Buying gold in an individual retirement account (IRA) is touted as a way for savers to diversify their investments. Gold and other precious metals are considered a hedge against inflation and may rise in value during periods of stock market volatility.
A gold IRA can give you the tax benefits of a conventional retirement account, but you have to follow IRS regulations or risk fines and penalties. Purchasing physical gold to hold in a retirement account also can be more expensive than investing in assets like stocks, bonds or mutual funds. It’s important to make sure you understand all of the costs and expenses before buying physical gold to keep in an IRA.
As you read this guide, keep in mind that gold IRAs are a niche investing product that should probably be considered only by sophisticated investors with ample money and knowledge of trading and investing in precious metals, as well as enough time to increase the odds of turning a profit.
A key selling point of gold IRAs is that you own the physical gold itself. If this doesn’t matter to you, there are other ways to add exposure to precious metals to a retirement portfolio, such as buying stock in gold mining companies.
Even with a long time horizon, gold investors have no guarantee of making money on their investment — especially if you plan to rely on a gold IRA company’s buyback program to sell your gold when you have to take distributions from that IRA. Buyback programs generally pay you the wholesale price of gold, which can be 30% lower than the retail price. This means the price of gold would need to appreciate at least 30% from the time you bought it, plus the cost of fees you pay to maintain the account, before you could begin to turn a profit.
The average retirement account balance last year was $141,542, according to Vanguard. Practically speaking, this means that the account minimums at many gold IRA companies would require to you invest much more than the 5% or less financial advisors generally recommend allocating to precious metals, which could expose your nest egg to too much risk.
Unexpected losses from gold investing could put a wrinkle in your retirement plan. It’s also smart to calculate the opportunity cost of not investing that money elsewhere, such as in stocks, where it could earn dividends. If you’re not sure if a gold IRA or a silver IRA is a good fit for you, consult with a fee-only financial planner — who is not affiliated with a gold IRA company — to determine whether this would be a good addition to your portfolio.
If you want to know how can gold be part of an IRA to help you save for retirement, read on.
Table of Contents
1. Identify a gold IRA custodian
To avoid running afoul of tax regulations on self-dealing, self-directed IRAs — including gold IRAs — need to have an IRS-approved custodian. The custodian is a financial firm tasked with executing investment activities and administrative duties that are necessary to keep your IRA in good standing with the IRS, according to the Retirement Industry Trust Association, which is crucial to keep its tax-deferred status.
Many gold IRA companies have preferred custodians they either recommend or require customers to use, or you can search for a custodian through the RITA website.
2. Open a gold IRA account
Gold IRA companies streamline the process of account opening. They sell gold coins, bullion and the like, but they do not offer IRA investment advice (despite what their websites or other marketing materials might suggest). It is crucial to do your research when choosing one. Read more about what to look for when selecting a gold IRA company in Money’s guide to the best gold IRA companies.
3. Add funds to your gold IRA
There are numerous ways you can fund your gold IRA. You can elect to use one or more of the following.
Many people fund their new account using part or all of the funds held in an existing retirement account. IRS rules permit funding a gold IRA with money drawn from another IRA, 401(k), 403(b), 457(b) or Thrift Savings Plan. To initiate the process, contact the administrator of your current retirement plan and tell them how much you want to roll over.
Caveat: If you are younger than 59½ years old and using a rollover to fund a gold IRA, you have a maximum of 60 days to get the withdrawn funds into the new account. Even being a day late will trigger a 10% early withdrawal penalty, and you will have to pay income tax on the withdrawn funds.
To avoid the prospect of missing the rollover cutoff, many people choose to let their gold IRA company coordinate the rollover via a direct institution-to-institution transfer. Since the money never technically passes through your hands, you don’t have to worry about taxes or penalties being assessed.
One important caveat for both IRA rollovers and transfers is to consider how much you want to funnel into your new account. Most conventional IRAs give you the ability to build a diversified retirement portfolio. An IRA holding nothing but precious metals is, by definition, not diversified, because precious metals comprise a single asset class. Furthermore, even though the gold appreciates tax-free while inside the account, it doesn’t offer you the opportunity to grow your money via dividends. The conventional wisdom is that you should limit your investment of precious metals to 5% to 10% of your overall portfolio to achieve appropriate diversification.
You don’t want to fund a gold IRA with cash because you will have already paid taxes on that money, and the point of using an IRA as your investment vehicle is to capture the tax advantage that comes with using pre-tax dollars.
4. Calculate gold IRA fees
Unfortunately, most gold IRA companies don’t have a great record for fee transparency on their websites, so finding out the details might entail a phone call or two. Common fees include account setup and maintenance, storage and insurance. You will also be charged a markup — which varies based on the company and the type of item — when you buy your precious metals.
