Gaining insight into the Gold IRA market necessitates a broader understanding beyond identifying individuals interested in gold investment. Initially, it is essential to grasp the profile of the usual IRA consumer. Then, we can narrow the focus to those seeking to expand their IRA by diversifying into alternative investment avenues. Lastly, we must examine the individuals who invest in a Gold IRA.
Furthermore, it is crucial to comprehend the performance of Gold, compare it to other valuable metals, and assess the returns offered when you invest in a gold IRA in contrast to traditional IRAs.
Now, let us delve into the statistical data.
A Concise Introduction to Key Concepts
It is crucial to familiarize oneself with certain terms right from the start. The definitions below are paraphrased directly from the IRS page and the following linked pages.
IRA
Individual Retirement Account: A professionally managed investment portfolio where individuals choose to allocate a portion of their income. The funds deposited in the account, along with their earnings, can be withdrawn once the account holder reaches the age of 59 ½.
- Traditional IRA – A Traditional IRA is an individual retirement account that offers certain tax advantages. When contributing to a Traditional IRA, the money deposited is typically tax-deductible at the time of contribution. That means the amount contributed can be deducted from your taxable income for that year, potentially reducing your overall tax liability.
However, it is important to note that when you eventually withdraw funds from your Traditional IRA during retirement, those withdrawals are treated as taxable income. That means that you will be required to pay income tax on the amount you withdraw based on your tax bracket at that time.
- Roth IRA – A Roth IRA is another type of individual retirement account that operates under a different set of rules than a Traditional IRA. With a Roth IRA, the money you contribute is not tax-deductible at the time of contribution. You do not receive an immediate tax benefit for contributing to a Roth IRA.
However, the key advantage of a Roth IRA comes into play when you make qualified withdrawals during retirement. Qualified withdrawals from a Roth IRA are tax-free, meaning you do not owe any income tax on the funds you withdraw. That can provide significant tax savings in retirement, as you can enjoy tax-free income from your Roth IRA investments.
Self-Directed IRA
The Self-Directed IRA allows investors to personally choose their investment options, including collectibles such as art, fine wine, or gold. However, it’s important to note that with most of these investments, once a purchase is made, it is considered a distribution and incurs a 10% tax.
There is an exception, though. Investors can establish a Custodian specifically for qualified gold, silver, platinum, and palladium investments. In these instances, these investments are treated similarly to regular stock or bond IRA investments. They are subject to the same tax regulations outlined in the Traditional or Roth IRA guidelines.
Who holds American IRAs?
Examining the IRA market and consumer base provides insight into the specialized realm of self-directed IRAs. (Primary data sourced from a 2021 report by the Investment Company Institute)
- Approximately 37% of households in America possess an IRA.
- Out of these individuals, only 35% made contributions in 2019.
- Around 29% of American households possess a traditional IRA.
- Of these, more than 8 out of 10 also have an employee-assisted retirement plan.
- Hence, roughly 30% of Americans have two retirement plans.
- Over 60% of households possess at least one retirement plan.
We will revisit this data later to investigate their decision-making processes. It is evident that while many American households have access to or own an IRA, they are not actively making contributions.
I also cover more information about this in my Gold IRA FAQ.
An important contextual detail is the maximum contribution limit for an IRA, which is $6,000. As we will explore later, this indicates a sharp increase in IRA contributions as participants’ income level rises. The wealthier an individual is, the more likely they are to contribute.
Identifying the Gold IRA Contributor
Obtaining accurate information about individuals holding gold in their IRA accounts can be a challenging task. However, here are some general figures to provide context:
- Self-directed IRAs, encompassing various investment types and not limited to gold, comprise only 3-5% of the total IRA accounts.
- Approximately 12% of the American population owns gold, but it is unclear whether this ownership pertains to physical gold or gold within an IRA.
- It is evident from these statistics that a small percentage of Americans hold gold in their IRAs. Let’s do some quick calculations: Considering that 37% of households possess an IRA, the highest estimate of self-directed gold accounts would amount to 1.85% of American households.
Consequently, we can infer that the reported 12% gold ownership figure does not accurately represent the ownership of gold within IRAs.
Obtaining demographic data specifically for gold IRA investors is challenging since these records are not publicly available. Furthermore, the abovementioned survey on gold ownership does not provide information about gold IRA ownership. However, we can utilize these data to extrapolate and speculate about the potential profile of individuals interested in a Gold IRA.
- 3% of males aged 45-54 own gold and silver.
- 1% of males aged 35-54 exclusively own gold without silver.
- 8% of females aged 35-44 exclusively own silver without gold.
- 8% of men in the same age range exclusively own silver.
If investments in Gold and Silver IRAs align with these trends, we can reasonably assume that most gold IRA investors are males between the ages of 35 and 54.
Advantages of Gold IRAs
Let’s begin by examining the advantages of gold compared to stocks broadly. We will then explore the benefits of investing in gold within an IRA instead of other ownership options, followed by an overview of the associated tax implications.
Gold vs. Stocks and the Dollar
Over three decades, from 1990 to 2020, the price of gold showcased an astounding surge of 360%. Investors who recognized its potential witnessed their investments multiply nearly fourfold. In contrast, the Dow Jones stock index experienced a significant rise of 991% during the same period, highlighting the exceptional growth of the stock market. Meanwhile, the dollar’s value saw a more modest increase of 198%, indicating a more stable yet less impressive performance.
