Physical gold has long been recognized as an effective hedge against inflation and economic instability, yet investing in it may involve high fees, storage restrictions, and several hoops to jump through.
One of the key expenses when opening an account is paying an upfront fee to establish it; annually thereafter there may also be account custodian and storage/insurance fees to consider.
What is an IRA?
Gold has long been considered an asset worth investing in, and many retirement savers are eager to diversify their savings with physical gold investments. IRAs allow holders to hold precious metals such as gold as part of a hedge against inflation.
Before moving your savings into a gold IRA, there are a few key points you should keep in mind. First of all, gold IRAs tend to be more costly than traditional IRAs that invest in traditional assets like stocks and mutual funds; additionally, investing in physical gold may require costly storage and insurance costs.
Some gold IRA companies have been known to employ questionable tactics when soliciting new investors, such as promising large amounts of “free silver.” Although this promotion may seem appealing, investors must keep in mind that all costs, including one-time account setup fees, annual maintenance costs, storage fees (paid to an approved depository) and insurance costs must still be borne by someone.
How can I put physical gold in an IRA?
Due to inflation and potential economic instability, more consumers are seeking diversification through physical gold coins or bullion as retirement portfolio diversifiers. Physical gold has a history of rising value during times of economic turmoil.
Physical gold can be added to your IRA, provided it’s held with a custodian that specializes in metals that qualify as approved assets for retirement accounts (IRA). Most standard IRA custodians won’t allow it because it doesn’t produce income and must remain under someone’s custody (in contrast with stocks, mutual funds and ETFs which generate dividends).
Self-directed IRAs offer another viable solution for investing in physical gold, among other approved assets, at competitive prices. While fees tend to be higher with this account than with traditional ones due to it being managed by an outside firm that must ensure the safety of precious metal storage, you may need to sell some gold at market value upon reaching age 70 1/2 in order to meet required minimum distributions (RMDs).
Taxes on IRAs with physical gold
Gold IRAs are subject to the same tax treatment as traditional IRAs, so any gains on physical gold will be taxed when you withdraw it from your IRA. Since it doesn’t produce income like stocks and mutual funds that produce dividends and interest payments, any gains will be taxed at a higher maximum collectors’ rate than they would be with regular brokerage accounts or Roth IRAs.
Owning physical gold in an IRA involves several fees, such as one-time account setup fees, annual maintenance fees, seller markup on sales costs and storage fees at an approved depository. Furthermore, most standard custodians do not permit physical assets like coins and bullion so you will need a self-directed IRA provider who specializes in such investments.
An additional important consideration for an IRA is keeping its funds within the custody of its custodian. You cannot withdraw gold before meeting your required minimum distribution age (RMD), which could incur a 15% penalty fee if this rule is broken.
Rollovers from other IRAs
Physical gold IRAs can serve a number of purposes, from protecting wealth against inflation to diversifying one’s portfolio and building long-term wealth. But investors should keep in mind that precious metal investments might not always be suitable depending on individual financial situations.
Before investing in a gold IRA, it is crucial that you understand all associated fees. These costs could include an account setup fee, annual management fees, sales and storage fees (payable to the depository holding your gold), shipping costs and insurance charges. In addition, it’s also wise to weigh the opportunity cost associated with investing in such an account when your money could instead be yielding dividends or capital appreciation on stocks or bonds in another type of retirement account.
Keep in mind that if you are under 59 1/2 when making this investment, the IRS may apply a 10% penalty; thus it would be wise to consult a fee-only financial planner prior to making such an important financial decision.