What Is a Gold IRA?
Individual retirement accounts (IRAs) are specialized types of investment accounts that qualify investors for certain tax incentives. Gold IRAs allow them to hold gold as a qualified asset, either in the form of physical metals like coins or bullion or as precious metal-related securities. This article will offer an in-depth view of what gold IRAs are and how they work.
Why Set Up a Gold IRA?
People who set up gold IRAs are generally looking to diversify their portfolios through the inclusion of tangible assets. Gold is considered a good hedge against inflation and offers protection from market volatility. As a result, gold IRAs offer excellent vehicles to earn returns in retirement and diversify portfolios for risk reduction.
How to Set Up a Gold IRA
Gold IRAs can be set up either as Roth IRAs or with pretax funds. Unlike traditional and Roth IRAs, though, they require that investors purchase and store physical gold. This can be accomplished through the use of what’s known as a custodian, typically a brokerage firm that manages the account and keeps up with the latest industry news.
Self-directed IRA holders are allowed under Internal Revenue Service (IRS) rules to purchase either bars or coins minted from precious metals, including gold. However, gold IRA funds can be invested in related paper investments. These include:
- Exchange-traded funds
- Mutual funds
- Commodity futures
- Stock in gold-mining companies
Investors who want to diversify their retirement portfolios through the use of gold IRAs need to find specialized firms that are familiar with all of the reporting and documents required to maintain the funds. Most conventional brokers are not.
Types of Gold IRAs
As with traditional retirement investment accounts, gold IRAs come in different forms. Traditional gold IRAs are funded using pre-tax money, which means contributions and earnings are tax-deferred and withdrawals are taxed during retirement. Roth gold IRAs are funded with after-tax money, removing the immediate tax advantage but allowing people to enjoy lower payments to the IRS during retirement.
SEP gold IRAs are only available to self-employed people or small businesses. These specialized retirement accounts allow holders to be taxed only on withdrawals during retirement, not on contributions. Contributions for all SEP IRAs, including gold IRAs, are limited to the lesser of 25% of compensation or $66,000.
Current Contribution Limits for Traditional and Roth Gold IRAs
While the assets used in gold IRAs are different than traditional investments, the rules for the accounts are largely the same. Account holders are subject to annual contribution limits, currently set at a total of $6,500 across IRA accounts for people under 50 or $7,500 for people over 50. They must also follow IRS regulations regarding withdrawals, which can only be made without incurring penalties after the age of 59 ½.
Storage Considerations
People who use gold IRAs to invest in stocks, ETFs, or mutual funds don’t have to worry about storage. However, those who invest directly in precious metals are required to keep their physical gold in IRS-approved facilities. These facilities can be banks, depositories, or approved third parties. Account holders can’t store their gold at home.
How to Get Started
The best way to set up a gold IRA is to contact a firm that specializes in managing this type of investment account. Whether investors want to hold precious metal bullion and coins or prefer to invest in intangible gold-related assets, it’s best to have help with setting up the account from the very beginning.