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What is a gold IRA?
Is it a good idea to invest in a gold IRA in 2023?
Read below to find out.
Table of Contents
Gold IRA (also called “precious metals IRA”) is a specialized individual retirement account (IRA) that lets investors hold gold and other precious metals as a qualified retirement investment.
Investors and savers can open gold IRAs through a specialized precious metals IRA company or through a custodian (a bank or brokerage firm that manages the account).
Gold IRA owners can hold within their portfolio physical metals such as gold bars and coins, or products minted from other IRS-approved precious metals, such as silver, platinum and palladium.
Gold IRA is kept separate from the traditional retirement account (stocks, mutual funds, or other traditional investments) of the investor, although the rules involving contribution limits and distributions are the same.
All gold, silver and other precious metals must be stored in an IRA-approved depository.
There are three types of Gold IRAs:
Traditional gold IRAS are retirement accounts funded with pretax dollars.
They are a good choice for people who expect their retirement income to be lower than their current income.
When you withdraw funds (at your income rate at the time), your money will be taxed at a lower rate than if it were taxed when you contributed it.
Roth gold IRAs are a good option for people who expect a higher income in retirement. They’re funded with after-tax money, meaning you get no immediate tax advantage. Instead, you’ll pay taxes when it comes time to begin taking distributions at retirement.
SEP (Simplified Employee Pension) gold IRAs are available to self-employed individuals and employees of small businesses.
SEP gold IRAs have all the same features as traditional gold IRAs, except their contribution limit is significantly higher.
| Type of IRA | Traditional Gold IRA | Roth Gold IRA | SEP Gold IRA |
|---|---|---|---|
| Best for | People who expect their retirement income to be lower than their current income. | People who expect a higher income in retirement | Self-employed individuals and employees of small businesses. |
| Eligibility | Eligible if you've earned income | Your income must be under a certain limit ($228,000 for married couples filing jointly for tax year 2023 and $153,000 for individuals) | self-employed individuals, small-business owners and employees of small businesses. funding method- pre-tax dollars |
| Funding method | pre-tax dollars | after-tax dollars (the money you contribute is taxed) | pre-tax dollars |
| Contribution method | $6,500 or $7,500 for those ages 50 or older for the tax year 2023 | $6,500 or $7,500 for those ages 50 or older for the tax year 2023 | Up to 25% of your self-employed compensation or $66,000 (whichever is greater) for the tax year 2023 |
| Tax-deductible contribution | Yes | No | Yes |
| Are withdrawals taxed | Yes | No | Yes |
| Early withdrawal rules | If you withdraw funds before age 59 ½, you face a 10% penalty+ taxes | You can withdraw funds at any time penalty-free and tax-free | You can withdraw money from a SEP gold IRA without penalty once you reach age 59 1/2. If you withdraw funds before then, you'll need to pay taxes on the money withdrawn and face a 10% penalty. |
| Required minimum distributions | once you turn 73 | None | after you turn 73 |
There are plenty of pros and cons to gold IRAs.
Gold IRA investment is a good idea for you if you want to diversify your IRA and have physical gold as a hedge against the incoming high inflation and economic uncertainty.
Gold IRA is not a good idea if you want guaranteed and fast returns on your investment. There are no guarantees when investing in gold and other precious metals and in the short term the prices may go down having you lose money in the process.
That said, bad economic times are brewing and historically gold has performed well during extended periods of financial uncertainty and volatility.
Setting up a gold IRA account is not possible with traditional custodians like conventional brokers.
Most custodians don’t offer speciality accounts like gold IRAs. Instead, you need to get in touch with a speciality custodian or a gold IRA company that can handle all the tax documentation and reporting necessary to maintain a gold IRA.
Although opening a gold IRA account and investing in gold is different from traditional IRAs, the rules are the same.
This means you can’t go over your annual contribution limits and you must follow the regulations involving distributions when it comes to making withdrawals.
Owning a gold IRA doesn’t mean you can have physical gold in your house. You can’t hold your gold bullion and coins under your mattress or even in a home safe box. If you do it’ll be counted as a withdrawal and you’ll have to pay early withdrawal taxes.
The solution is to store them in IRS-approved professional precious metals storage facilities (specialized banks and depositories).
Pro tip: properly setting up a gold IRA on your own is hard. You need professional help to get it done correctly and to help you with all the tax paperwork too. I recommend you use a service like Augusta Precious Metals.
Augusta Precious Metals is the best gold IRA company on the US market, they have excellent customer support, and they’re the only gold IRA company without a single complaint on BBB and other consumer watchdog websites.
You can read my Augusta Precious Metals pros and cons, Augusta Precious Metals fees and Augusta Precious Metals review guides to learn more about them.
Gold IRA is safe because gold as a precious metal can never be worth zero. This means there will always be value to your gold bullion no matter what’s happening in the world. Especially during recession and lean years, your gold will serve as a hedge to keep you afloat.
