Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
Tax planning is one reason investors seek the help of a financial professional. Learn how SmartAsset can help you find clients looking for advice.
A gold IRA is one way to save for retirement. As its name suggests, instead of stocks or bonds, it holds gold in the form of bars, coins and bullion. It can also hold other precious metals like platinum and silver. Typically, people who have a gold IRA are looking to diversify their assets and hedge against inflation. But given that gold has no earnings while sitting in your custodian’s safe, there is little advantage in putting it in an IRA, whose main feature is tax deferral on earnings. Also, when you reach 70.5 or 72 (depending on when you were born), you’ll have to take a required minimum distribution (RMD) from the gold IRA, which will involve selling the gold if it’s your only IRA. It may make more sense to diversify your portfolio and hedge against inflation with other holdings. A financial advisor can help you strategize and implement a plan.
What Is a gold IRA?
With a traditional or Roth individual retirement account (IRA), you invest your savings in the form of stocks, bonds, mutual funds and other securities. With a gold IRA, which can be traditional or Roth, but must be self-directed, your account holds gold in the form of coins, bullion or bars. You can also own other precious metals like silver, platinum and palladium in your gold IRA. When it comes to IRA contributions, disbursements and taxes, gold IRAs follow the same rules and procedures as other IRAs.
Many gold IRA account holders also choose to invest in other gold-related investments called “paper assets.” These include stocks and exchange-traded funds (ETFs) in gold mining companies, precious metals commodity futures or precious metals mutual funds. Note that this is rare, though, as most gold IRAs strictly consist of physical metal investments.
What precious metals are eligible for gold IRAs?
Not all gold or other precious metals will qualify for inclusion in an IRA. The metals you want to invest in will have to meet fineness standards established by the IRS. Specifically, gold must be .9950 pure, silver must be .9990 pure and platinum and palladium must be .9995 pure. Here’s a general breakdown as to what your gold IRA can include:
There are a number of precious metals that are not allowed in gold IRAs. Principal among these are collectible coins, such as graded or certified coins. Additionally, the following metals are deemed unacceptable:
- Austrian corona
- Belgian franc
- British sovereign and britannia
- Chilean peso
- Dutch guilder
- French franc
- Hungarian korona
- Italian lira
- Mexican peso
- South African krugerrand
- Swiss franc
How to open a gold IRA
To open a gold IRA account, you have to select a custodian to hold the assets for you. This is because the gold must go into an IRS-approved depository, and not just a regular savings account. You can call your nearest bank, credit union, trust company or brokerage firm to find an approved custodian for your gold IRA.
Of course, you’re going to want a custodian you can trust with your gold, so look around before committing. Keep an eye out for companies with a long history of holding gold IRAs and physical assets. Custodians with a good track record can also help you create a relationship with precious metals dealers. Check out customer reviews to see how each company has performed when it comes to various customers’ needs. Don’t forget to weigh the fees of each custodian, since setting up a gold IRA will include various charges.
Pros and cons of a gold IRA
As mentioned earlier, a gold IRA helps to diversify your portfolio. During extreme market downturns, gold has historically moved in the opposite direction of stocks. (During optimistic times, gold and stocks tend to move in tandem.) So gold can act as a hedge against serious financial market crises – as well as against inflation. (Typically, the value of gold goes up as the value of the dollar goes down.)
Although equity investments have the potential to be adequate hedges against inflation, fixed-income securities like bonds may not fare so well. Fixed-income investments are normally safe for retirement saving. But if the effect that inflation has on them makes you at all apprehensive, investing in gold could be the answer.
That said, a gold IRA has drawbacks. As noted above, there are significant upfront costs to establishing a gold IRA. There’s also the fact that gold doesn’t pay dividends or interest, so holding it in an IRA defeats part of the purpose of the tax-advantaged savings vehicle. Also, gold is not a liquid asset. So once you reach retirement age and need to make RMDs, making a withdrawal will likely be tricky.
A gold IRA is one way to diversify your retirement portfolio. It can protect your savings from plummeting in the event of a stock market crash or high inflation. Keep in mind that you will need to do your research before opening a gold IRA account. Make sure that this type of IRA is right for you and your retirement future. Only then can you focus on finding the best custodian to keep your gold investments safe and sound.
Lauren Perez, CEPF® writes on a variety of personal finance topics for SmartAsset, with a special expertise in savings, banking and credit cards. She is a Certified Educator in Personal Finance® (CEPF®) and a member of the Society for Advancing Business Editing and Writing. Lauren has a degree in English from the University of Rochester where she focused on Language, Media and Communications. She is originally from Los Angeles. While prone to the occasional shopping spree, Lauren has been aware of the importance of money management and savings since she was young. Lauren loves being able to make credit card and retirement account recommendations to friends and family based on the hours of research she completes at SmartAsset.
SmartAdvisor helps qualified financial advisors build meaningful relationships directly with mass-affluent consumers who are actively searching for financial advice. Learn more about how our platform can help grow your practice.
Read more articles by Lauren Perez