What Is a Gold IRA & How Does It Work? Advantages, Risks, & More

Investing in Gold Basics

Published: October 18, 2022

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When most investors think of buying gold, the first things that come to mind are gold coins or bars. However, many investors are surprised to find out they can also save for retirement by purchasing gold in a tax-advantaged gold IRA.

Opening a retirement account backed by gold, silver, and other precious metals is a great way to ensure your retirement is secure, even as inflation continues to rise. Gold IRAs offer a safe, transparent way to offset your yearly tax liability while investing in an asset that can grow tax-free until retirement.

To help investors learn more about this safe-haven asset, we’ve put together this article to help you learn everything you need to know about what a gold IRA is, how a gold-backed IRA works, and how you can start buying gold in an IRA.

What Is a Gold IRA?

A gold IRA is a self-directed individual retirement account that you can use to purchase gold and other precious metals.

The unique thing about gold IRAs is that they allow investors to purchase and own precious metals directly, as opposed to owning the assets indirectly, like with an ETF. Opening a gold IRA account allows you to buy different forms of gold, such as gold bullion, coins, and bars. Additionally, you can invest in other valuable precious metals like silver, palladium, and platinum.

Inflation in the United States is reaching historic highs, making people reconsider dollar-backed investment choices and restructure finances. In fact, in June 2022, the consumer price index skyrocketed by 9.1% compared to June 2021.

As inflation rises, the assets in your traditional retirement accounts will lose their value. Unlike conventional paper assets, gold and precious metals will typically increase in value as inflation rises due to increased demand.

For this reason, many investors have begun diversifying their retirement portfolios by offsetting their conventional stocks & bonds with gold-backed IRAs.

BONUS: Learn More About Noble Gold Investment’s gold IRA in this video

Who Manages a Gold IRA?

You cannot use the same custodians for your gold IRA as you would for traditional individual retirement accounts. Instead, you must find a company or custodian specializing in gold IRA accounts, as they must stay separate from traditional IRAs, require various documents, and have specific reporting regulations.

Custodians specializing in gold IRAs help account holders organize paperwork for transactions and tax reporting while ensuring all IRS requirements are met.

Custodian services go beyond ensuring IRS compliance; they also assist with gold storage. You cannot legally store your gold at home when you invest in a gold IRA. You must find an IRS-approved facility for storage.

Custodians ensure that your gold IRA account assets have the necessary storage that is safe, secure, and government compliant. In addition, they manage the transfer of the precious metal once you open your account.

Gold IRA custodians take on a lot of responsibility, which is one of the main reasons investors cannot go to traditional brokerage firms to open a gold IRA.

Types of Gold IRAs

To better understand what a gold IRA is, you should understand the different types of IRAs that are available to investors. While they all perform similar functions, they are not the same.

The three types of gold IRAs include:

  • Traditional Gold IRAs: Traditional gold IRAs are one of the more common types of gold IRAs. You fund these accounts with pretax dollars, so contributions grow on a tax-deferred basis. You will pay taxes when you withdraw funds during your retirement. Traditional gold IRAs have a yearly contribution limit of $6,000 for people under the age of 50.
  • Roth IRAs: In contrast to traditional gold IRAs, Roth gold IRAs receive post-tax contributions. As such, these accounts do not offer the immediate tax advantages as traditional gold IRAs. Rather, you pay taxes when you fund the account and enjoy tax-free withdrawals later. Like traditional gold IRAs, Roth gold IRAs have a yearly contribution limit of $6,000.
  • SEP IRAs: SEP gold IRAs are similar to traditional SEP IRAs, which are retirement savings accounts for self-employed people or those who own a business. With a SEP gold IRA, the IRS collects taxes when you withdraw funds during retirement rather than taxing contributions. The IRS enforces contribution limits for all SEP IRAs. Under these regulations, investors can set aside $61,000 or 25%, depending on which is less.

How to Set Up a Gold IRA

Although you have a lot to consider regarding gold IRA accounts, opening one is relatively simple.

The first step is to find a reputable gold IRA company like Noble Gold Investments. Start by reading customer reviews and asking friends and family if they have any experience with gold IRA companies. When looking for a gold IRA company, consider the following questions before making a decision:

  • What are their annual and other associated fees?
  • Do they have a good reputation?
  • What is their minimum investment requirement?
  • Are they licensed and insured?

Asking yourself these questions and taking the time to do thorough research will help you make an informed decision that benefits your portfolio and peace of mind. It will also make the process of opening a gold IRA significantly easier.

Once you choose your gold IRA company, you must create an account, which you may be able to do over the phone or online. After you have an account, you’ll fill out the necessary paperwork and fund the gold IRA by purchasing gold and storing it in an IRS-approved facility.

How Do I Fund a Gold IRA?

An investor can fund a gold IRA in a few different ways. One of the most popular ways to start is by rolling over an existing IRA, 401(k), or another retirement account. This is common for people who have an existing retirement account from a previous employer and are looking for a way to take advantage of the funds without paying any withdrawal penalties.

