What is a Gold IRA?
Gold IRAs are a kind of a Self-Directed IRA (a SDIRA), which allow retirement savers to invest in alternative assets. Alternative assets, such as precious metals, may at times outperform traditional assets (i.e. stocks, bonds, and mutual funds)—and may provide important diversification benefits to a portfolio.
A Gold IRA is a special kind of account that gives Americans the opportunity to invest in gold bars or coins for their retirement. .
How Does a Gold IRA Work?
With a Gold IRA, an investor uses funds in their SDIRA to purchase gold coins or bars from a precious metals dealer. However, the investor cannot buy and store the gold themselves. The title to the gold is held by the IRA custodian (such as Forge Trust), which acts as the account custodian, while the gold is stored by an IRS-approved depository.
Types of Gold IRAs
Gold IRAs come in traditional and Roth account types. With a traditional IRA, you typically make contributions with pre-tax dollars and pay tax at your marginal rate when you withdraw the gold from the IRA. Roth IRAs work in reverse. Contributions are made with after-tax dollars, and qualified withdrawals are tax-free.
Benefits, Rules and Considerations
The major benefit to Gold IRAs is the possibility of participating in potential gold price upside. Investors may seek gold exposure to hedge themselves against the risk of rising inflation, geopolitical uncertainty, currency crises, and negative real interest rates.
Gold IRA Rules
There are specific rules surrounding Gold and other precious metal IRAs. Running afoul of these rules can result in financial penalties from the IRS, so understanding the ins and outs of these regulations can save an investor money and needless hassle.
The purity of the gold held in an IRA is one such rule. According to U.S. tax law, gold coins and bars must generally be 0.995% pure gold. This accords with the delivery standards for gold on U.S. futures exchanges.
Storage is another important rule. To be eligible for inclusion in a Gold IRA, you must store your gold at a bank or an IRS-approved depository. This means you cannot keep the metal at home, for example. (And candidly, you probably shouldn’t, anyway). Forge Trust offers two depository institutions to choose from.
Other Considerations
Before opening a Gold IRA, it’s important to understand that, like all assets, the price of gold can go down as well as up. And while gold is currently rising, there can be no guarantee the bull market will continue for years to come. Moreover, when gold bull markets morph into bear markets, the new downward trend can last for some time. Consider that having peaked in January 1980 at $850 per ounce, gold fell below $300 by the late 1990s. Adjusting for inflation, the decline was even more pronounced.
Another consideration is that Gold IRAs usually come with higher fees than other kinds of IRAs. The higher fees reflect the cost of transporting, storing, and insuring gold.
A third consideration is that gold coins and bars are sold by precious metal dealers at a mark-up. In other words, to buy them you effectively must pay somewhat over the market value of the underlying bullion. It’s a good idea to compare dealer prices to the spot price of the metals. Just like currency dealers, gold coin and bar dealers profit by buying below the wholesale price and selling above it. To profit from your investment, you need the price of gold to rise over and above this spread (as well as any insurance, transport, storage, and account fees).
How to Open a Gold IRA?
To open a Gold IRA, you must find a SDIRA custodian (such as Forge Trust) that is able to handle these special kinds of accounts. Once you’ve settled on a custodian, you need to choose the kind of Gold IRA you wish to open (traditional or Roth IRA). Next, you have to fund the account in order to make a purchase of gold coins or bars. You then must select a precious metals dealer from which to make your purchase.
Conclusion
Many Americans gravitate to gold, given its stature as a hard asset that could help protect purchasing power over time. Holding the metal in a Gold IRA can be a great way to get tax-advantaged exposure to this famous yellow metal.
Frequently Asked Questions About Gold IRAs
Can I own Gold in my SDIRA?
Yes, you can own gold in your SDIRA. Gold IRAs are a kind of Self-Directed IRA (SDIRAs), which allow retirement savers to invest in alternative assets. Alternative assets, such as precious metals, may at times outperform traditional assets (i.e. stocks, bonds, and mutual funds)—and may provide important diversification benefits to a portfolio.
How much Can I Invest in a Gold IRA?
Gold IRAs are subject to the same contribution limits as regular IRAs. In 2024, you may contribute $7,000 to either a Roth or traditional Gold IRA. Americans over the age of 50 may contribute an additional $1,000.
Do I Pay Tax on a Gold IRA?
With a Traditional Gold IRA, your contributions may be made with pre-tax dollars and thus, reduce your taxable income, subject to IRS limitations. (Contributions to traditional Gold IRAs are not always tax-deductible: If you have an employer retirement plan, for example, there are limits to deductibility). When you withdraw money from a Traditional Gold IRA, you pay tax at your marginal income tax rate, assuming it was funded with pre-tax funds. If you withdraw money before the age of 59 ½ you may also be subject to an additional 10% tax.
Roth IRAs essentially work in the opposite fashion. Contributions to a Roth account are made with after-tax dollars (so you don’t get a tax deduction), but qualified withdrawals are typically tax-free. For guidance on whether a withdrawal is tax-free, see the IRS guide here.
Traditional and Roth IRAs do share an important quality, however. Income and capital gains from investments generally accumulate on a tax-deferred basis while they’re in the account, which could help retirement savers maximize the growth of their assets.
However, if you withdraw gold, or funds, from the IRA before the age of 59½ you will be subject to penalties. And in the case of traditional IRAs (vs. Roth) you’ll pay tax at your marginal rate.
How to Open a Gold IRA?
To open a Gold IRA, you must find a SDIRA custodian (such as Forge Trust) that is able to handle these special kinds of accounts. You also must select a precious metals dealer to purchase from. Once you’ve settled on a custodian, you need to choose the kind of Gold IRA you wish to open (traditional or Roth IRA). Next, you have to fund the account in order to make a purchase of gold coins or bars.
How does a Gold IRA work?
With a Gold IRA, an investor uses funds in their retirement account to purchase gold coins or bars from a precious metals dealer. However, the investor cannot buy and store the gold themselves. Title to the gold is held by the IRA custodian (such as Forge Trust), which acts as the account custodian. Meanwhile, the gold is stored by an IRS-approved depository. Forge Trust offers two depository institutions to choose from.
Zander is a seasoned product leader with a 12-year history in financial technology, specializing in private market investments. His tenure includes roles at LTSE, Alto, and IHS Markit, where he focused on product management and strategy. Zander holds an MBA from Vanderbilt University, focusing on International Business, and a B.A. in Economics from Colby College.