A gold IRA is a special type of Individual Retirement Account that lets you add real physical gold, silver, platinum and palladium to your portfolio - whereas a traditional IRA only features paper-based assets (cash, stocks, bonds).
Physical gold IRAs came into existence in 1997 - and they have been a growing trend ever since. They soared after the 2008 financial crisis that led to the great recession...
For decades, the average individual had no hope of ever seriously investing in precious metals like physical gold & silver. The secret ability to invest in gold was well-guarded by experts and wealthy individuals alike.
But with the recent changes in IRS rules it is finally possible it is finally possible for anyone to create a gold-backed IRA. And with our thorough gold IRA guide, you will know the ins and outs of this special retirement account.
Keep reading to learn more about this new, secure way to keep your retirement savings protected!
What is a Gold IRA?
Here are the basics of how a Gold IRA works:
- Instead of stocks or mutual funds or other assets, you buy actual physical gold coins or bars (or other precious metals).
- These bars or coins are regulated by the IRS to ensure a certain standard of purity. This means you are safest when going through an approved or trusted service that deals in bars and coins that meet those standards.
- You can also invest in gold-related “paper investments.” These include investments like buying stock in a precious metal mutual fund, gold mining company stock, or other assets that are related to precious metals.
- Your physical gold, silver, and other precious metals also need to be stored in certain conditions set by the IRS. That means you can’t hold on to the precious metals yourself. You will have to keep it with a “custodian” who has the proper storage facilities. This is often a bank or brokerage firm.
What's Putting Your Traditional IRA or 401(K) at Risk?
- Your annual contributions are capped at $5,000 (or $6,000 if you’re over 60) so if you want to save more, you need to find another way.
- The claim that your contributions are tax deductible may not be true. Different factors affect just how much of your contributions you are allowed to deduct on your taxes. In some cases, you won’t be able to deduct a single cent!
- Penalties for early withdrawal. You aren’t allowed to touch your money before the age of 59 ½. If you do, they will deduct 10% as a penalty and you lose the ability to defer taxes on that account (meaning they can take even more!)
- Roth IRAs which are usually a little bit nicer than the traditional IRA are only available for people who earn below a certain income level (below $120,000 for singles and $177,000 for married people filing jointly).
Other issues to consider are exactly where your IRA money is sitting. An IRA is a sort of umbrella term for a variety of different investment options. It can be held in a savings account, mutual funds, or in a managed investment portfolio.
In many cases, all of your contributions tend to be shoved into a single asset. And that asset is usually a mutual fund. But this is dangerous. To insulate your money from the fluctuations of the market, you need to spread your money around. You never want to put all of your eggs in one basket. Because if that basket breaks, all of your eggs are lost.
In other words, if all of your money is in a mutual fund and that mutual fund fails, you can kiss your entire retirement savings goodbye!
Unlike an IRA, a 401(k) is offered by your employer instead of the government. You can also set one up for yourself if you are self-employed.
Even better, you don’t have any income limits or contribution caps. With this type of account, you can allocate a certain portion of every paycheck to your 401(k).
The advantages are that you get to take that money from your paycheck before taxes are taken out (meaning that taxes are only deducted from the portion of your paycheck remaining after you contribute to your 401(k) account).
That money is then invested in stocks, bonds, or money market funds. So with that come some cons that are worth considering:
If you want to be in complete control of your money, you’ll need to diversify your assets on your own. That takes more responsibility and effort but that’s the tradeoff for making sure that your money is going exactly where you want it to go.
And one of the best assets you can add to your portfolio is physical gold, silver, and other precious metals.
So now let’s take a closer look at exactly what a Gold IRA is and how it compares to your more conventional options like the traditional or Roth IRA and the 401(k) plan.
Gold IRA Investment
The answer to that problem came with the rise of companies who simplified the processes by doing the whole thing for you. These companies are a one-stop shop for executing a gold IRA rollover without having to do the dirty work yourself.
This is not to say that you need to run out and put your every last cent into gold or other physical precious metal. The secret to a secure retirement portfolio is diversification. That is, spreading your savings across a few different types of asset classes.
Think of gold as the bedrock of your savings. And on top of that, you build your portfolio by adding stocks, bonds, real estate, cash, and a variety of other assets. By diversifying in this way, you can make sure that no matter where the economy goes in the future, your money will be protected from utter disaster.
