Are Gold IRAs a good idea

The purpose of investing for your future is to generate the greatest growth at the least risk. Many investors turn to the usual suspects (Stocks, Bonds, Real Estate, etc.) to achieve these goals.

But in recent decades, more investors have turned to alternative Investments. These unusual assets – which include Precious metals, derivatives, and even cryptocurrencies – offer perks like diversification and new growth potential.

However, alternative assets also carry unique risks that you have to account for. And if you want to store them in a tax-advantaged Retirement account, you’ll have to take a few extra steps to make it work.

Which begs the question: Are Gold IRAs a good idea for your Portfolio – or should you steer clear?

What is an IRA?

You’re probably familiar with “regular” IRAs, or Individual Retirement Accounts.

IRAs are tax-advantaged accounts that invest in traditional assets, including Stocks, Bonds, ETFs and Mutual funds. Many online and in-person Brokers service two types: traditional IRAs and Roth IRAs.

The distinctions are fairly simple, but can make a massive difference in your long-term Wealth and tax strategy. The overarching goal is to pick the account(s) that lower your lifelong tax burden – not just taxes here and now.

Traditional IRAs let you make tax-free contributions to your Retirement account. Then, when you make qualified withdrawals in retirement, you pay income taxes on the amount you pull out. In-between, your money grows tax-deferred (as long as you leave it alone). Typically, traditional IRAs make the most sense when you expect to make more money now than in retirement.

With a Roth IRA, you first pay taxes on the money you contribute, and the money grows tax-free. Then, when you make qualified withdrawals in retirement, you don’t have to pay income taxes – even on your capital gains. For most investors, Roth IRAs make sense when you expect to make more money in retirement than you do now. 

What is a Gold IRA?

But traditional and Roth aren’t the only IRA choices you have available. You can also open what’s called a self-directed IRA, or SDIRA, in both Roth and traditional flavors.

A self-directed IRA is a Retirement account where you call the shots. You can use SDIRAs to make tax-advantaged Investments and trades in normally-unpermitted assets, such as derivatives, FOREX – and yes, Gold. Your only limits are relevant legal and contribution constraints.

Gold IRAs are a subtype of self-directed IRA designed specifically to hold Gold, Silver, and select Precious metals. Unlike other IRAs, they can actually hold the physical Investment, as long as they’re set up properly.

Bear in mind that the IRS restricts Gold IRAs to holding metal that meets specific size and purity requirements. You also can’t add collectible coins (Numismatics) or items like jewelry or artwork to your Gold IRA. 

Other requirements for Gold IRAs

Because Gold IRAs fit a niche spot in the IRS tax code, they have a few other regulations to consider.

To start, you’ll need to open your IRA with an IRS-approved Custodian or Trustee. Essentially, this is the Brokerage that will actually manage your account. Many mainstream Brokerages don’t offer these accounts, so you may have to find a specialty Custodian.

You must also hold your Gold in one of around a dozen IRS-approved depositories – no storing it under your mattress. Some Custodians require you to use specific depositories, while others let you choose your own.

Because the IRS only permits cash contributions to IRAs, you also can’t donate your own Gold to your account. Once you set up your Roth or traditional IRA, you’ll have to contribute cash (or rollover an existing Retirement account), then use the cash to purchase Gold from an approved Broker.

If all this sounds complicated, don’t fret. Many Gold IRA Custodians, Brokers, and depositories network to make the Gold purchasing, shipping, and storage process painless. They’ll even walk you through which Investments the IRS permits so you don’t run afoul of any rules.

Remember that Gold IRAs are only necessary if you intend to add physical Gold or Gold-related derivatives to your Retirement account. Gold-related Stocks, Bonds, and funds can populate your regular IRA or other Investment accounts. 

