What to Consider Before Investing in Gold IRA Accounts

More and more people are investing in individual retirement accounts (IRAs) to buy precious metals, but why is it happening? Should we put our hard-earned money into them?

When you open a gold IRA, you’re using part of your retirement money to buy the world’s most popular precious metal. However, many are still not sure if gold is a good asset for their investment portfolio. Therefore, it’s essential to consider several aspects before choosing this option.

Fortunately, here’s all the information we need to determine if gold can benefit our retirement portfolio. Read on to find out if opening a precious metals IRA is the right move!

Key Takeaways

  • This type of IRA allows investors to buy gold and other precious metals.
  • A gold IRA is a self-directed individual retirement account (IRA).
  • Gold IRAs are more expensive than a traditional IRA or a Roth IRA that invests in paper assets, such as stocks, mutual funds, and bonds, as investors must pay higher fees.
  • Physical gold, including gold coins and bars, must be stored in a depository approved by the Internal Revenue Service (IRS) if purchased through a precious metals IRA.
  • Although concentrated in a single asset class, a gold IRA can be an excellent hedge against inflation.
  • Investors must comply with the required minimum distribution (RMD) rules if they open gold IRAs.

Considerations Before Investing in a Gold IRA

A gold IRA can be a great investment option. Since they have intrinsic value that doesn’t fluctuate like the stock market, precious metals can withstand periods of economic uncertainty.

In addition, gold, silver, platinum, and palladium can help us diversify our retirement portfolio. They also benefit our investment in many ways and protect our hard-earned money from inflation and other negative economic events.

However, that doesn’t mean we should open a gold IRA right now. Ideally, each investor should consider several aspects to determine if opening an individual retirement account (IRA) and buying precious metals can benefit them.

Here’s more information on the key considerations for potential gold IRA investors!

The Changing Price of Gold

How does gold perform in the market? Do gold prices fluctuate constantly or remain unchanged over time? Answering these questions can help us make sound decisions when investing.

If we take a look at the latest market trends, we’ll see that the gold price has been moving upward for decades, although this precious metal’s value has also fallen sometimes.

In September 1999, gold prices were around $255 per ounce. However, it has experienced significant growth in the last 20 years, reaching an all-time high of $2,075 in 2020. According to the latest reports, it was $1,843 per ounce in March 2023, which means the value is slightly down from the last record high but has remained high.

As mentioned, a gold IRA allows us to buy physical gold, silver, platinum, and palladium. However, we can still purchase more-usual options with an individual retirement account, including stocks, bonds, and even cash. Although many think precious metals are safer investments than these paper assets, it’s still important to take a closer look at gold prices to determine if it’s a good asset to buy.

Gold Prices

Why Is Investing In Gold IRAs a Growing Trend?

We can innovate and take risks to diversify our investment portfolio. While some moves can result in losses, others could turn into huge profits. However, we should also make safe investments to protect our hard-earned money. This is where gold and other precious metals come in.

Why are so many investors putting their money in gold IRAs? This growing trend shows that opening an individual retirement account and buying precious metals is a good strategy for both beginners and experts.

Gold IRAs are quite attractive to most investors for many reasons. First, this type of individual retirement account helps us diversify our retirement portfolios. Also, as mentioned, gold prices often move in the opposite direction relative to paper assets.

When the stock market crashes, interest in gold rises, causing demand for precious metals to skyrocket. Consequently, their prices increase. Therefore, a gold IRA works as a type of insurance policy against inflation. If we add one to our portfolio and balance our assets, we smooth out risks in the long run. That’s one of the main reasons why buying precious metals through these accounts is a smart move.

A Complex Process That Pays Off

The demand for gold has not always been high. A few years ago, buying this precious metal involved a complex process that only persistent and expert investors were willing to complete.

If you open a gold IRA to buy precious metals, you must find a trustee or custodian and an IRS-approved depository. Also, it’s essential to know the rules for buying approved gold or other precious metals and transferring them to the selected depository for the custodian to manage them.