When your eggs are divided into different baskets, one basket breaking won’t lead to your ruin. And unlike baskets, your assets can influence each other. If your gold starts to sink in value that almost always means that your paper assets are doing well.
The opposite is also true. If your paper assets are suffering that means your gold is probably seeing strong growth. So adding gold to your portfolio is sort of like ensuring that instead of losing money, you just shift that money back and forth between your different assets.
Factors to Consider When Investing $250,000+: This is a must-read for anyone who is considering a large rollover of $250,000 or more into a Gold IRA.
How the Gold IRA Rollover Process Works: Here we have created an easy to read infographic that breaks down the entire gold IRA rollover process for you.
Reviews of Leading Gold IRA Companies: Here you can find a comparison chart of precious metals gold companies we have researched and reviewed.
Reasons to Consider Rolling Over Your 401(k): If you currently own a 401k plan, this is a must read as it provides 5 ways you can benefit from a gold IRA rollover.
Gold IRA Rules: Guidelines of the IRS: Here you can find a list of rules that have been set by the IRS for gold IRAs. It’s an important read because you risk tax penalties and fines if these rules aren’t followed to the letter.
Gold: A Bankable Way To Brave Your Retirement Plan: Why having gold in your retirement portfolio is a must during uncertain times. Historically, the value of precious metals has increased over time.
The Self-Directed IRA
Every gold IRA is a self-directed IRA. And it is pretty much what it sounds like. It’s an IRA account that you, the individual investor, are in charge of. You make all of the investment decisions regarding what type of assets and how much of each one you buy.
This means you have more control over the assets you own as well as how (and where) your IRA is diversified. It also means you can invest in “non-traditional” assets like precious metals. In addition to gold, these forms of IRAs also allow you to invest in real estate. And of course, you can still invest in “traditional” assets like the stocks, bonds, and mutual funds that are already allowed under traditional IRAs.
An important note here is that with all the advantages of being able to control your own IRA, this comes with a lot of responsibility. You need to do your research, seek out advice, and make sure that you are making smart choices about your IRA.
That means you will generally be more actively involved in managing your retirement investments. So it is more work but it also means you get to be in control of your money in a way that you won’t be able to with a traditional IRA or 401(k) plan.
10 Reasons Investing in
Gold Can Be
A Smart Decision
So now that you know a little more about what a Gold IRA is and how it works, you might be wondering “ok, but why would I actually want this?” To answer your question, we’ll give you 10 of the benefits that come with investing part of your retirement savings into gold and precious metals:
This is one of the most important advantages and something you need to think about even if you end up deciding gold is not for you. As mentioned earlier, portfolio diversification means spreading your savings across a variety of different assets.
That means instead of just putting everything into, say, stocks, you buy some stocks but you also invest in bonds, mutual funds, real estate, precious metals, and even plain savings accounts.
This is an important way of lowering risk. Because if you only own stock and the stock market crashes, all your money disappears. But, if you own a little stock, a little real estate, a little gold, and so on, it’s extremely unlikely that every single asset is going to fail all at once.
Basically, diversification is a way of making sure that you will never lose all of your money. And gold is a great asset to include in a diversified portfolio because it also has the added advantages discussed below.
Inflation is a problem that any paper asset will suffer. It happens inevitably over time but during tough economic periods, inflation can be so high that money and other paper assets become essentially worthless.
An inflation hedge is anything that can protect you from inflation. In order for an investment to be an inflation hedge, it has to have intrinsic value. That is, something like land, oil, or gold.
Gold works as a hedge because its value is not dependent on the market. In fact, its value tends to move in the opposite direction of the market. You’ll learn more about that opposite movement below.
In the same way gold can protect you from the effects of inflation, it can also act as a currency hedge. If the US dollar were to suddenly collapse, every paper asset you owned would crash right along with it.
Meanwhile, your gold would still be gold. And, as discussed in the next section, the value of your gold would almost certainly skyrocket in value because of that crash. Plus, gold has value everywhere. If the dollar begins to struggle, you could exchange your gold for a stronger currency.
Gold is a great way of managing risk for two reasons. First, it diversifies your portfolio. And we already explained earlier how diversification helps you lower your risk. So the second reason that it helps manage risk is because of the way it relates to your other assets.
