Your retirement savings can be invested in gold and other precious metals through a gold individual retirement account. The gold IRA also offers similar tax breaks as a traditional or Roth IRA. Before opening an account, you should know the rules and procedures regarding gold IRAs.
If you are considering opening a gold IRA, make sure you understand the following:
- How to set up a gold IRA.
- The pros of a gold IRA.
- The cons of a gold IRA.
- What institutions offer a gold IRA?
- How will a gold IRA impact your retirement savings?
What is a Gold IRA?
A gold IRA also called a precious metal IRA, allows you to hold physical gold for retirement. There are various forms of gold, including bars and coins. Additionally, you can have silver, platinum, and palladium as precious metals.
The contribution limits and withdrawal requirements for gold IRAs are the same as those for other IRAs. In 2022, you are allowed to contribute a maximum of $6,000 to an IRA or $7,000 if you are 50 or older. Roth IRAs (gold IRAs) allow you to acquire gold without paying taxes on the gains, says Collin Plume, CEO of Noble Gold Investments. When you decide to invest in a traditional IRA, you can put off paying your taxes until you liquidate so that you can use that money for other investments.
Withdrawals are not allowed until you are 59 1/2 years old, and the amount you take out could be penalized if you don’t. When you turn 72, you must take the required minimum distributions from your traditional IRA, and Roth IRAs do not require lifetime distributions.
How to Set Up a Gold IRA
To open a gold IRA, you must first open a self-directed IRA. Your investment choices are more flexible with this type of account. Self-directed IRAs require a custodian, which is a financial institution the IRS has approved to handle these transactions.
Once your self-directed IRA is in place, you can add contributions and choose investments. A metals dealer will carry out the transaction. Acquisitions have to meet IRS standards for purity and weight when they are made.
Financial Institutions That Offer a Gold IRA
The majority of self-directed IRA custodians do not offer gold management services. Michael Ryan, a financial coach and retired financial planner in South Florida, says it is crucial to choose a reputable custodian.
The following places offer gold IRAs:
- Oxford Gold Group.
- American Hartford Gold.
- Goldco.
- Lear Capital.
- Patriot Gold Group.
- Orion Metal Exchange.
- Augusta Precious Metals.
Costs of a Gold IRA
The IRS requires gold investments to be stored in an approved depository. Storage fees and insurance costs must be paid, and precious metals are subject to fees when purchased and shipped. Moreover, higher management fees may be associated with your custodian than with other retirement accounts.
Pros of a Gold IRA
Many investors use gold to hedge against inflation and volatile markets. Investing in gold IRAs is a great way to diversify your retirement portfolio and protect your savings, and gold is sometimes used as a long-term savings strategy. According to Plume, gold has historically been a stable asset with an increasing value over time, despite market fluctuations. The use of gold is widespread in medicine to treat cancer, in electronics like phones and data servers, and even on Mars to produce oxygen.
With a gold IRA, you can manage your investments and choose your holdings. Investing in precious metals allows you to determine which type of metals you want and when to do so.
Cons of a Gold IRA
Gold IRAs can have a drawback regarding liquidity or how quickly they can be accessed. Brannon T. Lambert, the owner of Canvasback Wealth Management in Raleigh, North Carolina, says gold can’t be liquidated like stocks, bonds, mutual funds, or ETFs.
Additionally, storage costs and insurance premiums can add up. Because of this, Lambert says, gold is less liquid and costs more to buy and sell. Money can be challenging to obtain if you need it quickly.
How to Decide if a Gold IRA Is Right for You
A stock or bond IRA can grow your money in three different ways. Investing in shares worth more could increase the value of your funds, and dividends from the shares could be reinvested. Reinvesting your bond interest can also grow your money. The gold IRA eliminates two of the three ways your money can grow when you own a hard asset like gold. The value of gold depends on capital appreciation and timing, and it does not pay interest or dividends. Those considering a gold IRA should look at the long-term price history of gold and decide if they are willing to stake their retirement on it, Lambert says.