What Is a Gold IRA?

The term Gold IRA refers to a specialized type of individual retirement account (IRA) that allows investors to hold gold as qualified retirement investments. Investors may also be allowed to hold other approved precious metals, such as platinum, palladium, or silver. Investors with these accounts can hold physical metals such as bullion or coins, as well as precious metals-related stocks.

A gold IRA must be held separately from a traditional retirement account, although things like contribution limits and rules about distributions remain the same. Investors can open gold IRAs through a broker-dealer or other custodian.

Key Takeaways

  • A Gold IRA is an IRA that allows its investors to hold gold coins or bullions or other precious metals as investments.
  • You can set up a gold IRA with pre or post-tax dollars through a special custodian or broker.
  • The IRS permits self-directed IRA holders to purchase gold, silver, platinum, palladium bars, coins, or other approved physical forms.
  • They generally carry higher fees than ordinary IRAs since they require purchasing and storing the actual metal.

Understanding Gold IRAs

Individual retirement accounts are tax-advantaged accounts that help individuals save for retirement. They come in various forms, including traditional IRAs, Roth IRAs, and gold IRAs. As mentioned above, a gold IRA allows investors to stash their money in gold and/or other precious metals. These accounts must be held separately from normal IRAs.

Gold IRAs, also referred to as precious metals IRAS, can either be set up with pretax funds or as a Roth IRA, bought with post-tax money. Unlike other IRAs, these accounts require purchasing and storing the physical asset. As a result, gold IRAs require the use of a custodian, typically a bank or brokerage firm that manages the account.

The term gold IRA is primarily used to describe a self-directed IRA with funds invested in hard metals.

Traditional IRAs allow investors to hold just stocks, mutual funds, or other traditional investments. The Internal Revenue Service (IRS) allows holders of self-directed IRA accounts to purchase bars and coins minted from gold or other approved precious metals, such as silver, platinum, or palladium

Gold IRA funds can also be invested in gold-related paper investments, such as exchange-traded funds (ETFs), stock in gold mining companies, precious metals mutual funds, or precious metals commodity futures. But keep in mind that these accounts come with higher fees because they require you to purchase and store precious metals.

Special Considerations

You can't set up a gold IRA with traditional custodians like conventional brokers. These companies don't offer specialty accounts like gold IRAs. If you're interested in setting up this kind of account, you'll have to look for a specialty custodian or firm who is able to handle all the documentation and reporting for tax purposes necessary to maintain a gold IRA.

Although the assets may be different from traditional IRAs, the rules are the same. This means you can't go over your annual contribution limits. The IRS set contribution limits for the 2021 tax year at $6,000. If you're 50 or over, you can contribute an additional $1,000 for a total of $7,000. You can start taking distributions without incurring any penalties from your IRA after you turn 59 1/2. Withdrawals made before that age are subject to an extra tax of 10%.

Storage is a consideration for those who hold gold IRAs. You have to keep your physical gold at an IRS-approved facility, such as a bank or other depository. You can also hold it with an approved third-party. This means you can't store your assets at home. If you do, it counts as a withdrawal and you'll have to pay taxes.

Gold IRA contribution limits are the same as any other IRA, so make sure you check with your financial advisor to make sure you aren't going over that amount.

Advantages and Disadvantages of Gold IRAs

Is holding gold a good idea for an IRA? For most of recent history, the answer is no. Gold has to be stored, doesn't pay dividends, and has no earnings. It has industrial and jewelry uses, but by and large, most of the yellow metal sits in bank vaults and safety deposit boxes. People believe it's a safe holder of value when times are tough.

Gold spiked in the early 1980s, then stayed in the $400 to $500 per ounce range until around 2006. Gold peaked at over $1,700 per ounce during the financial crisis. It has since traded in the $1,100 to $1,300 range. That means that for more than 30 years, gold went mostly sideways. Meanwhile, if you invested in the broad stock market from 1982 to 2006, your IRA would have risen five-fold. 

This is not to say that precious metals don't have a place in your portfolio, but if history is a guide, gold will have to come a long way to match the returns of the overall economy as measured by the broad markets.