However, although this complicated transaction affected the demand for gold, precious metals IRAs became more popular after the financial crisis hit the United States between 2007 and 2008, resulting in the Great Recession.

As gold prices rose, more and more companies emerged. Many promised they would simplify the process, offering a one-stop shop to open an individual retirement account and buy/handle gold. As a result, demand went up, and precious metals experienced significant growth over the years.

Economic and world news has also had a major impact on precious metals. Interest in gold IRAs has grown continuously due to the potential inflationary effects of the Federal Reserve’s stimulus programs. An increase in geopolitical risks has also affected investments.

Investment Type

Besides taking a look at the latest gold prices and trends, we should also determine the type of investment that will benefit our portfolio. If we plan to open a gold IRA, we have two options: a traditional gold IRA and a Roth IRA. Both types allow us to buy actual gold bullion and coins. Depending on the account, we can also invest in a gold company’s stocks, gold mutual funds, or exchange-traded funds (ETFs) racking a gold index.

Before choosing an option, we should consider these alternatives and determine if we prefer to own physical gold or put our money in a gold-company stock, mutual fund, or ETF. Do you think buying physical gold can benefit your retirement portfolio? There are several rules that we must comply with.

All precious metal coins and bars we purchase must meet IRS fineness standards. In addition, IRA owners cannot store physical gold or other precious metals in home safes, closets, or safe deposit boxes. Instead, an IRA trustee must take care of these assets, which must be stored in an IRS-approved depository.

When we open a gold IRA account, we must also comply with several rules about contributions, withdrawals, disbursements, and taxes. These requirements are set by the IRS.

Working with a Broker or Custodian

Have you already chosen the best type of investment? Do you think opening a gold IRA can benefit your retirement portfolio? It’s time to find a broker or custodian.

Once we define our strategy and are ready to open an individual retirement account to buy gold, we must establish a self-directed IRA, but what is it?

Essentially, a self-directed IRA is a type of individual retirement account we can use for precious metals and other products. It allows us to directly manage our assets. That’s why it’s suitable for savvy investors with extensive experience buying gold and those who want to diversify their portfolios with tax benefits.

Additionally, if we set up a self-directed IRA, we can also invest in a wider range of products that are normally prohibited in other types of accounts. However, we need a custodian to create/manage the precious metals IRA and a broker to buy the gold, silver, platinum, and palladium. These parties will be in charge of storing and holding our bullion.

Banks, credit unions, trust companies, savings and loan associations, and brokerage firms are reliable custodians that have received approval from federal and state agencies to provide custody services to gold IRA investors.

These custodians don’t select precious metals dealers for their clients. That’s something investors should do themselves. However, most established firms have worked with many gold IRA companies across the country and know the best. We can ask for recommendations to choose a dependable one.

If we find a precious metals dealer before, we can also ask for recommendations to choose a trustworthy IRA custodian. However, all investors can pick their preferred custodians on their own.

How to Choose the Right Company to Use

Gold IRA Rules and Regulations

Choosing the best firm to open our gold IRA and buy or store precious metals is always complicated. All investors want to pick the right one to protect their assets. Furthermore, only a few major brokerage firms offer these specialized services. Fortunately, we can choose a good gold IRA company, custodian, and depository if we consider the following criteria:

Transparency

Opening a gold IRA involves spending money since we must pay several fees. Therefore, we should choose a company that offers transparent information about how much we should pay for its services.

If we know all the upfront costs, we can avoid surprises that can affect our gold and silver investments, such as hidden fees. Therefore, if the company isn’t transparent about its pricing, consider a more reliable option.

Flexibility

Not all investors have the same goals, needs, and resources. Choosing a company that suits our specific requirements can help us make better investment decisions.

Track Record

The best company to open a gold IRA and buy precious metals should have an outstanding reputation in the market. However, we should take a look at reports and opinions from reputable, objective third parties.

