Gold IRAs are self-directed retirement accounts (SD IRAs) that allow investors to invest in precious metals and other alternative assets, providing a great way to diversify your retirement portfolio and protect it against inflation.
Be mindful that there are various regulatory hurdles you must clear in order to add gold or other precious metals to your IRA, so working with an established custodian and depository is necessary to ensure compliance.
Self-directed IRAs
Self-directed IRAs allow investors to diversify their retirement portfolio with alternative assets like precious metals and real estate investments, but require extensive research before beginning investment activities.
Gold IRAs are investment accounts that allow you to buy physical gold or silver with your retirement funds, following IRS regulation and following contribution rules similar to traditional and Roth IRAs.
If you choose to invest in a gold IRA, a custodian (such as banks or trust companies approved by the IRS as trustees for your account) will be necessary. Once selected, then select a precious metals dealer to purchase coins and bars that will make up your investments in this account.
Funding a gold IRA
Precious metals like gold and silver can be an effective way to combat inflation or diversify your retirement portfolio, yet come with certain risks that make them unsuitable for all investors.
Dependent upon the type of IRA you use, there may be contribution limits applicable. Therefore it’s wise to consult your financial advisor regarding available solutions.
Gold IRAs may be self-directed investments, but you’ll still require an IRS-approved custodian for them to function efficiently. They will help open an account, transfer your funds, purchase gold and ensure it reaches an approved depository for storage.
Fees vary between IRA custodians, with some charging more than others for account setup, maintenance fees, storage fees and insurance premiums.
Buying gold
Precious metals offer investors looking to diversify and manage risk an excellent option to help safeguard against inflation as well as providing protection from economic downturns.
Investment in precious metals may not offer as many tax advantages compared to investing in other forms. While gold and other precious metals won’t pay any dividends or interest payments, they still qualify for no special tax treatment.
As precious metals are physical assets, they require storage and insurance policies. While some custodians charge one flat rate to cover both services, others may split out these fees separately.
As well as these fees, you may also need to cover the costs associated with shipping your gold to its custodian. Some depository companies charge a buyback fee which allows them to sell back your gold back at market prices when the time is right for you.
Taxes on gold investments
Taxes on gold investments should be carefully considered, as they could significantly impact your after-tax returns. Physical gold investments (coins, bullion and ETFs) are considered collectibles for tax purposes and therefore subject to a maximum 28% maximum tax rate.
Thankfully, the IRS provides an exemption to this rule for gold, silver and platinum coins and bullion that meet purity standards – this exemption applies to traditional, Roth, SEP and SIMPLE IRAs.
However, precious metals do not come without costs; these include an initial account setup fee, ongoing account maintenance fees, seller’s fees, brokerage fees, storage fees and insurance costs.
Be mindful that while selling physical gold may allow you to take required minimum distributions (RMDs), RMDs cannot be taken unless you possess it at the time of sale – therefore it’s critical that you choose an approved depository to keep it secure and accessible at the time of sale.
