Gold IRA: A Pros and Cons Guide for Investors

There are many benefits to owning an individual retirement account (IRA). One benefit is that it allows you to diversify your investments. Another benefit is that it offers tax advantages. However, there are some drawbacks to owning a gold IRA, too. Here are three things you need to know about gold IRAs.

Investing in Gold Can Be Risky

One drawback of owning a gold IRA is that it can be risky. If you buy physical gold coins, you could lose money because prices fluctuate. Also, the price of gold may go down during periods of economic uncertainty. In addition, the value of gold tends to fall over long periods of time, making it less attractive as an investment.

Your Money Is Not Taxed

Another disadvantage of owning a gold IRA, compared to other types of IRAs, is that your money isn't taxed. With traditional IRAs, investors must pay taxes on their earnings. This makes sense because those earnings represent income that the investor earned. Because gold doesn't generate income, however, it's not taxable.

You Have Limited Options When Buying Gold

A third downside of owning a gold IRA compared to other kinds of IRAs is that you have limited options when buying gold. For example, most banks won't allow you to purchase physical gold coins. Instead, you'll need to use a precious metals dealer. These dealers often charge fees and commissions. They're also likely to sell you fractional ounces of gold rather than whole ones. Fractional ounces aren't worth much, so you might wind up paying more for your gold.

What exactly is a gold IRA account?

A gold IRA is an Individual Retirement Account that invests in precious metals such as gold, silver, platinum, or palladium. These are investments that are considered safe havens during times of financial uncertainty. Precious metal prices tend to rise when people fear economic instability. In addition, investors can take advantage of tax benefits associated with owning physical assets.

The IRS allows individuals to contribute up to $55,000 per year ($110,000 for married couples). You can make contributions to a traditional IRA or Roth IRA. If you choose to open a Roth IRA, you do not pay taxes on money invested in it now. However, earnings grow tax-free and withdrawals are taxed as ordinary income.

You can withdraw funds from a gold IRA without paying taxes. When you sell your holdings, you receive proceeds based on current market value. If you hold your gold IRA for five years, you can avoid capital gains taxes on the sale.

Do you need to get a gold IRA?

Investing in a gold IRA gives you a tax break, and it's one of the best ways to diversify your portfolio. But there are some drawbacks to owning gold, including the fact that it doesn't always retain its value. In addition, investing in gold requires a lot of paperwork and can be complicated. So what makes sense for you?

There are three types of IRAs—traditional, Roth, and rollover. Each offers advantages and disadvantages, and it depends on your situation to determine which is best. Here's how to choose wisely.

Traditional vs. Rollover

A traditional IRA lets you contribute up to $5,500 per year ($6,500 if you're 50 or older). This money grows tax-free within the account, and withdrawals aren't taxed either. However, contributions are limited to $5500 annually, and earnings grow at a lower rate. If you withdraw funds before age 59½, you'll owe taxes plus penalties.

Rollovers work similarly to traditional IRAs, except you make a single contribution of $5500 and take out multiple amounts over the course of several years. For example, if you contributed $5500 in 2017, you could take out $10,000 in 2018, $15,000 in 2019, and $20,000 in 2020. Withdrawals are subject to income taxes plus 10 percent penalty.

Pros and Cons

The benefits of a traditional IRA include no required minimum distributions (RMDs), flexibility, and tax breaks. A major drawback is that you must start taking RMDs once you reach 70½, even though you might still be working. Another downside is that the IRS imposes limits on how much you can contribute.

Why should you start a gold IRA now?

Gold is one of the best investments you can make today. You don't have to wait for the stock market to recover. In fact, it might never fully recover. And gold isn't just a good investment; it's a great hedge against inflation. But there's another reason why you should consider opening up a gold IRA now.

The price of gold is about $1,300 per ounce. That's down from over $2,200 per ounce in 2011. If you bought $10,000 worth of gold in 2010, you'd have almost $14,000 worth of gold today. So what happened?

Inflation hit record highs in 2016 and 2017. The Federal Reserve raised rates four times last year alone. This sent interest rates soaring. Investors began selling stocks and buying bonds. They wanted something safe. So where did all those investors put their money? Into gold. As a result, gold prices fell.

Now, though, things seem to be turning around. There are signs that the Fed could cut rates again next month. And the economy seems to be improving. That's why we think it's a good idea to open up a gold IRA account.

What are the pros and cons of a gold IRA?

A gold-backed IRA is a good investment option for those looking to diversify their portfolio. However, there are some downsides to owning one. Here’s what you need to know about gold-backed IRAs.

Pros

1. Diversification - Investing in precious metals gives investors access to different asset classes, such as stocks, bonds, real estate, commodities, etc. This helps reduce risk because it allows people to spread out their money across multiple assets.

2. Tax benefits - Because gold and silver are considered collectibles, they don't generate income. As a result, they're tax-free.