If the company got a good score/review by the Better Business Bureau (BBB) ​​or the Business Consumer Alliance (BCA), feel free to choose it. Also, we can consider what previous customers say about the firm. Do you want to know if it’s reputable and will help you protect your investment? Check the number of complaints filed and whether they were resolved.

We should also pay attention to what the firm offers in terms of education. Most gold IRA companies understand that opening these accounts and buying precious metals is complex, especially for first-time investors. Therefore, they offer educational resources to guide customers through the process and help them make sound investment decisions.

Ideally, we should choose companies that are educational and offer comprehensive information on their products rather than hard sellers.

Qualifications

If we want to choose a reputable gold IRA company, we should also research the firm’s qualifications. Does it have all the required licenses and registration? What about insurance and associations to protect customers’ precious metals? Check all that information and documents to pick the right option.

Advantages of Gold IRAs

If we want to know if opening a gold IRA is the right move, we should also consider its advantages and determine if these benefits can favor our investment strategy.

As mentioned, investing in gold through a precious metal IRA has many advantages. Gold is considered an effective hedge against inflation and other negative economic events, as it allows investors to protect their portfolios when there’s uncertainty in the market. Also, unlike stock and bond values, gold prices can never reach zero.

Gold IRAs are also great investment options in terms of tax advantages, as they offer the same tax benefits as an ordinary individual retirement account. A precious metal IRA allows us to accumulate tax-free until we’re ready to retire. However, we cannot take a distribution before age 59½. Otherwise, we can face penalties.

Advantages of Gold IRAs

Gold IRAs – Pros

Overall, these are the pros of a gold IRA:

  • Works like an inflation hedge
  • Offers tax advantages to those who invest in precious metals for their retirement
  • Is an easier and safer way to own and store gold
  • Provides diversification to portfolios
  • Has potential long-term growth if we save for retirement

Disadvantages of Gold IRAs

While gold for IRA offers many benefits, we should consider their disadvantages before determining if they’re the right investment option. First, they have higher maintenance fees compared to other individual retirement accounts due to the additional costs associated with precious metals investments.

In addition, we should consider brokerage and account setup fees before opening a gold IRA, as they can make the costs even higher. Investors must also pay fees for storing and insuring their precious metals, and some must cover markup on sales and closure costs.

There’s another major drawback to consider when determining if investing in a gold IRA is a good idea: precious metals aren’t highly liquid. In fact, gold is an illiquid asset. Therefore, it’s often difficult to find a buyer.

If we’re lucky enough to find a buyer but need to make large sales, we’ll likely have to make a discount, which means we’ll sell for a lower price. Also, although gold has intrinsic value and is considered a hedge against inflation, this precious metal can be volatile sometimes. Therefore, we should be as careful as we would be with any other investment.

Finally, there are the distribution rules. Many IRA owners are forced to sell their assets for a lower price than they would like because they can only take distributions when they reach a specific age.

Gold IRAs – Cons

To sum up, these are the cons of putting our hard-earned money in gold IRAs:

  • Higher fees compared to other IRAs and investment options
  • Lower growth potential than stocks and other paper assets
  • No dividends
  • Low or limited liquidity, which often results in lower prices

However, these disadvantages don’t mean we cannot open a gold IRA and invest in precious metals. Analyzing each factor and planning ahead to find the right solution to potential issues can help us. We can also contact an expert advisor and get the guidance we need to make a sound decision.

How Much Money Do We Need to Invest in a Gold IRA?

As mentioned, setting up a gold IRA comes with some expenses. Investors must pay fees to open the account, hold or store assets, insure them, and more.

Special Costs that Gold IRA Investors Must Cover

Here’s more information on these special costs.

IRA Setup

Most gold IRA companies charge a one-time fee to establish or open a new account. While this cost varies depending on the firm we work with, it’s common at most institutions.

However, the fee to open a gold IRA is often higher than the costs to set up an ordinary individual retirement account. This happens because only a few financial services firms help customers open and manage precious metals IRAs.