Benefits of a Gold IRA

To understand whether Gold IRAs are a good idea, it’s important to carefully weigh its benefits. On one hand, you may consider a Gold IRA for its:

  • Tax benefits. Gold IRAs offer the same special tax treatment as regular IRAs. Traditional Gold IRAs offset your tax bill until retirement, while Roth IRAs tax contributions up front so you can enjoy tax-free withdrawals. 
  • More control. Since Gold IRAs are always self-directed, you’re 100% in charge of your contributions and Investment strategy. But beware: the responsibility of doing your due diligence can be a double-edged sword for some.
  •  Long-term growth potential. The purpose of a Retirement account is to save for the future – often your distant future. While Gold may not experience the astronomical returns of the stock market, its value does appreciate over time. Some investors consider an IRA the perfect place to hold such a long-term asset.
  • Diversification. Gold’s low to negative correlation with Stocks and Bonds means that it responds differently to market stimuli. Historically, when Stocks drop, Gold rises, and vice versa. Investors often use Gold as a financial hedge to balance their Portfolios and reduce long-term risk.
  • Hedge against Inflation and crisis. Recently, Gold’s status as an Inflation hedge has come into debate thanks to historical scrutiny. What is certain, though, is that Gold can maintain its value against the dollar during some (but not all) financial crises. When these crises come around, Gold is an invaluable commodity to have on the backburner.

What are the drawbacks of a Gold IRA?

It’s a good idea to look at a Gold IRA’s downside, too. Chief among them:

  • Higher fees. Because Gold IRAs come with so many rules regarding purity, shipping, and storage, they’re more expensive than other kinds of IRAs. The startup fees alone can range from $100 to $300. From there, you’ll also have to consider:
    • Seller’s fees (also called the markup)
    • Shipping fees
    • Storage and insurance fees
    • Ongoing Custodian or management fees
    • Cash-out costs for closing your Gold IRA
  • Smaller profits. It’s important to remember that Gold doesn’t pay interest or dividends while these fees eat into your budget. That means your only chance for profits is when (or if) you sell for more than you paid. In the interim, you’re paying money you may not be able to recoup later. 
  • Contribution limits. IRAs only let you contribute $6,000 per year ($6,500 in 2023, plus an additional $1,000 if you’re over 50). That’s not per account – that’s a cumulative total across all your IRAs. If you open a Gold IRA, you may be limiting your IRA Investments elsewhere.
  • Loss of tax-advantaged opportunities. Between Gold’s slower growth and restrictive contribution limits, Gold IRAs may limit your tax-advantaged retirement growth. (On the other hand, because Gold holds its value, it can help preserve value for years to come.)
  • Funding restrictions. Unfortunately, you can’t move your own Precious metals into a Gold IRA; all Gold must be purchased with contributed funds. Your Custodian must handle all Precious metal transactions on your behalf.
  •  Hold restrictions. Due to IRS rules, Gold IRAs can only contain Gold, Silver, Platinum, and Palladium. Each metal must conform to purity, size, and point of origin regulations.

Are Gold-backed IRAs safe?

Generally, yes: Gold IRAs are quite safe – if you choose a legitimate one. However, you have to stay on the lookout for Precious metal scams that would take your money and run. To safeguard your finances, it’s essential to start with a trustworthy Custodian.

A few factors to look at include:

  • Transparency regarding startup costs, ongoing fees, and policies
  • A positive track record with investors
  • A willingness to educate investors over pushing products that are inappropriate for your personal situation
  • And most importantly, holding the required licenses, registration, and insurance

Remember that a Gold IRA’s safety doesn’t guarantee that you’ll see any gains. Simply that the Gold you buy will be properly secured and insured against potential theft or damages. 

How much should you invest in a Gold IRA?

While exact recommendations vary, generally, experts say you should keep no more than 5-10% of your Portfolio in Precious metals. That gives you wiggle room to hedge against financial crises while ensuring the rest of your Portfolio is hefty enough to produce gains. Additionally, it prevents your Gold allocation from lowering your diversification potential elsewhere.

Are Gold IRAs a good idea for you?

The purpose of investing for retirement is having a nest egg to fall back on when you leave the workforce. Smart Investments build up your Wealth long-term so your Portfolio can carry you through to the end of your days.

From that angle, it might look like Gold is a tricky Investment. Because Gold doesn’t produce income, its long-term returns are typically much lower than the stock market’s.

On the other hand, Gold does appreciate over time – potentially quickly. It’s also more likely to appreciate during a financial crisis, downturn, and even high inflation, which is why it’s a renowned store of value.

For retirees, that might make Gold IRAs a good idea for hedging your bets against your future. 

About Satori Traders

Satori Traders LLC is a California-registered Investment Advisor specializing in the Precious metals.

Bryan V Post is a California-registered Investment Advisor Representative and the founder of Satori Traders.

Bryan has worn numerous hats during his life: Engineer, Portfolio manager, Precious metals Investor, Technical analyst, Proprietary trader, Swing trader.

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