An individual retirement account (IRA) that contains physical precious metals like coins or bullion may qualify as a gold IRA; however, according to IRS rules on IRAs it must be stored at an approved depository meeting purity standards and meet storage conditions that ensure safekeeping of its contents.
Store coins or bullion in your own home can constitute an illegal transaction and could incur taxes, so to safeguard against this scenario it may be worthwhile investing in a self-directed gold IRA from a reliable custodian.
What is an IRA?
An Individual Retirement Account, or IRA, allows investors to invest in physical gold and other precious metals. The Internal Revenue Service imposes regulations regarding what kind of gold may be held within an IRA, including bullion products containing at least 99.5% fineness (usually coins and bars with this standard). Lastly, these items must be shipped and stored at an approved depository facility.
Investors interested in precious metals investments may wish to open or add these investments into an IRA, either new or existing, as an effective means of diversifying retirement portfolios and protecting against inflation.
Gold-backed IRAs have long been favored due to its price stability. Investors may also invest in various forms of gold such as mutual funds and exchange-traded funds focused on this precious metal; collecting precious metals or investing in non-precious metals (collectibles) however may not qualify.
Taxes on gold IRAs
Gold can be an attractive investment choice due to its perceived safety. Furthermore, its diversifying capabilities may help balance out portfolios while acting as an inflation hedge – although investors must keep tax implications in mind before proceeding with any gold investments.
In order to invest in physical precious metals through their traditional or Roth IRA, investors must use an IRS-approved dealer, custodian, depository and purchase precious metals which meet certain purity standards – this may include coins marked “IRA-eligible” as well as bullion sourced from an approved refiner or assayer.
As with other IRA investments, gains on gold investments are not taxed until an investor withdraws funds or precious metals from their IRA account and pays income tax according to their marginal tax rate. Investors should also note that once they reach age 59 1/2 they must begin taking distributions or face penalties.
Fees for gold IRAs
If you plan to invest in gold with an IRA, be aware of all fees associated with its purchases. Fees can differ depending on which company offers this investment option; typically they consist of setup and account maintenance costs, metal storage charges and markups on precious metal purchases.
Be mindful that according to IRS rules, only certain coins and bullion qualify as eligible investments within an IRA – these include items produced by the US Mint as well as those that meet its gold standard of 99.5% purity (also referred to as “fineness”).
Consider also the costs associated with closing out your gold IRA. Many IRA companies will purchase it back from you at wholesale prices; however, this could become expensive if prices have risen since purchase. You could incur shipping expenses to and from the IRA company; which could add up quickly.
Where to invest in gold IRAs
Gold can provide an effective inflation hedge and diversify an IRA portfolio, but its ownership comes at a cost. Most IRA custodians charge annual storage and insurance fees on physical precious metal investments held within an IRA, plus these investments don’t generate cash flows to value like stocks or bonds do – not to mention they can easily be stolen and damaged!
To invest in gold and other precious metals, investors must open a self-directed IRA with a custodian or broker that accepts these assets. While self-directed IRAs tend to be more costly than traditional ones, they provide more freedom in how you invest your money, can avoid high-pressure sales tactics from brokers, and help reduce costs overall by working with depository partners like Delaware Depository Company and FideliTrade who help facilitate the process for investors while streamlining it thereby saving costs and saving time.