Seller’s Fee or Markup

Gold has a going rate. However, there are seller’s fees or markups depending on the type of asset we buy, whether they’re coins, bullion, or proofs, for example.

The markup is another one-time fee and also varies depending on the institution we choose. Also, each gold product has its own sale requirements.

Custodian Fees

IRA owners must pay annual costs for custodian services. There are also expenses for associated transactions. If we want to set up a gold IRA, we should also consider these fees. They’re often higher than what we should pay to set up ordinary IRAs, especially if we use a different financial institution.

Storage Fees

Gold IRA owners cannot store their assets at home. Therefore, the precious metals they purchase must be held by an eligible storage facility. This service also comes with different fees.

Cash-out Costs

What happens when we want to close a gold IRA? Many investors do this by selling their gold to an external dealer. However, these third parties pay much less than what we would earn by selling our precious metals on the open market.

Unless gold prices have risen considerably since we opened our account and purchased our assets, selling precious metals to a third-party dealer may result in capital losses. Although many companies buy gold back from customers at wholesale rates, investors can still lose money if they decide to close their precious metals IRAs. However, that doesn’t happen if we have an ordinary individual retirement account.

Rules About Withdrawing Money from a Gold IRA

Withdrawing Money from a Gold IRA

If we want to open a gold IRA, we must also follow several rules. Most requirements control distributions and withdrawals.

Required Minimum Distributions (RMDs)

With a traditional gold IRA, we can start taking required minimum distributions (RMDS) depending on the year we were born. According to IRS rules, RMDs kick in on April 1 after we turn a specific age, as explained below:

  • 73 if we turned that age before January 1 of this year
  • 72 if we turned that age between January 1, 2020, and December 31, 2022
  • 70½ if we turned that age before December 31, 2019

As mentioned, metals aren’t highly liquid like other assets. Therefore, finding a buyer to get enough cash for those distributions can be challenging. That’s why many investors sell their precious metals at low prices. However, we can withdraw our RMDs from our traditional IRAs to solve this issue.

Withdrawals from a Gold IRA

Besides the rules for distributions, there are requirements for withdrawals from gold IRAs, which may vary depending on whether we set up a traditional gold IRA or a Roth IRA.

Withdrawals from a Traditional Gold IRA

  • We must make contributions with pre-tax dollars.
  • If we make a distribution before age 59½, we must pay a 10% penalty.
  • Distributions are taxed as ordinary income.
  • We must take RMDs after reaching 73 or according to the rules listed above.

Withdrawals from Roth IRAs

  • We must make contributions with after-tax dollars.
  • If we make a distribution before age 59½, we must pay a 10% penalty.
  • Withdrawals are not taxed.

Special Risks Related to Gold IRAs

Although precious metals are great investment options for those who want to save for retirement, there are several risks associated with these assets. However, gold IRAs have the same risks as other types of investments. Volatility is one of them. Prices can go up or down sometimes, so no one can predict if they’ll be high or low in the future.

In addition, investing in physical gold has its own risks since all physical assets are vulnerable to theft, even if they’re in a depository. If someone breaks into the facility, that person can take our precious metals.

However, having a balanced portfolio and choosing a reputable depository can be great solutions for those potential risks.

When the price of gold plummets, paper assets perform well and vice versa. Therefore, if we have a diversified and balanced portfolio, we can manage these risks and protect our retirement savings. Additionally, depositories must provide insurance for precious metals to qualify for gold IRAs, which means our assets will be protected. Choosing a trustworthy custodian also means our gold, silver, platinum, and palladium will be in good hands.

In other words, the risks associated with gold IRAs can be mitigated by diversifying our portfolio and choosing a reputable custodian.

Gold IRA and Estate Planning

Gold and silver investments are also suitable for estate planning, as IRAs can be excellent ways of transferring our wealth to future generations. When we invest in gold IRAs, we can put our hard-earned money in tangible assets with high intrinsic value and pass our wealth on to our loved ones, protecting our estate from value depreciation.

