What Is a Gold IRA?

Investing

When it comes to saving for retirement, you have many options to choose from. But one that you may not have considered is investing in gold—namely, a gold IRA.

gold and silver American eagle coins

A gold IRA is pretty self-explanatory. It’s an Individual Retirement Account (IRA), but instead of holding stocks and bonds, it holds gold. A gold IRA can also hold other precious metals, like silver or platinum.

If you want to invest in gold, an IRA may be a good choice as it can help protect you from an economic downturn and diversify your assets. However, it won’t be the right choice for everyone.

Here’s everything you need to know about gold IRAs.

What is a Gold IRA Account?

A gold IRA is also occasionally referred to as a precious metals IRA. That’s because this investment vehicle allows you to hold physical gold, silver, or other precious metals. You can set up this account with pre-taxed money or as a Roth IRA with post-tax funds.

The way this works is that instead of investing your savings in stocks, bonds, or mutual funds, your account holds precious metal coins or bullion. Precious metals IRAs follow the same tax rules and procedures as other IRAs.

However, IRAs are not your only option when it comes to investing in gold and precious metals. Some gold investors prefer to purchase stocks and exchange-traded funds (ETFs) in gold mining companies or precious metals funds.

But most often, gold investors prefer to stick with physical precious metals as investments.

Types of Gold IRAs

There are three main types of gold IRAs: traditional, Roth, and SEP.

  • Traditional gold IRA – funded with pre-tax dollars and requires you to pay income tax on withdrawals in retirement.
  • Roth gold IRA – funded with after-tax dollars and allows for tax-free growth and tax-free withdrawals in retirement.
  • SEP gold IRA – intended for self-employed or small business owners and is funded with pre-tax dollars. Contribution limits are different and business owners can contribute on behalf of their employees.

Eligible Precious Metals

The IRS has strict guidelines for the kinds of metals that can be included in a gold IRA. The only precious metals that can be included are gold, silver, platinum, and palladium.

Here is an overview of each of the IRS-approved precious metals, as well as the requirements for each.

1. Gold

If you want to include gold coins or bars, the purity grade must be at least 99.5% or higher. If a gold coin or gold bullion doesn’t meet these purity standards, it cannot be deposited into a self-directed gold IRA.

Assuming the gold meets the purity standards, it must be deposited into an approved depository. An approved depository is a highly secure facility designed to house precious metals.

And finally, you must have an approved custodian as trustee of the IRA. Here is a list of some of the most popular IRA-approved gold coins and bars:

  • American Gold Eagle coins
  • American Gold Buffalo coins
  • Australian Gold Kangaroo/Nugget coins
  • Austrian Gold Philharmonic coins
  • Johnson Matthey Gold bar
  • Valcambi Gold CombiBar
  • Canadian Gold Maple Leaf coins
  • Credit Suisse Gold bars

2. Silver

Silver coins must meet a purity standard of 99.9% or higher. Here is a list of IRA-approved silver coins and bars:

  • American Silver Eagle coins
  • Australian Kookaburra Silver coins
  • Austrian Philharmonic Silver coins
  • Canadian Silver Maple Leaf coins
  • Mexican Silver Libertad coins
  • Johnson Matthey Silver bar
  • Royal Canadian Mint Silver bar

3. Platinum

Platinum coins and bars must meet or exceed a purity standard of 99.95%. Here is a list of IRA-approved platinum bars and coins to consider:

  • American Eagle Platinum coins
  • Australian Koala Platinum coins
  • Canadian Maple Leaf Platinum coins
  • Isle of Man Noble coins

4. Palladium

And finally, palladium must meet a purity standard of 99.95% or higher. Here is a list of IRA-approved palladium bars and coins:

  • Canadian Palladium Maple Leaf coins
  • Russian Ballerina Palladium coins
  • Baird Palladium bars
  • Credit Suisse Palladium bars

Metals That Are Not Eligible for a Gold IRA

There are many precious metal bars and coins that are popular among investors as collectibles but are not acceptable for gold IRAs. If you’re looking to invest in a gold IRA, you should begin working with a precious metals company you trust.

Always check with the IRA company before investing in precious metals that you aren’t sure about. Here is a list of metals that are not eligible:

  • Austrian Corona
  • Belgian Franc
  • British Sovereign and Britannia
  • Chilean Peso
  • Chinese Panda coins
  • Dutch Guilder
  • French 20 Franc
  • Hungarian Korona
  • Italian Lira
  • Mexican Peso
  • South African Krugerrand
  • Swiss Franc

Pros and Cons of Opening a Gold IRA

There are advantages and disadvantages to opening a gold IRA. Here are a few things you should consider before getting started.

