Gold can be a smart choice for investing. Its value has remained stable throughout history when prices rise and the economy is uncertain. This makes it an excellent way to protect the money you’ve invested. Gold IRA investing in gold can also help spread out your gold investments, which means you can balance the risks and rewards. Investing in higher-risk things like stocks may also protect you from losing money.
There are a few different ways to invest in gold. One option is a gold IRA. This retirement account offers specific tax benefits, just like regular IRAs. The difference is that a gold IRA holds physical gold instead of stocks, bonds, and mutual funds.
Gold IRAs come in three types: traditional, Roth, and Simplified Employee Pension (SEP). Each gold type has its unique traits. Therefore, comparing them and determining which is best for you is important. Start looking into your options for a gold IRA now.
Also Read: What to Consider Before Getting a Gold IRA
Different Types of Gold IRAs That You Should Know
There are three types of gold IRAs that you should know about. Each type has its benefits and rules. Here’s what you should understand about each one.
Traditional gold IRA
- Eligibility: You can contribute in a traditional gold ira if you have earned income.
- How they’re funded: You use money that hasn’t been taxed yet (pre-tax dollars).
- Contribution limit: For the tax year 2023, it’s $6,500 or $7,500 if you’re 50 or older.
- Are contributions tax-deductible? You can deduct them from your taxes (with the same tax benefits).
- Are withdrawals taxed?: Yes, you must pay taxes when you take out the money.
- Early withdrawal rules: If you take out money before 59 ½, you will be taxed and face a 10% penalty.
- Required minimum distributions (RMDs): Once you turn 73, you must start taking out a certain amount each year.
Traditional gold IRAs are a good choice if you expect your retirement income to be lower than your current income. Since you pay taxes when you withdraw the money, the tax rate will likely be lower than when you contributed it.
Roth gold IRAs
- Who can have them: If you earn less than a certain amount of money ($153,000 for individuals and $228,000 for married couples filing taxes together in 2023)
- How you put money in: You use the money you’ve already paid taxes on (after-tax dollars)
- The maximum amount you can contribute: $6,500 or $7,500 if you’re 50 years old or older in 2023
- Can you deduct the contributions from your taxes?: No
- Do you pay taxes when you take money out?: No
- Rules for taking money out early: You can take out money whenever you want with the same tax advantages or penalties
- No requirement for minimum distributions
Roth gold IRAs can be a good choice if you think you’ll have a higher income when you retire. When you contribute money to a Roth IRA, you pay taxes at your current tax rate. This means you’ll pay taxes at a lower rate compared to when you withdraw the money.
SEP gold IRAs
- Who can have them: Small business owners and self-employed individuals
- The maximum amount you can contribute: Up to 25% of your self-employed earnings or $66,000 (whichever is more) in 2023
- How they work: They work the same way as traditional gold IRAs
- SEP gold IRAs are for people who work for themselves, like small business owners, freelancers, and entrepreneurs. They have all the same features as traditional gold IRAs, but you can contribute much more money.
If you’re self-employed, you can also open a traditional or Roth gold IRA, so the SEP gold IRA is not your only choice. However, if you don’t need the tax benefits of a Roth IRA, a SEP gold IRA is worth considering just because of its higher contribution limit.
Should You Invest in a Gold IRA?
Many investors choose to add gold to their investment mix as a way to spread out their money. They can do this by investing in a gold IRA or buying gold directly. However, it’s essential to consider the risks of investing in physical gold compared to other things.
When saving for retirement, it’s important to pick things that will make your money grow over time. Unlike stocks and bonds, physical gold doesn’t give you any regular income or earnings. The only way to make money with gold is if its price increases. On average, the stock market goes up by around 7% each year, so it’s uncommon for a gold IRA to do better than other retirement investments.
How Can You Buy Gold in an Individual Retirement Account?
There are two ways to invest in gold using an IRA. One way is to set up a special kind of IRA called a self-directed gold IRA. This allows you to use your retirement savings to buy physical gold and silver, platinum, and palladium. Another way is to invest in a mutual or exchange-traded fund (ETF), focusing on other precious metals. But remember that this is not the same as owning actual gold.
What Kind of Gold Can You Use in a Gold IRA?
Not all types of gold can be used in a gold IRA. Only specific gold investments are allowed. You can use bullion, gold, and silver coins. Nonetheless, they must be legal tender and have a high purity level, at least 99.5 percent or better. Bullion bars and rounds are also allowed but must have a purity level greater than 99.9%.
Who Keeps My Gold in a Gold IRA?
Suppose you have a gold IRA; the precious metal needs to be stored with a custodian that the IRS approves. If you try to take physical possession of the gold, silver, platinum, it will be considered taking money out of your IRA, and you’ll have to pay taxes on it.
Other Types of Gold IRAs: