Last Updated on August 16, 2022 by Vasco Lourenço
When you plan your retirement, you might ask yourself, “What is a gold IRA?” Well then, hopefully, this article will answer all your questions.
If you want to put your retirement savings into gold, you might be interested in learning more about what this kind of investment can do for you and how it works before you make any decisions.
Fortunately, there are many ways to learn more about gold IRAs and what they offer—including reading articles like this one. Most gold IRA companies also provide free guides to help you start your gold investment.
Here, we’ll talk about what a gold IRA is, the various custodian fees you need to keep in mind and some IRS regulations that apply to gold IRAs and precious metals IRAs in general.
Table of Contents
A gold individual retirement account (IRA) is a self-directed retirement account that allows you to invest in gold and other precious metals. It’s similar to a regular IRA, 401(k), or other tax-advantaged retirement plans, except that it allows investors to use their IRAs to buy physical gold or other precious metals.
With a gold IRA, also known as precious metals IRA, you can keep real, physical bullion in the form of gold, silver, platinum, or palladium as part of your retirement funds.
These retirement accounts are established with a gold IRA custodian approved by the IRS and willing to hold physical precious metals. These precious metals may include specific coins, bars, and rounds.
With the help of a gold IRA, you may diversify your investment holdings with physical gold and silver, which can serve as a safeguard against inflation and market instability. Custodians like Augusta Precious Metals can help you set up and manage your account, and they will also store your metals in a secure, insured facility.
In a nutshell, a gold IRA is an individual retirement account (IRA) that allows investors to hold physical gold or other precious metals as part of their retirement portfolio.
With so many compelling arguments in favor of gold ownership, let’s take a look at what a gold IRA is and how you may put this information to work for you.
Gold IRAs are structured in various ways, just like conventional investment accounts. Investors have the following options:
- Traditional Gold IRAs (Pre-Tax) – These are accounts for retirement that are paid for with money that has not yet been taxed. This means that the growth of both the contributions and any earnings is postponed for tax purposes. After retirement, withdrawals are subject to taxation.
- Roth Gold IRAs (Post-Tax) – There is no immediate tax advantage to contributing to a Roth gold IRA because contributions are made with already taxed money.
- When it is time for you to begin drawing distributions during retirement, you will be subject to paying taxes unless it’s a qualified distribution.
- SEP Gold IRAs (Simplified Employee Pension) – Employees of small firms or self-employed individuals are eligible to open SEP gold IRAs, just like they are for standard SEP IRAs. During your retirement, you will only be taxed on any withdrawals you make, not any additions you make to the account. Any form of contribution to SEP IRAs is subject to limits imposed by the IRS.
A self-directed IRA enables you to save money for retirement using assets such as precious metals, real estate assets, and cryptocurrencies that are not permitted in traditional IRAs. However, they may be more difficult to administer and have an increased risk of incurring additional costs than traditional IRAs.
When you have a self-directed IRA, such as a gold or precious metals IRA, you can exercise a greater degree of direct control over the assets that are held within your retirement accounts.
Unlike mutual funds or shares of stock, where a manager or a company’s CEO can make decisions without your input, having a self-directed IRA gives you the ability to take personal control over all elements of your investments, including making all of the decisions regarding the purchase and sale of each asset.
You are no longer restricted to owning paper assets such as stocks, bonds, and mutual funds when you have a self-directed IRA. Within an IRA, you can own hard, tangible assets such as precious metals, real estate, and land, as well as closely held corporations, partnerships, and LLCs.
Precious metals are rare, durable, and have a high economic value. Examples of precious metals include gold, silver, platinum, and palladium. These metals are often used in jewelry, coins, and investment portfolios.
There are a total of eight different metals that are regarded to be precious: gold, silver, platinum, palladium, ruthenium, iridium, rhodium, and osmium. Gold and silver are the most often traded precious metals. And besides gold and silver, platinum is the most actively traded precious metal.
There are various options for investors to include precious metals in their portfolios. Those who want to hold the metals directly can buy real bullion, such as minted coins or bars, and store it in a vault. Although this ownership structure offers the benefit of lowering counterparty risk, it also comes with higher storage and insurance expenses.
The two most popular types of investments that use these metals are ETFs and bullion.
- ETFs can be purchased from many brokers or banks, but there is a high degree of risk with this type of investment because the price for an ETF is based on the futures market for commodities.
- Bullion requires more up-front money, but it’s less risky than an ETF because you own the physical commodity instead of investing in paper contracts.
Section 408(m) of the Internal Revenue Code imposes various limitations on the types of precious metals that can be kept in IRAs (m).