Pros

Since the Financial Crisis of 2008, gold IRAs have become a popular investment option for people looking to diversify outside the stock market. Many people believe that gold is a good way to protect yourself against inflation.

And gold IRAs are not as difficult to invest in as they were in the past. Due to increased demand, there are more legitimate gold IRA companies available that will help you buy and manage your gold and precious metals investment.

Cons

One of the biggest downsides to opening a gold IRA is that the startup costs can be high. Plus, gold doesn’t pay dividends or interest, which kind of defeats the purpose of putting it in a tax-advantaged investment.

Plus, many people find it tricky to make withdrawals on gold IRAs since gold isn’t a liquid asset.

You also need to be sure that you’re working with a reputable company that knows what they’re doing. Otherwise, it’s easy to fall victim to scam artists.

How to Get Started With a Gold IRA

To get started with a gold IRA, you’ll have to set up a self-directed IRA account. A self-directed IRA is a special type of IRA that allows you to own a wider variety of investment products. As the name suggests, you’ll manage this account on your own.

However, you will need to find a broker to assist you in buying the gold and storing your assets. The right custodian could be a bank, credit union, or brokerage firm.

Just make sure the broker you choose has been approved by a state or federal agency. You can ask your gold dealer to recommend a broker they trust.

Start-Up Costs for Opening a Gold IRA

Unlike traditional IRAs, a gold IRA comes with a few extra expenses. Here are some of the most significant expenses you’ll need to know about:

  • The markup fee: When you buy gold or precious metals, you may have to pay a markup fee. This is a one-time upfront fee, and it will vary based on the vendor you choose.
  • IRA setup fee: The setup fee is another one-time fee you’ll pay to set up your IRA account. Again, this will vary depending on the broker you choose. However, it will likely be more costly because not every firm deals with gold IRAs.
  • Custodian fees: You’ll have to pay an annual fee for the custodian who’s managing your gold IRA.
  • Storage fees: Your gold must be stored in a secure, approved location. For that reason, you’ll have to pay annual storage fees.

Bottom Line

If you’re looking for a way to diversify your portfolio outside the stock market, then a gold IRA may be a good choice. This is because gold and other precious metals tend to be safe investments and can serve as a hedge against inflation.

However, there are other ways to diversify your assets that may be more cost-effective and less hassle. Gold doesn’t generate income, so some people believe it’s a waste to put it in a tax-deferred investment.

If you do decide to go this route, just make sure that you do your homework and choose wisely when it comes to your metals dealer and custodian. This will help you protect your investment and avoid scam artists who might try to take advantage of you.

Gold IRAs FAQs

Is a gold IRA a good investment?

It depends on your individual financial situation and investment goals. Some people consider gold to be a hedge against inflation and a way to diversify their investment portfolio.

Others may not see the value in investing in physical gold. It’s important to research and understand the potential risks and benefits before making a decision about whether to invest in a gold IRA.

How do I set up a gold IRA?

To set up a gold IRA, you will need to find a gold IRA company that specializes in setting up precious metals IRAs. Gold IRA companies will provide you with the necessary paperwork and guidance to open and fund your account.

Are there any restrictions on what types of gold I can hold in my IRA?

Yes, there are specific rules for the types of gold that can be held in a precious metals IRA. The gold must be at least 99.5% pure and must be in the form of coins or bars from an approved refinery or mint. Some common examples of approved gold coins include the American Gold Eagle and the Canadian Gold Maple Leaf.

What is the difference between a traditional IRA, Roth IRA, and SEP IRA?

A traditional IRA is a tax-deferred retirement savings account that allows you to contribute pre-tax income and potentially claim a tax deduction on your contributions.

A Roth IRA is a retirement savings account that allows you to contribute post-tax income, but all qualified withdrawals, including earnings, are tax-free.

A SEP IRA is a retirement savings plan that is specifically designed for self-employed individuals and small business owners. It allows them to make tax-deductible contributions to a traditional IRA on behalf of themselves and their employees.

Jamie Johnson
Meet the author

Jamie Johnson is a freelance writer who has been featured in publications like InvestorPlace and GOBankingRates. She writes about various personal finance topics including student loans, credit cards, investing, building credit, and more.