Usually, the demand for gold and other precious metals rises during a recession because they are tangible assets investors can physically hold onto and can help diversify one’s investment portfolio.
That said, gold’s market value is highly volatile and while it tends to rise during high inflation and recession it can also drop during “peaceful” times.
IRS-approved gold is gold that meets specific purity and other standards.
You can add both platinum and palladium products to your gold IRA. Just because it’s called “gold IRA” it doesn’t mean you must invest in physical gold only.
Platinum IRA, palladium IRA and silver IRA are common alternative choices.
You can’t add rhodium to your gold IRA. Rhodium is not an IRA-approved precious metal. Barely a gold IRA company operating on the American market stocks rhodium bars and coins.
The contribution limits for gold IRA are set by the IRS.
The contribution limit for 2023 is $6,500. You can contribute an additional $1,000 if you are 50 or older for a total of $7,500 in 2023.
There are three ways to fund a gold IRA account.
Transfers– When you open a gold IRA your original IRA custodian can transfer funds directly to your new custodian on your behalf. These transfers do not require government reporting and you can make them without penalties.
401 rollover- You can roll over your 401(k) balance or other qualified retirement plan into a precious metals IRA. You can do an indirect or a direct rollover.
Cash purchases- you can use cash to fund your new gold IRA account. It’s easy to do either by yourself or with the help of a gold IRA company.
Gold IRA is a self-directed IRA.
A self-directed individual retirement account is an IRA that allows alternative investments for retirement savings.
In a self-directed gold IRA, a custodian administers the account, but the account’s holder makes the investing decisions.
This type of IRA is directly managed by the account holder, which is why it’s called a self-directed IRA.
You can own gold in an IRA. You can buy IRA-approved gold bullion, but you must store it in an IRA-approved depository.
You can own gold outside of your gold IRA. For example, you can buy gold coins and bars from a precious metals dealer company and have those delivered to your home.
The key is to purchase gold outside of your IRA because gold bullion in the IRA can’t be stored in your home. You must deposit it in a IRA-approved depository or bank.
The gold in your gold IRA will be stored in IRA-approved depositories.
The biggest IRA-approved depositories are:
Note: if you decide to open your gold IRA with a company like Augusta Precious Metals they will let you pick where you want your bullion to be stored. For your convinces you can store it closest to your home.
The best gold IRA companies are:
It is hard to find a custodian to manage your gold IRA.
Primary custodians will not receive your gold or take steps to facilitate the purchase and transfer of gold or other precious metals.
This leaves you with the option of searching for specialized custodians by yourself.
OR you can employ the service of a gold IRA company that can connect you with the right custodian through their network.
I suggest you do the latter, it’s much easier.
Gold IRA companies specialise in helping American savers invest in gold and silver and their job is to ensure all documents are completed properly and in order.
These companies are also really affordable. For example, if you go with Augusta Precious Metals as your choice you will pay just $200/yr management fees (learn about Augusta Precious Metals fees here)
And Augusta will do all the work for you.
You can own a gold IRA without a custodian. But it’s not easy.
You can open what’s known as a “checkbook IRA,”
Checkbook IRA is a self-directed IRA that doesn’t require custodial management.
However, setting up a checkbook IRA is complicated because you need to have a business checking account and you must be registered as an LLC (limited liability company) (LLC).
Pro tip: On a checkbook IRA you’re allowed to purchase and hold gold American Eagles, a U.S. Treasury–minted coin. You don’t need a custodian and you don’t need to pay storage fees to a depository.
No other coin types are allowed on checkbook IRA.
You are allowed to see your precious metals in your gold IRA. And you can visit your gold as many times as you want.
All you need to do is contact your custodian and arrange for a visit to a depository that’s storing your gold.
Pro tip: If you opened your gold IRA via a precious metals IRA company then contact them first so they can arrange a visit to the depository.
You will need to pay a 10% penalty for early withdrawals from your gold IRA. Early withdrawals are those you make before you turn 59 1/2.
The reason for this 10% penalty is that retirement funds are invested from your pre-tax income (meaning they’re not taxed).
A Gold IRA is a self-directed Individual Retirement Account that allows investors to hold physical precious metals (palladium, platinum, silver and gold) as investments within the account.
Gold IRA works similarly to a traditional IRA.
It has the same tax advantages attached to it but comes with the added benefit of holding valuable precious metals that serve as a hedge against inflation and economic turmoil.
Do you now know what a gold IRA is?
LMK in the comment section below.
Nikola Roza is an affiliate marketer and blogger behind Nikola Roza- SEO for the Poor and Determined. He writes for bloggers who don't have huge marketing budgets and who still want to carve out a niche online and a better life for themselves. He's also passionate about precious metals IRAs and how to invest in gold and silver for a safer financial future. Learn about Nikola here, or read his blog posts and guides here.