More specifically, you are only permitted to own bullion coins, bars, or rounds if they were produced in a facility that is qualified to do so or in a mint that a national government operates. These bullion products must reach a particular level of purity and fineness before they may be sold.
You are not permitted to store coins, bars, or rounds in an IRA if they do not meet the minimum fineness requirements set forth by the IRS. Additionally, you are not permitted to utilize your IRA to purchase non-bullion collectibles or numismatics.
To be considered gold bullion, coins, bars, and rounds must typically have a purity level of 99.5% or above. The one and only exception to this rule are the Gold American Eagle coins, which contain only 92.7% pure gold blended in an alloy called “crown gold” that contains silver and copper.
The Gold American Eagle coin is the only coin in the world that can be contributed to an IRA with a purity lower than 99.5%.
- American Gold Eagle bullion and proof coins.
- American Gold Buffalo bullion coins.
- Canadian Gold Maple Leafs.
- Canadian Gold Wildlife Portrait Series.
- British Britannia (2013 and newer).
- Australian Kangaroo/Nuggets.
- Austrian Gold Philharmonic coins.
- Chinese Gold Pandas.
You also can invest IRA funds in gold bars and rounds produced in a national government mint or a manufacturer accredited/certified by COMEX, NYMEX, NYSE/Liffe, LME, LPPM, LBMA, TOCOM, ISO 9000, provided they satisfy the minimum 99.5% fineness criterion set forth by the IRS.
The following are some examples of gold bars that are permitted for use in an IRA and can be purchased from a precious metals dealer:
- Sunshine Mint Gold Bars.
- Royal Canadian Mint Gold Bars.
- Valcambi Gold CombiBars.
- Valcambi Gold Bars.
- UBS Gold Bars.
- Johnson Matthey Gold Bars.
- Credit Suisse – PAMP Suisse bars.
If you think the current price of gold will continue to rise for the foreseeable future, you may consider shifting some of the cash in your IRA into silver bullion bars or rounds instead.
Here are some examples of acceptable silver products allowed for IRA investment:
- American Silver Eagle bullion or proof coins.
- America the Beautiful coins.
- Canadian Silver Maple Leafs.
- Australian Silver Kookaburra coins.
- Austrian Silver Philharmonic coins.
- Chinese Silver Pandas.
- Mexican Libertad bullion coins.
You can use the following platinum bullion products for your IRA investment:
- American Platinum Eagle bullion/proof coins.
- Canadian Platinum Maple Leafs.
- Australian Platinum Koala coins.
- Isle of Man Noble bullion coins.
You can also invest in various Platinum bars and rounds manufactured by national mints or NYMEX/COMEX-approved facilities, which meet the IRS minimum fineness standard of 99.95% pure platinum.
You can invest IRA funds in palladium bullion of the following types:
- American Eagle palladium coins.
- Palladium Canadian Maple Leaf.
You might also put your money into palladium rounds and bars with a high degree of purity (at least 99.95% fineness) and were manufactured either by a national government mint or by a refinery certified or licensed by NYMEX or COMEX. These are the following:
- Valcambi palladium bars.
- PAMP Fortuna palladium bars.
The following are some instances of unacceptable items containing precious metals:
- Any rare or collectible coin.
- Austrian Corona and Ducat.
- Belgian Franc.
- British Brittania (pre-2013).
- British Sovereign.
- Chilean Peso.
- Columbian Peso.
- Dutch Guilder.
- French Franc.
- German Mark.
- Hungarian Korona.
- Italian Lira.
- Mexican Peso and Onza.
- Mexican Peso and Onza.
- Swiss Franc.
Conventional brokerage companies do not offer gold IRAs. Instead, you should collaborate with a custodian who is an expert in managing gold IRAs.
Custodians assist you in managing the paperwork and tax reporting associated with your gold transactions so that you can satisfy the standards set forth by the IRS for retirement planning.
The custodian enters into a contract with one or perhaps more secure third-party depository vault storage facilities in order to store any coins, bars, or rounds that you give them on your behalf.
Managing the one-of-a-kind storage requirements that come along with owning actual gold bullion is of the utmost importance. The IRS does not permit you to keep any precious metals you possess through a gold IRA in your own home.
If you take direct control of the gold bullion that is held within a self-directed IRA, the IRS will count this action as a withdrawal, which means that you may be subject to taxation as well as penalties for early withdrawal. Sometimes, the IRS may even be authorized to close your entire account.