3. Liquidity - When you invest in physical precious metal, you'll receive cash upon request. You won't have to worry about selling your holdings to cover expenses.

4. Investment options - With a gold-backed IRA, you can choose from a variety of precious metals, including gold, silver, platinum, palladium, and even diamonds.

5. Price stability - Gold has been around since ancient times. It's also been used as currency throughout history. As a result, its value is stable.

Cons

1. Taxes - Gold and other precious metals aren't taxed like regular income. Instead, they're treated as capital gains or losses.

2. Price volatility - Precious metals fluctuate based on supply and demand. Prices rise when more people want them. Conversely, they fall when fewer people want them.

3. Limited liquidity - Unlike most other investments, you can only sell your precious metals through an exchange. This means you won't get any cash until you physically take possession of the coins or bars.

4. No growth potential - While gold has historically been a reliable store of value, it doesn't offer returns as stocks do. It also doesn't pay dividends.

5. Cost - Buying precious metals requires a lot of upfront capital. You'll need at least $500 to start investing in gold and silver.

The pros of a Gold IRA

A gold IRA is one way to invest in precious metals while avoiding paying taxes on capital gains. Here are some benefits of owning gold through an Individual Retirement Account (IRA).

1. Tax Deferral – You won’t owe income taxes on any gains that occur within the account. This is because the IRS treats gold like it does cash.

2. Portability – If you move out of state or even out of the country, you can still withdraw money from your IRA and convert it into another form of investment such as stock or bond funds.

3. Liquidity – Unlike most investments, gold is liquid. This means that you can sell it easily if you decide to do so.

4. Safety – When people think about purchasing gold, they often think about buying coins or bars. However, there are many ways to purchase gold that don’t involve coins or bars. For example, you could buy shares of a mining company or ETFs that track the price of gold.

5. Flexibility – With a gold IRA, you have complete control over how much money goes into the account. You can add to it whenever you wish, but you aren’t forced to make withdrawals during retirement.

The cons of a Gold IRA

Gold is a safe haven asset. This means that it will hold its value better than most assets during times of economic uncertainty. However, it doesn't always make sense to put money into gold because it isn't easy to trade. You don't want to pay too much for it either. If you're looking for a way to invest in gold and avoid the high costs associated with buying physical bullion, consider investing in a gold IRA.

A gold IRA offers many advantages over traditional investment options. First off, there are no transaction fees. Second, you'll receive dividends based on how well the fund does compares to others. Third, you'll enjoy tax savings. Finally, you won't have to worry about losing your money due to inflation.

There are some downsides to owning gold in an IRA. For example, you'll have to pay income tax on any gains. Also, you'll have to purchase the metal yourself. However, these drawbacks pale in comparison to the potential rewards.

Several options for storing gold IRAs

Only six IRS-sanctioned vaults are allowed to hold precious metals in IRAs, according to the IRS. These vaults are located across five cities: New York City, Chicago; Dallas; Los Angeles; Miami; and San Francisco. They are called Federal Deposit Insurance Corporation (FDIC)-insured depositories, and each one offers a different level of protection.

There are three different types of vaults available for holding precious metals in IRAs — federal depository, non-federal depository, or an IRS-approved private custodian. Each type of vault has advantages and disadvantages based on location, cost, and insurance coverage.

Federal Depositories

These vaults are owned by the FDIC, which insures deposits up to $250,000 per depositor. They are insured against fire, theft, and natural disasters. However, there is no guarantee that the government agency will cover losses due to war or civil unrest.

Non-Federally Insured Deposits

These vaults are privately owned and insured by companies such as Safe Deposit Boxes International, Inc., and Security First National Bank. They offer similar levels of security as federally insured vaults, but they do not provide full insurance coverage.

IRS Approved Private Custodians

This option allows individuals to store their gold in a vault that is approved by the IRS. The IRS requires that the vault be fully insured by a reputable insurer. It also mandates that the vault meet certain standards regarding safety and security.

Precious metals that are IRA-approved

The IRS recently clarified how people can transfer their traditional IRAs into gold and silver investments. However, most brokerage accounts don’t offer such products because they don’t want to risk losing money on the transaction. This leaves many American savers without access to physical precious metals. Investors looking to take advantage of tax benefits associated with rolling over their retirement funds must find a way around this issue.

A recent study found that Americans are increasingly interested in investing in physical precious metals. In fact, nearly one-third of respondents indicated that they plan to invest in gold and silver within the next five years. A majority of those surveyed believe that owning physical precious metals provides additional security against economic uncertainty.

Investors seeking to take advantage of the IRS rules governing IRA rollovers can use a custodian-based account. These types of accounts typically charge fees that make it harder to save money. They also often limit the number of shares you can buy. If you choose to open a self-directed IRA, however, you can still invest in physical precious metals. There are no limits on the amount of metal you can hold. You can even sell your holdings whenever you like.