Paper assets are subject to market volatility and other negative events that may affect their value over time. However, while they can also be volatile at times, gold and other precious metals are safer. In fact, they’re considered hedges against inflation.

In addition, precious metals have held their value over time, becoming a reliable store of wealth for people who want to pass down their money to their families after their passing. Finally, there are the tax advantages. Gold IRAs offer tax benefits that can favor both today’s investors and future generations.

Gold IRA Investment Considerations – Summary

To sum up, these key considerations can help us know if a gold IRA can benefit our investment.

Defining Our Investment Goals

The first step to finding out if gold IRAs can benefit our investment and opening an account is to define our investment goals. Doing so can help us determine if it fits our retirement saving strategy.

Selecting Custodian or Gold Dealer

Also, it’s important to choose the best and most reliable gold IRA companies to establish our accounts and buy the precious metals for our portfolio. Many firms offer all services in a one-stop shop. That’s great if we want to save time and make the process easier. However, we must choose one that suits our needs.

Knowing Tax Implications

As mentioned, we must follow several tax rules if we want to open a gold IRA. These requirements vary depending on the type of individual retirement account we have.

Determining Our Risk Tolerance

Putting all our money in a gold IRA account isn’t a good idea. As mentioned, all investments come with risks, including buying precious metals. Therefore, we must understand our risk tolerance before choosing this strategy. Essentially, risk tolerance is the level of risk or uncertainty an investor can endure according to their assets’ value and volatility.

Calculating the Amount We’ll Invest

If we want to establish a gold IRA and buy precious metals, we should keep in mind that it comes with expenses. As explained above, we must pay several fees. In addition, we must also set the amount that we’ll allocate to purchase these assets.

Frequently Asked Questions

What Is a Gold IRA?

In simple words, a gold IRA is a self-directed individual retirement account that allows us to hold physical gold bullion and other products, such as coins and bars. This helps us diversify our investment portfolio.

How Can I Open a Gold IRA?

To open a Gold IRA, we should find a reputable custodian or trustee that specializes in self-directed IRAs. That’s the first step. After that, we should fill out the necessary paperwork, as well as provide identification and other documentation. Once the account is set up, we can fund it with cash or rollover funds from our existing retirement account.

What Is IRA-eligible Gold?

IRA-eligible gold is, essentially, gold bullion, coins, and bars that meet the specifications outlined by the IRS for assets that can be included in self-directed IRAs. The gold must be at least 99.5% pure and be produced by a recognized and approved mint or refiner. American Gold Eagles, Canadian Gold Maple Leafs, and Australian Gold Kangaroos are great examples.

How Do You Buy Gold In an IRA?

A custodian will help us select the type of gold we want to buy, purchase the asset, and deliver it to an ISR-approved storage facility. After that, the gold is held in the IRA, which is managed by the custodian on our behalf.

Are There Other Ways to Own Gold?

Yes, there are other ways to own gold. Some investors choose to buy physical gold bullion, coins, or bars outright and store them in a safe or vault. Others invest in gold exchange-traded funds (ETFs) or stocks of gold mining companies. However, these options do not offer the tax benefits and asset protection provided by a Gold IRA.

Who Holds My Precious Metals If I Buy Gold Through a Gold IRA?

If you buy gold through a Gold IRA, the precious metals are held in a secure storage facility approved by the IRS. The storage facility is typically managed by a third-party custodian or trustee that specializes in self-directed IRAs. The custodian is responsible for the safekeeping of the gold and ensuring that it meets IRS requirements.

Is Gold a Good Investment Option?

Gold can be a good investment option for investors looking to diversify their portfolios and hedge against inflation and economic uncertainty.

However, it is important to note that gold prices can be volatile and there are costs associated with owning physical gold, such as storage and insurance fees.

Additionally, past performance is not indicative of future results, so it is important to do your research and consult with a financial advisor before investing in gold.

Tim Schmidt

About 

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.