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How a Gold IRA Can Boost Your Investment Portfolio
By Stephanie Colestock MONEY RESEARCH COLLECTIVE
Gold is a safe-haven asset, typically retaining its value — or even growing in value — in times of economic instability. This makes gold a popular option for investors looking to hedge their portfolios against inflation and market volatility, whether they purchase physical gold or gold-backed securities.
Gold IRAs are one way to invest in gold, allowing you to save for the future while also utilizing certain tax advantages. In this article, we’ll delve into how gold IRAs work, who can own them, and how to decide if they’re right for you and your investment portfolio.
What is a gold IRA?
A gold individual retirement account (IRA) is a tax-advantaged investment portfolio that allows investors to hold gold as an asset. These self-directed IRAs, also known as SDIRAs, are managed by a custodian and require a broker for the purchase, sale, and storage of the gold, silver, platinum, or palladium held in this investment vehicle.
Unlike a traditional or Roth IRA — which invests in stocks, bonds, and mutual funds — your gold IRA is designed to hold physical assets. This might include bullion, coins, and bars. While SDIRAs also allow you to hold cryptocurrency in the portfolio, gold IRAs specifically do not.
Eligibility and rules
The eligibility requirements to hold and contribute to a gold IRA are the same for any other IRA. You must:
- Be a U.S. citizen or resident
- Have a valid SSN or tax ID number
- Earn an income
Annual contribution limits for gold IRAs are also the same as with traditional and Roth IRAs. You can currently contribute up to $7,000 per year (for 2024) to these accounts, or $8,000 if you’re age 50 or older.
Since you are using tax-advantaged retirement funds to invest, the IRS also has rules regarding the specific precious metals that can be held within a gold IRA. Individual custodians may further limit your options within their brokerage, as well.
For example, you are only able to invest in gold, silver, platinum, or palladium within a gold IRA. These minted coins, bars, or bullion must be of a certain size, weight, and fineness to qualify.
Benefits of adding gold to your investment portfolio
There are a few different ways that buying gold in an IRA can be beneficial.
Steady values
While the price of gold can fluctuate, it tends to maintain a relatively steady growth curve, even in times of economic unrest. In fact, gold traditionally has an inverse relationship with interest rates, with values rising when interest rates fall and currency devalues. Because of this, gold makes for a great hedge against inflation for many investors and can even provide financial protection against economic downturns and market crashes.
Tangible asset
Another benefit to investing in gold is that it’s a tangible asset. Compared to stocks and bonds, which just represent numbers on paper at the end of the day, gold is something you can hold in your hand and may feel more “real.” Gold IRA funds are backed by actual precious metals, which are stored in an approved depository.
Diversification of investments
Non-correlated assets like gold provide a unique form of diversification for your retirement portfolio. Unlike traditional asset classes like stocks and bonds, which can be volatile in nature, gold values often move independently of the market as a whole.
This provides risk mitigation to your savings and helps balance volatility: Even if your other investments drop in value, gold may not follow the same trend.
Growth potential
As an asset, gold has a strong historical pattern of growth. Gold values can and do decrease at times, but this tends to be short-lived. Instead, gold performance on average is neutral at worst and on a constant upward trajectory at best. Adding gold to a retirement portfolio increases the potential for long-term capital preservation and growth.
Tax advantages
Traditional and Roth IRAs offer tax benefits to eligible investors and future retirees — gold IRAs are no different.
- Traditional gold IRAs offer tax-deferred growth by allowing you to invest with pre-tax (tax-deductible) dollars. Your funds will grow tax-free, as well, though your growth earnings will be taxed as ordinary income when you withdraw them in retirement.
- Roth gold IRAs are built with after-tax dollars and don’t provide any immediate tax benefits. However, your savings will grow tax-free and qualified withdrawals are also made tax-free in retirement.
Important considerations when investing in a gold IRA
Gold IRAs can have many benefits, but aren’t the right choice for every investor. Here are some key considerations to keep in mind if you’re thinking about investing in gold for retirement.
- Complexity: Your physical gold must be stored at an IRS-approved depository, and your gold IRA has to be managed by a custodian. You can only invest in/buy specific forms and purities of precious metals, including gold, silver, platinum, and palladium.
- Cost: There are usually set-up fees, annual custodian fees, and gold storage fees involved with opening a gold IRA. Depending on your brokerage, you may also have to pay for transaction costs.
- IRS requirements: In addition to annual contribution limits, gold specifications, and depository requirements, IRS rules will also dictate how you move your gold funds around, whether you can transfer these assets, and more.
- Limitations: A gold IRA can only hold gold, silver, platinum, or palladium. Other SDIRAs are also allowed to hold cryptocurrency, while a traditional investment account allows for all kinds of stocks, bonds, and more.
- Liquidity: It may be more difficult to sell gold assets if you need to liquidate your savings or when you withdraw at retirement, compared to other investments.
If you’re interested in investing in gold but aren’t sure whether a gold IRA is right for you, there are some alternatives. For example, you could purchase physical gold, such as coins or bullion, and store them in a safe or safety deposit box. You could also buy gold investments such as ETFs and mutual funds, which can be based on gold values or even the gold mining industry.
Final thoughts
Gold IRAs can diversify your portfolio and provide a hedge against inflation to investors looking to save for retirement, while also offering the same tax advantages you already expect from an IRA.
Buying gold — be it directly or through an IRA — can be a key component of any retirement or broad wealth-building strategy, but it’s important to assess your personal goals to decide if gold IRAs are the right choice. Make sure to speak with an investment advisor and/or tax professional if you want to learn more.