If you don’t have an existing account to roll over, you can also transfer cash to your account via ACH to fund the purchases. The cash that you contribute to your retirement account will also offset your taxable income for the year up to the IRS limits.

Once your account is funded, you can then begin buying and selling precious metals within your IRA. The IRS allows gold IRA account owners to purchase a wide range of bullion, bars, or coins of various types in the account. Remember that you cannot contribute gold you already own to your IRA, so make sure to factor that into your funding decisions.

While you can open as many IRAs as you want, you can only invest a certain dollar amount each year across all your accounts. The IRS has strict contribution limits that restrict how much money you can contribute to your gold IRA every year, and violating these regulations will result in tax penalties.

For example, people under 50 can contribute up to $6,000 annually to all of their IRAs, whereas those over 50 can invest up to $7,000.

Can I Only Buy Gold In A Gold IRA?

One of the most common misconceptions about gold IRAs is that the account is for gold only. However, when you open a precious metals IRA with a company like Noble Gold Investments, you can invest in various alternative assets such as silver, platinum, and palladium.

However, when purchasing precious metal bullion, you must purchase ones marked as  “IRA-compatible” or “IRS-approved” for them to be included in your IRA. Some companies simplify this process by only offering bullion with these labels.

Additionally, investors must be careful when purchasing gold bars. According to IRS regulations, investors can only buy gold bars with a minimum of 99.5% purity.

Gold IRA account holders can purchase many types of gold coins, each offering unique visual and monetary advantages. The most popular gold coins for investors include the Canadian Maple Leaf, American Gold Eagle, and the American Buffalo.

Be careful not to place certain gold coins into your gold IRA account: The IRS does not allow account holders to have coins like the United Kingdom Sovereign or the South African Krugerrand in their gold IRAs.

Additionally, your gold IRA account cannot hold gold collectibles. When you open an account, the IRA custodian will have a list of specific precious metal objects not allowed for the account.

Advantages of a Gold IRA

A gold IRA gives investors many benefits that make these investment methods appealing to new and seasoned investors, including:

  • Protection against inflation, social upheaval, and global crises
  • The unique opportunity to purchase various forms of precious metals
  • Multiple tax advantages that benefit you now and in the future

Below are the top five benefits of opening a gold IRA account.

Owners Make the Decisions

Gold IRA accounts are self-directed, which means you make all the decisions regarding your account. For example, you can choose the type and form of precious metal you want to invest in or select a gold-related paper option like ETFs.

Aspiring and current investors have a wide range of options when it comes to precious metals investments, from gold and silver to platinum and palladium.

In addition to selecting the type of precious metal you want to purchase, you can also choose what form, which can be bars or coins. Some investors choose both to further diversify their portfolios.

Although you have the freedom of choice with a gold IRA account, it is still crucial to abide by IRS regulations for annual contribution limits.

Portfolio Diversification

Any good investor knows that the best way to ensure the long-term success of their investments is by diversifying their portfolios. Moreover, the more diverse an investment portfolio is, the better the risk management.

While traditional investment vehicles such as bonds, ETFs, stocks, and unit trusts are safe long-term choices while the market is healthy, these assets tend to underperform during times of high inflation or heavy market volatility.

Precious metals provide an excellent way to diversify your portfolio while minimizing risk. As we’ve discussed, gold and other precious metals have the unique ability to retain or increase in value over time, even during periods of economic instability.

Adding such a stable and minimized risk to your portfolio can better protect your investments. For example, if your portfolio consists of precious metals and stocks, you can have peace of mind knowing that you have a steady precious metal investment when the stock market faces a crisis.

Gold IRA Tax Advantages

Although traditional and gold IRAs differ in a few significant ways, they share one major similarity: tax advantages.

First, the money you deposit into your gold IRA every year will act to reduce your overall taxable income. While the IRS limits your contribution, it’s still a significant reduction to your overall tax bill at the end of the year.

As the value of the assets in your account continues to grow, you will not be taxed on any of the profits in your account or the compound interest you earn.  You will only pay taxes on your gold-backed IRa when you reach retirement and begin to withdraw funds.

Hedge Against Inflation and Stock Market Crisis

As inflation rises, investors’ cash loses spending power in savings accounts, continuously dropping in value as time moves forward. Aside from gradual cash devaluation, the falling stock market also poses issues for investors. Stocks are falling due to the Policy of Quantitative Tightening from the U.S. Federal Reserve. This policy essentially uses a reduced supply of money in times of inflation.

With so many factors seemingly working against investment portfolios, it can seem nearly impossible to protect assets during times of inflation. This is where gold comes in. As an investor, you can adjust your portfolio and find ways to protect your assets with a gold IRA.

Gold has a reputation for being a hedge against inflation.

While gas prices increase and the U.S. dollar slowly loses its value, gold and other precious metals remain steady. We can see numerous examples of this throughout history, like from 1973 to 1979, when inflation in the U.S. skyrocketed to an average of 8.8%. Meanwhile, gold’s value not only remained steady but increased by 35%.