That is, gold consistently has a negative correlation with paper assets (cash, stocks, bonds, anything that isn’t a real, tangible asset like physical gold or a piece of land). This negative correlation means that when paper assets are down, gold goes up. When gold is down, paper assets go up.
What that means is that the smart way to invest is to have both. If you have both paper assets and tangible assets, you can not only ensure that you never lose all of your money, you can also minimize the amount of money you risk losing.
That’s because rather than lose money, it just moves to your other assets. This won’t always be a perfect one to one shift—meaning you won’t necessarily make up for all of your losses in one asset. But, it will definitely decrease the total loss.
So investing in a diversified portfolio that contains both paper assets and gold is one of the best ways to ensure that your risk for losing money is as low as possible.
One of the most important things to know about gold is that it is in limited supply. We can’t grow it like we would crops and we can’t make it like we can money. This is great news for anyone who owns it. Securing your share of a limited supply will ensure that you benefit from the increasing value as demand increases.
History of Maintaining its Value
This is one of the top reasons to have some amount of gold in your portfolio. Of all the assets you could own, this is one of the only ones that has a 5,000 year history of maintaining value. And in that time, the value may have fluctuated but it never once collapsed to zero!
Deflation can be just as dangerous as inflation. With inflation, the value of currency drops which causes the prices to inflate. With deflation, the value of currency raises which causes the prices to deflate.
While increased value of currency sounds like a good thing at first, it’s actually a bad sign. When the value of currency increases, unemployment skyrockets (because employers can’t afford to pay the salaries they had been paying now that the value of those salaries is higher than they were).
Fortunately, gold and other tangible assets can protect you from these dangerous and unpredictable fluctuations in the economy.
The economy is not the only thing that could suffer. Politics can and have been a huge source of uncertainty. In troubled times, gold is a source of security that you can’t afford to ignore. In the past 5,000 years, no matter what upheaval, war, or struggle the world has faced, gold has remained a valuable and respected form of exchange.
We have explained earlier under “risk management” why tangible assets like gold are a smart way to manage your risk. Just to clarify, tangible assets are anything that has actual physical form. That includes gold, buildings, land, machinery, and so on.
This is contrasted with paper assets whose value is a little trickier and not necessarily tied to anything real. You can measure the value of gold by its purity or the value of land by the quality of its soil, location, and so on. But the measure of, say, a stock is not really so fixed. It depends on a lot of abstract factors that can shift overnight.
So gold, as a tangible asset is a little more stable. Its value does go up and down but as mentioned earlier, it will never reach zero. The company whose stock you own, on the other hand, might suddenly go bankrupt and shut down. And every dollar you put it into it would be gone right along with it.
This provides some measure of security. Depending on economic conditions, gold might not perform as well as you would like but it will never be an investment that you lose all of your money on.
How To Do Your Gold IRA Rollover Right
Before you run out and go with the first IRA custodian you find, you need to know that there is some risk here. Specifically, there are companies out there trying to scam you out of your money. They do this by “selling” you gold that they don’t actually have or selling the same gold to multiple investors—which is just as good as selling nonexistent gold.
Even companies that do actually have the gold they claim to have will sometimes nickel and dime you into poverty by charging high fees and markups on the value of the gold.
So you need to make sure you are working with a company that is trustworthy, responsible, and not going to rob you in the form of excessive fees and charges.
They ensure a completely tax free rollover which means you won’t get stuck with having to pay taxes on your retirement savings just because you want to transfer it to a different IRA account.
This tax free transition applies even if you’re doing a rollover from your 401(k) plan, 403b, 457b, annuity, or pension plan.
They will even waive the first year setup and administration fees for new customers!
But before you make any decisions with your money, you want to be well-informed and do thorough research. And that research starts by reading through our free gold IRA guide here!
Frequently Asked Questions
Now, we’ll take some time to answer some of the most common questions people have when considering a Gold IRA rollover:
Which Accounts Are Eligible for Rollover into a Gold IRA?
Here is a list of all the different types of retirement accounts that are eligible for a gold IRA rollover:
- Roth IRA
- Traditional IRA
- TSP (Thrift Savings Plans)
- Some annuities
- Pension plans
If you have any accounts that aren’t listed above, they may still be eligible for a rollover. You can talk to an Advantage Gold account representative to find out exactly which of your accounts will qualify.