To better understand these figures, let’s delve deeper into the comparison between gold, stocks, and the dollar. While gold managed to outperform the dollar by nearly a two-to-one margin, the stock market emerged as the clear winner, demonstrating an average gain five times greater than gold’s. That underlines the lucrative nature of investing in stocks, especially for those with a long-term perspective.
It is important to note that various factors, including interest rates, often influence gold’s performance. Gold tends to thrive when interest rates are low, typically between 0% and 4%. During such periods, investors seek alternative investment options that offer more attractive returns than traditional fixed-income securities. Consequently, the demand for gold rises, driving its price upwards. However, as of 2022, the global economic landscape shifted away from this interest rate range. Central banks and policymakers worldwide have been gradually adjusting rates to keep pace with changing economic conditions, potentially impacting the future performance of gold.
Looking ahead, investors and analysts are keeping a close eye on the interplay between gold, stocks, and the dollar. While the past three decades have shown stocks as the dominant performer, it is essential to recognize that historical trends do not guarantee future outcomes. Market dynamics, geopolitical events, and economic conditions can influence the performance of these assets in unforeseen ways.
Other factors like inflation, central bank policies, and global market sentiment can also impact the relative performance of gold, stocks, and the dollar. Investors must conduct thorough research, consider their risk tolerance, and diversify their portfolios to mitigate potential risks associated with any asset class.
Comparison of Gold IRA Performance and Traditional IRA
The performance of investment plans varies based on market forces, making direct comparisons challenging. However, let’s consider a $1,000 investment in Gold in 1990 and the same investment in the Dow Jones during the same period. Here are the results as of July 19, 2022:
- The investment in Gold has returned $4,419, resulting in a profit of $3,419.
- Alternatively, the investment in the Dow Jones has yielded $11,878 in stock gains.
- In contrast, if the same amount had been kept in savings, it would have lost twice its purchasing power.
Tax Implications of a Gold IRA
The taxation of Gold differs based on whether it is held as a Collectible or within an IRA. Understanding the tax implications of investing in gold is crucial. The data below, compiled by the Journal of Accounting, reflect the tax rates applicable at the time of compilation:
For an individual earning $60,000, the annualized returns for a $10,000 investment, after taxes and broker fees, would be as follows:
- 85% for physical gold investments.
- 88% for a Roth IRA.
- 94% for a Traditional IRA.
For an individual earning $398,500 with higher taxes, the returns would be:
- 71% for physical gold investments.
- 68% for a Roth IRA.
- 94% for a Traditional IRA.
Considering the tax implications, these returns demonstrate a slight advantage for individuals in lower tax brackets (25% tax bracket at the time of investment and 15% tax bracket at retirement) compared to wealthier investors.
Consider the Source
When evaluating Gold IRA data, it is crucial to consider the credibility and reliability of the information source. Our analysis found a survey conducted by a Gold IRA industry publication. However, it is important to note that the data collected in this survey was based on anonymous polling, a methodology similar to that used by external research firms.
Financial Advisor Perspective
To gain a broader understanding, let’s explore the perspective of a financial advisor as reported by the investment arm of Prudential Financial. According to their findings:
- 50% of analysts utilize alternative investments for their clients, indicating a significant interest in diversifying investment portfolios.
- Among those analysts, 62% claim to have a “wide range” of alternative options, demonstrating a considerable variety of investment choices.
- However, 6% of analysts state that their range of alternatives is limited or non-existent, suggesting that not all financial advisors have access to diverse investment options.
- Nearly half of the analysts (49%) mentioned that their clients require more diversification in their portfolios, indicating a demand for alternative investment opportunities.
- Additionally, 40% of analysts state that their clients rely on them to identify alternative investment opportunities, highlighting the role of financial advisors in guiding clients toward suitable investment options.
The Discrepancy in Investment Trends
By combining the insights from financial advisors with the observation of a low rate of full investment in IRAs and less than 2% investment in Self-Directed assets, it becomes evident that a significant gap likely exists between traditional stock/bond IRAs and Gold IRAs. These findings suggest that Gold IRAs and other self-directed investment options may not be widely adopted or understood by investors, potentially due to a lack of awareness or limited availability.
Investment Company Institute (ICI)
Furthermore, the lack of Gold IRA data from reliable sources is worth noting. The Investment Company Institute (ICI), a well-established firm with 80 years of experience, rigorous data collection methods, and representing 97% of US funds with a total of $29.6 trillion, did not provide any compiled data specifically on Self-Directed or Gold IRAs. This absence of data further emphasizes the limited prevalence and recognition of these types of assets within the investment industry.
Overall, when evaluating Gold IRA data, it is crucial to assess the sources’ credibility critically, consider the financial advisors’ perspective, and acknowledge the limited prevalence of Gold IRAs as indicated by industry reports and data sources.
About Tim Schmidt
Tim Schmidt is an Entrepreneur who has covered retirement investing since 2012. He started IRA Investing to share his expertise in using his Self-Directed IRA for alternative investments. His views on retirement investing have been highlighted in USA Today, Business Insider, Tech Times, and more. He invested with Goldco.