Gold has the unique ability to hold its value regardless of global crises or economic turmoil. As a result, it makes a highly beneficial addition to any investment portfolio.

Additionally, gold is an internationally recognized commodity with no ties to stock performance, so it remains unaffected by stock market crises.

Risks Involved with a Gold IRA

Although investing in precious metals offers much more stability than other investment vehicles, there are still some associated risks. It is crucial to consider the various risks and downsides of gold IRAs before opening an account.

For example, investing in gold or another precious metal requires storing a physical commodity. Since you cannot use personal gold storage, you must find an IRS-approved facility, which means you must pay the associated fees. When you purchase gold from Noble Gold Investments, we store your gold in our secure Texas depository.

In addition, gold does not pay regular dividends like stocks. Instead, it sits in a safety deposit box or bank vault, accumulating no earnings.

Since precious metals are physical commodities, they have certain risks that other investment vehicles, like stocks and bonds, do not have. For example, people can steal gold. Although stealing items from precious metal holding facilities is extremely difficult, there is still a risk, especially during transportation.

To counteract this risk, choose a reliable gold IRA company like Noble Gold Investments that uses secure holding facilities and has insurance to protect your investment.

Extra Fees Involved with a Gold IRA

In addition to annual fees and minimum investment amounts, gold IRA companies may charge various other fees. The following costs and fees are not typical of traditional IRA accounts, which makes them an essential factor when considering opening a gold IRA account.

Fee amounts vary depending on factors like investment amount, type of precious metal, storage facility, and custodian. The following are typical fees that you can expect with a gold IRA.

Seller Fees

Gold and other precious metal sellers often charge a markup, so you pay a higher price than what the commodity is actually worth. The amount of the markup, or seller fee, varies depending on current market conditions and which precious metal you purchase.

When purchasing gold, you may also come across commission or transaction fees. Fortunately, these are relatively low, averaging around $40.

Fees for Account Setup

Gold IRAs come with account setup fees just like opening any other retirement account. These fees are charges you pay upfront to open your account with the company, typically around $50.

However, you can find custodians that do not charge account setup fees. Some custodians waive the fee if you make a large deposit of around $30,000 or higher.

Insurance and Storage Fees

Since you cannot store your gold investment at home, you must use an approved storage facility. IRS-approved facilities that store precious metal investments typically charge storage fees, whether a flat rate or a percentage of your total investment amount. Generally, the more you store, the higher your storage fees are.

In some cases, custodians combine insurance and storage fees. Custodians and storage facilities have insurance to protect your investment, so you must pay insurance fees. The amount varies depending on your investment but typically ranges from $100 to $300 annually.

Maintenance Fees

A custodian maintenance fee is an annual fee that covers administrative expenses for your account and paperwork management. Companies generally charge higher maintenance fees if your account has a more significant investment.

Custodian maintenance fees range from $75 to $300 annually and are often a flat rate.

Wire Transfer and Cashout Fees

Custodians often charge a fee for each wire transfer, sending or receiving funds for your account. In most cases, the fee is $25 per transaction.

The cashout fee applies if you close your account with the custodian. You can expect this charge to be around $250.

How IRA Gold Is Stored

Unlike traditional gold and silver purchases, you can’t store your IRA gold at home – your custodian must store it in an IRS-approved facility.

When researching different gold IRA companies, you should spend some time investigating the depository they use to store your gold and where it’s located. Typically your assets will be stored in national depositories, approved third-party trustees, or banks that have specific services for storing gold IRA investments. You can learn more about our secure gold depository here.

If you store your precious metal investments at home, you will be subject to a tax penalty. When you set up your gold IRA, your custodian will refer you to a storage facility and make it easier to remain IRS-compliant.

The Gold IRA Withdrawal Process

In addition to following annual contribution limit regulations, it is crucial to remember that you cannot make withdrawals from your account until the age of 59 1/2. Otherwise, your withdrawals will be subject to an additional 10% tax penalty.

If you store your account assets at home, the IRA will count it as a withdrawal, so if you are under the required age, you’ll have to pay the additional 10% tax. Your gold IRA custodian will help clarify withdrawal rules and regulations upon opening your account.

Once you have reached your retirement age, making withdrawals from your gold IRA works similarly to making withdrawals from a traditional IRA.  As you plan to liquidate funds, you log in to your account and create a sell order for a certain amount of gold. Once this order has cleared, you can then withdraw the funds from your account in U.S. dollars.

Make Sure Your Golden Years Are Secure – Open a Gold-Backed IRA Today.

Gold-backed IRAs offer a wide range of benefits to investors looking to diversify their portfolios and protect their nest egg’s from inflation. As a safe haven investment, precious metals have an incredible ability to hold value, even during times of economic or social crises.

If you’re ready to open a gold IRA or want to speak to someone who can provide more information, give Noble Gold Investments a call today at 877-646-5347. We are one of the largest and most trusted gold IRA companies on the market and our team can answer any questions you have about buying precious metals in an IRA.  Click here to get started now.

Investing in Gold Basics

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