What Is Gold’s Projected ROI?
Of course, we can’t make any statement about exactly how much you’ll get back but we can say that it is one of the more stable investments. And as an example of the kind of returns that people have gotten, consider this:
If you had put $33,000 into a gold IRA in 2002 that IRA would be worth $200,000 in today’s dollars. That’s some pretty phenomenal growth for just 15 years!
What Types of Metals Can Be Held in a Gold IRA?
This is a great question and one that you definitely need to be aware of throughout the process.
The IRS sets very strict standards about what you can hold in a gold IRA as well as the quality of the metals allowed.
And you also need to make sure that you are buying from approved sources as well as storing in approved places. In fact, you cannot buy or sell precious metals yourself. You need to work with an IRA custodian.
How Long Should I Keep Gold in My IRA?
Each situation is unique and you’ll definitely want to get expert financial advice to determine how long you should hang onto your gold. However, in general, gold is seen as a long-term investment. It is important to understand that every investment comes with associated risks. That means that market trends and the changing economic climate will be important factors for you to consider when deciding when to liquidate your gold.
Where Is the Gold in my IRA Stored?
Depending on what IRA custodian you choose, it will either be held at the Delaware Depositary or Brinks Storage. Advantage Gold provides a choice of several IRS approved facilities for storage of your IRA precious metals. The facilities are owned by Brinks or the Delaware Depository in Wilmington Delaware.
How Do I Liquidate a Gold IRA Account?
The great part of a gold IRA account is the fact when you start taking distributions out of your plan you can either take physical possession of your metals or liquidate them for cash. This is a tremendous value and great option to have when you plan on making withdrawals from your account. To liquidate it for cash, you will want to make sure your IRA custodian offers a great buyback program (like the one that Advantage Gold offers).
What Should I Look For In A Custodian?
There’s plenty of criteria but we’ve narrowed the list down to 4 so that you don’t spend the rest of the day reading.
- Years of Experience
For the target clientele of IRA custodians, experience in handling IRAs is one of the most important consideration. This company would be handling the very money that is supposed to allow you to retire worry-free. The experts over at Advantage Gold don’t just know about gold and other precious metals. They also know about IRAs more generally and can help you make a more secure retirement plan.
- A Great Buyback Program
When purchasing precious metals for your retirement plan, it is important that you have the ability to quickly liquidate your metals when you need access to your money. You don't want them to charge you additional fees like some custodians do when you try to sell back your metals.
They want you to profit as much as possible so they will buy back your metals at the current spot price of that metal. Just as you can sell your stock the second you want to cash in, you’ll be able to sell your gold back to to the custodian via a buyback program.
- Asset Preservation
Asset preservation is important because gold, as a tangible asset, has the risk of physically degrading, being stored in bad conditions, or being at risk for theft. A good custodian minimizes all of these risks. They have the longest experience in the field of gold IRA’s and gold IS the ultimate safe haven. Given the continued volatility of the financial markets, safe havens that ensure asset preservation are what most, if not all future retirees want.
- Proven Reputation
Look for a custodian that really cares about their customers. Read the gold IRA reviews and ratings within the precious metals industry. A company's reputation among current and past customers is an important sign not only of friendly service but of reliability and trustworthiness. Compare their customer reviews with those of other companies and you’ll see the difference!
Your Next Steps
After reading through this article, you might feel like you’ve learned just about everything there is to know. But your journey is not over yet! Yes, you now have a solid base of understanding about what a gold IRA is, how it works, and how you might take advantage of it.
But what you need now is to learn more about exactly how this applies to your own situation.
You’ll have the opportunity to learn even more about the gold IRA rollover process in our free gold guide. That includes:
- How you can secure your IRA with gold
- How gold can protect your money against inflation
- The many advantages of diversifying your portfolio (especially with tangible assets like gold)
Reviews of Other Gold Retailers and Investment Companies
- Advantage Gold
- Birch Gold Group
- Dallas Gold and Silver Exchange
- Dillon Gage
- Gaithersburg Coin Exchange Bullion & Coin Dealer
- GoldCo Precious Metals
- Jack Hunt Coin Broker
- JM Bullion
- Monarch Precious Metals
- Investment Rarities Incorporated
- Regal Assets
- Rosland Capital
- Royal Metals Group
- United States Gold and Silver