A gold IRA requires you to keep any qualified precious metal in a national depository, a bank, or a third-party trustee that the IRS has approved. As part of opening a gold IRA, your custodian can provide you with a referral to an authorized facility and handle the transfer of your gold.
A gold IRA operates similarly to a standard IRA, but it keeps actual gold bullion coins or bars rather than paper assets.
To open a gold IRA, you first need to find a custodian that offers precious metals IRAs and set up an account with them. Once your account is open, you can then begin funding it by making annual contributions or rolling over funds from another retirement account.
You can fund your gold IRA in a few different ways:
- Cash contributions – Contributing cash straight to the gold IRA you have opened is the simplest approach to get the account started. After you have put money into your IRA, you will be able to use that money to buy gold and other precious metals.
- IRA Transfer – If you already have an individual retirement account (IRA) that contains gold, cash, or stocks, you can transfer those assets to your new gold IRA by completing the necessary documentation. Once the assets have been delivered, you will be able to sell them and use the proceeds to buy precious metals in any quantity you like.
- Rollover – If you currently have a 401(k) or other retirement accounts, you can move the money into a gold IRA and use the money to purchase precious metals.
It is essential to remember that you will not be able to directly fill your account with gold bullion or coins that you already hold. The IRS has specific regulations regarding what types of gold bullion are allowed in an IRA, so be sure to consult with your custodian before making any purchases.
A person should have a solid awareness of the costs and fees involved in any form of investment, whether it be gold, silver, other precious metals, or any other type of investment for that matter.
When considering whether or not to put money into a precious metals IRA, many fees and other expenses need to be analyzed and taken into account. Because of the tax-deferred status of an Individual Retirement Account (IRA), the account can only be held by a custodian who the IRS has authorized.
In the following, we will go over some of the possible expenses:
- Account opening fees – There is a possibility that the custodian will demand an initial cost in order to open your account. This fee could range anywhere from $50 to several hundred dollars.
- Custodian annual fee – In most cases, the custodian will charge an annual operating fee to recoup the costs of processing the paperwork and administrative duties associated with monitoring your account. This can be a one-time charge ranging from $75 to a few hundred dollars per year. IRA custodians must include information about their annual fees in the documentation associated with the account. In addition, some of these custodians may provide discounts determined by the total value of the accounts they manage.
- Storage fees – Gold held in a gold IRA must be kept in a safe and secure depository. The storage and protection of precious metals at these depositories are subject to an annual fee. The amount of gold and other precious metals you own will determine how much the storage cost will be. There is also a possibility that this will be a flat rate rather than a percentage of the total value of your account.
- Transaction fees – Precious metals IRA companies are permitted to assess a transaction fee for the purchase and sale of metals held within the account. This fee is assessed “per transaction” and can be found in the fine print. The standard fee for each transaction is $40.
- Wiring fees – If you send or receive money for your transactions through the use of a wire transfer, the custodian may assess a fee to cover the cost of approximately $25 per wire.
- Cash-out charges – If you decide to close your account, the custodian may assess a final cash-out fee of approximately $250.
Gold IRA Scams
Gold IRA scams are a common problem for investors. In fact, the Securities and Exchange Commission (SEC) has issued numerous warnings about fraudulent practices related to gold IRAs.
The best way to protect yourself from fraud is to understand how these scams work, so you can recognize them when they come your way.
Gold IRA scams can come in many forms. Scammers may attempt to trick you into investing in a worthless gold mining company, or they could try to convince you that they’re selling a physical gold product when they’re actually selling certificates that don’t have any value.
One of the most common types of gold scam is the “mining” investment scam, which involves getting investors to invest in a company that’s supposedly involved with mining and extracting gold from the earth’s crust. The scammer may even claim their company has access to rich reserves of natural resources — like diamonds or rare earth metals — that it plans on mining for profit.
The problem with these schemes is that there’s no actual gold being mined; all of the money raised from investors goes straight into the pockets of the scammers behind the scheme. There is no return on investment because there are no assets other than empty promises being sold at inflated prices.
Also, beware of gold IRA lies when prospecting gold IRA companies for your retirement.
Gold IRAs Final Thoughts
A gold IRA might be a great strategy to diversify your retirement portfolio and invest in precious metals. However, there’s a few things you should be aware of before you begin, such as IRS guidelines and gold investment possibilities.
Also, choosing a reputable custodian is essential as understanding the costs associated with setting up and maintaining a gold IRA.
With this information in hand, you’ll be well-positioned to make wise and knowledgeable choices regarding your gold investment.
You might also be interested in reading about the best gold IRA companies to help secure your retirement.