonds improves when it is diversified with a small amount of Gold. First year fees are waived with an Investment of $50,000 or more.
Goldco
Year founded
BBB rating
Minimum Investment
2006
A+
$25,000
Goldco has a 16-year track record of helping investors protect their tax-advantaged savings with the security of Precious metals. Goldco is highly rated by the BBB, TrustPilot, and the Business Consumer Alliance. Based on more than 1,000 5-star reviews, Goldco is also well liked by its customers. Goldco publishes educational materials on their website and has additional resources available via email after you speak with one of their Precious metals specialists. Investors with $100,000 or more to invest receive $10,000 or more in free Silver.
About Me
After the dot com bubble popped I started researching Financial bubbles - how they evolve, how they pop, etc. I quickly realized that Gold is the only real money on planet Earth and in 2002 I bought my first Gold Coin. I've been investing in the shiny stuff ever since - both physical Precious metals and the Mining stocks. I've also studied the Financial markets, trading, Technical analysis, and the endless games that central banks play with fiat currencies. I do my best to share what I've learned with others - that's what you'll find here on Gold Well Live.