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Gold IRA vs owning physical gold.
Which is a better option for you?
Which should you pick based on your life’s current situation?
Learn the facts right below in the table I made.
| Physical gold outside of an IRA | Gold IRA Account |
|---|---|
| No tax benefits | Comes with tax benefits |
| Any gold can be purchased for an investment | Gold must meet IRS standards |
| Gold can be liquidated at any time | Typically must wait until age 59½ to make penalty-free withdrawals |
| Home storage is an option | Gold must be stored in an approved depository |
| Suitable for short- and mid-term investments | Best for long-term investments |
Now let’s delve into details.
Table of Contents
Gold IRA vs Physical Gold- Tax Situation
You get different tax benefits depending on the type of gold IRA account you want to open.
Traditional SDIRA gives immediate tax benefits.
Your contributions to the account are tax-deductible, and the value of your gold grows tax-deferred.
Once you reach age 59½, you’ll be able to start making penalty-free withdrawals, but the value of those withdrawals will be taxed as regular income.
No tax deduction applies to contributions with a Roth gold IRA. Instead, you fund the account with after-tax dollars. Meaning the value of your gold grows tax-free, and withdrawals made after age 59½ are tax-free.
SEP gold IRA is another option for those who want to hold physical gold in an IRA. SEP gold IRA accounts are best for self-employed workers (for example freelancers) and business owners. You can set up a SEP gold IRA account as either a traditional or Roth gold IRA account.
This means you’ll be able to choose which tax benefits are best for you based on your life’s current situation and based on the advice from your financial advisor.
You don’t get tax benefits on the physical gold you own.
Physical gold and silver investments are subject to the capital gains tax that’s calculated based on the difference between the price you paid and the price for which you sold them.
And since gold is an investment asset, when you sell your gold and make a profit, it’s taxed as capital gains.
However, the IRS considers physical quantities of precious metals to be “collectibles.” For collectibles, such as gold bullion and art the standard tax rate is 28%.
Note: if possible you should hold your precious metal investments for at least one year.
This is a general piece of capital gains tax advice for all of your financial investments (you should still consult with a financial advisor). If you sell your gold and silver investments less than 12 months after buying it, the IRS will consider it a short-term capital gain and these will be taxed with ordinary income, meaning that your profits won’t qualify for the special, lower capital gains tax brackets.
To avoid this, sell your investments after at least one year. Otherwise, you could face higher income tax rates.
Gold IRA vs Physical Gold- Precious Metals Selection
Outside of gold IRA account, you can do whatever you want. You can buy any type of precious metal you want and even buy rare US coins that have tremendous numismatic value.
But with opening a gold IRA, you can buy only select gold-IRA eligible bullion to include in your account.
The two common forms of IRA-approved gold are gold coins and gold bars and these must meet some strict criteria to be eligible.
- Gold coins: must be 99.5% pure, and must come with a certificate of authenticity, be in mint condition and also be encapsulated in their original packaging.
- Gold bars must be produced by an IRA-approved mint and be at least 99.5% pure. Small bars must meet exact weight specifications.
| Precious Metals | Purity Standard |
|---|---|
| Gold | .995 purity or higher |
| Silver | .999 purity or higher |
| Platinum | .9995 purity or higher |
| Palladium | .9995 purity or higher |
Gold IRA vs Physical Gold- Age Requirements
There’s no age requirements for owning physical gold coins and even bars. Technically, you could be a minor and have your parents gift you gold coins and bars for you to stock or sell.
It’s a different situation with gold IRA’s.
You can start taking distributions without incurring any penalties from your IRA after you turn 59½. You can still withdraw well before that age but you’ll be subject to an extra 10% tax on your withdrawals.
You’ll be required to take the required minimum distributions (RMDs) once you reach age 73 or age 75 (this depends on your year of birth). The amount of these distributions is based on the account’s value and your age. Failure to take them could result in a tax penalty of up to 25%.
However, upon reaching the eligible age for distributions, you can choose to receive the gold as a distribution, though it would still be taxed as income.
Gold IRA vs Physical Gold- Gold Storage
You can keep your gold and other valuables in your home. You can use a home safe, or keep your gold under the mattress or under the floorboards.
They should be safe there provided no one knows you have precious metals in your house and everyone thinks you’re relatively poor.
However, any gold and other precious metals as part of your gold IRA account will have to be stored in a specialized gold IRA depository.
If you open a gold IRA with a gold IRA company, the company you picked will help you arrange things with a trustworthy depository.
I recommend Augusta Precious Metals as one of the best gold IRA companies in the US.
Gold IRA vs Physical Gold- Different Investing Situations
Owning physical gold makes sense for people want to have their valuables near to them so they can use them when crisis hits. For these people and in these dire economic situations gold serves as a form of security and insurance against becoming financially destitute over night.
A gold IRA makes the most sense for someone who is interested in a long-term investment. Gold IRA is not the best choice for you if you think you’ll need to liquidate or take possession of your gold before retirement age.
In that case, you may be better off investing in physical gold outside an IRA.
Also, remember that you can invest in gold outside of physical gold. You can invest into ETF’s which are exchange-traded funds that which hold physical gold.
Or you can invest into gold mining stocks within their regular IRA as a way to benefit from the value of gold. These two options don’t give you ownership of physical gold but on the upside you won’t have to worry about whether your gold is real or fake.
Gold IRA vs Owning Physical Gold (Conclusion)
Opening a gold IRA account has it’s pros and cons. Owning physical gold has it’s own pros and cons.
Which you’ll pick will depend on your life’s circumstances and also on the advice of your financial advisor.
Before making any investing decision make sure you talk to a qualified financial advisor who can give you the best advice possible.
Nikola Roza
Nikola Roza is a blogger behind Nikola Roza- SEO for the Poor and Determined. He writes for bloggers who don't have huge marketing budget but still want to succeed. Nikola is passionate about precious metals IRAs and how to invest in gold and silver for a safer financial future. Learn about Nikola here.