Beware of companies that claim they don’t charge fees for account maintenance or storage and insurance. While this might technically be true, that doesn’t mean you won’t pay them. Annual fees usually come from the account custodian, and storage and insurance fees are more often owed to the depository rather than the gold IRA company.
5. Rules, regulations, and restrictions to buying gold in an IRA
There are a lot of rules and regulatory hoops to jump through if you’re thinking about getting a gold IRA. Knowing the basics about what the IRS does — and doesn’t — permit can save you from making a potentially expensive mistake with your retirement nest egg.
What is IRA-approved gold?
You can hold coins or bullion in a precious metals IRA. Despite the colloquial term “gold IRA,” you can hold silver, platinum and palladium in this account.
If you’re wondering what “IRS-approved” gold is, be aware that there are minimum requirements for metal fineness, along with specifications about the type, size and weight. IRS-approved gold must be 99.5% pure. Silver must be 99.9% pure. Platinum and palladium each must be 99.95% pure.
According to STRATA Trust Company, one of the leading gold IRA custodians, your precious metals must be certified or accredited by a national government mint or one of the following precious metals authorities: NYMEX, COMEX, NYSE/Liffe, LME, LBMA, LPPM, TOCOM or ISO 9000.
Two of the most commonly used types of IRA-approved gold are American Eagle proof coins and bullion, and Canadian Maple Leaf coins.
How to hold physical gold in an IRA
People who want exposure to precious metals in a retirement account can invest in stocks of mining companies, mutual funds that hold these stocks or a gold ETF. People who believe physical possession of gold or other precious metals is more secure can get that peace of mind with a gold or silver IRA.
Having ownership of physical precious metals is the key selling point, but storing and insuring precious metals isn’t cheap, nor is having it shipped to you once you reach the age when you have to take required minimum distributions (RMDs).
Age and retirement limitations
Self-directed IRAs, of which gold IRAs are one type, have the same kinds of limits on contributions and distributions based on your age as traditional IRAs. You can contribute up to $6,000 in 2022 if you are less than 50 years old, or up to $7,000 if you are 50 or older.
If you withdraw gold from your IRA before you reach the age of 59½, you will be assessed income tax on the value of that gold as well as a 10% penalty for taking an early withdrawal from a retirement account.
Gold IRA withdrawal
When you reach the age of 72, you will be required to take distributions from your gold IRA. You have two options. An “in-kind” distribution means you have your gold shipped to you. Note that you will have to pay for shipping and insurance.
The other option is liquidating your gold and having the gold IRA company send you the funds. While most IRA companies will buy back gold, be aware that the price at which they purchase gold is lower than the price at which they sell gold.
Gold in an IRA FAQ
How to hold physical gold in an IRA?
Unlike gold ETFs or gold company stocks, a precious metals IRA lets you hold the physical precious metals, according to IRS regulations. One key rule to know about how to hold physical gold in an IRA is that your precious metals MUST be kept at an approved depository institution, such as Delaware Depository Service Company or Brink’s Global Services — not at your home or in a safe deposit box.
Gold IRAs tend to have higher fees than traditional IRAs. If you just want to purchase gold or silver, here’s what you need to know about how to buy gold outside of an IRA. Or, if you have a conventional retirement savings account and want to add exposure to gold, read here about how to buy a gold ETF — an exchange-traded fund that tracks the performance of gold.
What is a gold IRA account?
A gold IRA is technically considered a self-directed IRA. It can hold an array of alternative assets such as precious metals, commodities, real estate and cryptocurrency. Along with gold, many people also hold silver, platinum and palladium in these accounts.
Self-directed IRAs are generally more expensive than other types of retirement savings accounts because of the additional layers of oversight and administrative work necessary. Be aware that these fees and expenses can eat into the returns you earn, so make sure you have a good understanding of how much it will cost before opening a precious metals IRA.
How to own gold in IRA?
Gold IRA companies, which are essentially precious metals dealers, will facilitate the creation of an IRA in which you can legally hold gold and other precious metals. Gold IRA companies can steer you towards an appropriate IRS-approved account custodian and depository institution where your gold will be physically stored.
What is IRA-eligible gold?
Since most gold coins are minted specifically to be collectibles, there are very precise regulatory requirements that define which precious metal items are suitable for investing. You can see more of the IRS’s detailed requirements on size, weight, and metal purity that govern which kinds of coins and bullion can be held in a gold IRA. The aim of these precise requirements is to ensure that people are keeping investment-grade assets in their accounts, rather than collectibles.
Bottom line to gold in an IRA
A gold IRA is an alternative investment option for retirement savers who want to own gold as a hedge against inflation or to diversify their assets beyond the stock market. Learn how to buy gold in an IRA if you want to own physical gold rather than paper assets — i.e., stocks, mutual funds or ETFs — of gold companies.