If you decide to go down the custodial route, there are some things to consider. First, you’ll likely pay a fee for managing your assets. Second, you won’t have control over where your metal goes once you deposit it. Third, you might lose out on potential gains if the market value of the metal rises above what you paid for it.

To avoid these issues, you could open a self-directed account. Instead of paying a fee for management, you’d manage your own portfolio yourself. You’d also retain full ownership of your metal. Finally, you’d benefit from potentially larger gains.

There are several ways to set up a self-directed IRA. One option is to open a Roth IRA. With a Roth IRA, you contribute pre-tax dollars and withdraw earnings later in life. Another option is to open a Traditional IRA. With a Traditional IRA, you start with post-tax contributions and withdrawals occur after age 59½.

Regardless of which type of IRA you select, you’re required to follow certain guidelines. For example, you can’t touch your IRA savings unless you retire. Once you reach age 70 ½, you can begin withdrawing funds. You must also wait three months before taking distributions.

How to invest in a Gold IRA

A gold IRA is similar to owning shares of a publicly traded company. An investor buys shares of the company and receives dividends based on how well it does financially. In addition, the owner can sell his shares anytime he wants. With a gold IRA, the investor owns actual gold bullion stored somewhere safe. He doesn't receive dividends, but he can sell his gold whenever he wants. This gives him complete control over his assets.

Investors can buy gold directly from a dealer or through an online exchange. They can purchase either one-ounce coins or larger quantities such as ingots. Some companies offer insurance against theft or loss. Others don't.

The IRS requires people who are younger than 70 ½ to open a traditional IRA. People older than 70 ½ must open a Roth IRA. If you already have an existing 401(k), 403(b), or 457 plan, you can convert it to a Roth IRA.

Finding an investment advisor or custodian

A custodian is where you put your money while you decide what to do with it. You might use a custodian to hold your IRA or 401(k), or maybe you want to invest some of your savings in stocks. Whatever you plan to do with your money, there are several things you need to know about investing. First, you need to find a broker or custodian. Then, you need to make sure that person meets certain standards. Finally, you need to ask lots of questions.

How can you make a withdrawal from a precious metal IRA?

Withdrawing money from an IRA is a pretty straightforward process. But it does require some planning ahead. If you want to make sure you're getting the most bang for your buck, here are three things to keep in mind.

Start early

You'll need to start making withdrawals from your precious metal IRA no later than April 1st of each year. This allows you enough time to take advantage of the IRS' annual distribution allowance. The IRS determines how much you can deduct based on the total value of your IRA assets. So if you've been putting off starting your withdrawal schedule, now might be the time to do it.

Time matters

If you wait too long to start your withdrawals, you could face penalties. For example, if you fail to complete your withdrawal plan by December 31st of the year following the calendar year in which you reached age 70 ½, you'll owe income taxes on the full amount withdrawn plus 10% interest.

Consider in-kind options

There are several ways to withdraw money from a precious metal investment IRA. One option is to simply sell the metal outright. However, if you choose to go this route, you'll likely end up paying capital gains taxes. Another option is to convert the metal into cash. In this case, you'll receive a check equivalent to what you withdrew. However, you won't incur any taxes since you paid the metal directly from the IRA.

Frequently Asked Questions

What are the benefits of a gold IRA?

The primary benefit of an individual retirement account is that it allows people to save for their future without having to worry about taxes, says Investopedia. The tax advantages of investing in gold through an IRA include the ability to deduct up to $3,000 per year from taxable income and avoid paying capital gains on any appreciation in value. Gold also has a relatively low correlation to other asset classes such as equities and bonds, so it's less susceptible to market fluctuations.

What are the pros and cons of investing in gold?

Gold is a precious metal that has been used for money for thousands of years. It’s also one of the most popular investments today, especially among millennials who have grown up with it as an important part of their lives.

Pros:

1. Low Correlation to Other Asset Classes

Gold tends to move in tandem with other financial markets, but not always. Because it doesn’t fluctuate like other asset classes, it makes a great diversification tool. Plus, because it’s considered a safe haven, it’s often seen as a hedge against inflation or currency devaluation.

2. Easy Accessibility

Unlike stocks and bonds, gold is easy to buy and sell. You don’t need a broker or bank to purchase it, and it’s available 24/7.

Cons:

1. High Cost

Buying physical gold isn’t cheap. You’ll pay anywhere between 5%-15%more than buying shares of stock.

2. Limited Investment Options

Because gold is a tangible item, there aren’t many investment vehicles out there. You can only own bullion, coins, bars, or jewelry.

Is gold a good IRA investment?

The answer is yes, but it depends on your situation. If you are looking for an easy way to invest in precious metals and have the time to do so, then investing in physical gold or silver may be right for you. However, if you don’t want to take the time to manage your investments, or if you are looking for something that will provide more income than just a savings vehicle, then a traditional IRA might be better suited for you.