When markets fluctuate, it’s common for savers to look for stable places to park their money. While Americans see real estate as the best long-term investment, followed by stocks or mutual bonds, gold ranked third, according to a May 2024 Gallup poll, outpacing savings accounts, certificates of deposit, bonds and cryptocurrency.
Those who want gold in their retirement portfolio can include it in an individual retirement account. A gold IRA allows you to invest part of your retirement savings in gold and other precious metals. It also offers a chance to qualify for tax breaks that are similar to those provided by a traditional or Roth IRA.
Before opening a gold IRA, make sure you understand:
— What is a gold IRA?
— How to set up a gold IRA
— Financial institutions that offer gold IRAs
— Costs of a gold IRA
— Pros of a gold IRA
— Cons of a gold IRA
— Is a gold IRA right for you?
What Is a Gold IRA?
Sometimes referred to as a precious metal IRA, a gold IRA allows you to hold physical gold as part of your retirement portfolio. The gold can be in different forms, including bars or coins. You can also hold other approved precious metals such as silver, platinum and palladium.
As with standard IRAs, retirement savers may choose to set up a Roth, traditional or, if eligible, a SEP gold IRA. The contribution limits and withdrawal requirements for gold IRAs are the same as other IRAs. For instance, the contribution limit for traditional and Roth IRAs is $7,000 in 2024, or $8,000 if you are age 50 or older. “If you acquire gold through a Roth IRA, you pay taxes only on your contributions, not on the gains,” said Collin Plume, president and CEO of Noble Gold Investments in Los Angeles, in an email. “With a traditional IRA, you can defer paying your taxes until you liquidate, so you can use that money to invest in other things.”
Like other IRAs, you must wait until age 59 1/2 to make withdrawals. If you don’t, you could face penalties on the amount you take out. After age 72, you must take withdrawals known as required minimum distributions from a traditional IRA; however, there are no required distributions associated with gold Roth IRAs until after the account owner’s death.
[Read: How to Open a Roth IRA.]
How to Set Up a Gold IRA
If you want to open a gold IRA, you need to start with a self-directed IRA. This type of retirement account gives you more control over your investment choices. You also need a custodian, which is a financial institution that is approved by the IRS to handle self-directed IRAs. You can establish the account as a self-directed Roth IRA or a self-directed traditional IRA.
Once you have a self-directed IRA in place, you can add contributions and choose your investments. For a gold IRA, you must have a metals dealer who will carry out the transaction. Your gold investments must meet IRS standards for purity and weight.
Financial Institutions That Offer Gold IRAs
Not every self-directed IRA custodian offers to manage gold. “It is important to choose a reputable custodian who will be responsible for holding and safeguarding the gold,” said Michael Ryan, a personal finance advocate, educator and retired financial planner in Palm Beach County, Florida, in an email.
Some institutions that offer gold IRAs include:
— American Hartford Gold
— Augusta Precious Metals
— Goldco
— Birch Gold Group
— Noble Gold
— APMEX
— American Bullion
Costs of a Gold IRA
Gold investments have to be stored in a depository that is approved by the IRS. You need to pay storage fees along with insurance costs. There are also fees associated with purchasing and shipping precious metals. You might encounter management charges associated with your custodian, which may be higher than other retirement accounts
.
[READ: 10 Reasons to Save for Retirement in a Roth IRA]
Pros of a Gold IRA
During times of inflation and volatile markets, some investors use gold to hedge against uncertainties. “Gold IRAs can be a great way to diversify your retirement portfolio and protect your savings,” Ryan said.
Precious metal investments may also be used as part of a long-term savings strategy. “Gold has historically been a stable asset, increasing in value over time despite market fluctuations because its industrial uses are increasing while its global supply is shrinking,” Plume said. “Gold is being used in medicine to treat cancer, in electronics like phones and data servers, and even on Mars to produce oxygen.”
A gold IRA may be a good fit if you prefer to manage your own investments and choose your holdings. You’ll have the chance to decide when to invest in precious metals and which types of assets you want.
Cons of a Gold IRA
Liquidity, meaning how quickly you can access cash, can be a drawback with a gold IRA. “Unlike stocks, bonds, mutual funds and ETFs, gold can’t be liquidated with the click of a button,” said Brannon T. Lambert, certified financial planner and founder of Canvasback Wealth Management in Raleigh, North Carolina, in an email.
Expenses related to storage and insurance premiums can add up, too. “As such, gold is less liquid and costs significantly more to buy and sell,” Lambert said. “If you need your money quickly, you could be out of luck.”
[Are You Too Old to Benefit From a Roth IRA?]
Is a Gold IRA Right for You?
When you have an IRA invested in stocks and bonds, you have three ways to grow your money. The funds could appreciate as the shares you purchase are worth more. You could receive dividends from the shares and put them toward investments. Your money can also grow by reinvesting the interest you receive from bonds or bond funds.
“When you have a hard asset like gold through a gold IRA, you are eliminating two of the three ways your money can grow,” Lambert said. “Gold does not pay interest or dividends.” You will be relying on capital appreciation and timing to work in your favor. “I would challenge those thinking of putting their retirement in the hands of a gold IRA to look at the long-term price history of gold and decide if they are willing to bet their retirement on it,” Lambert said.
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Should You Get a Gold IRA? originally appeared on usnews.com
Update 08/21/24: This story was published at an earlier date and has been updated with new information.
