Are Gold IRAs a good idea

The purpose of investing for your future is to generate the greatest growth at the least risk. Many investors turn to the usual suspects (Stocks, Bonds, Real Estate, etc.) to achieve these goals.

But in recent decades, more investors have turned to alternative Investments. These unusual assets – which include Precious metals, derivatives, and even cryptocurrencies – offer perks like diversification and new growth potential.

However, alternative assets also carry unique risks that you have to account for. And if you want to store them in a tax-advantaged Retirement account, you’ll have to take a few extra steps to make it work.

Which begs the question: Are Gold IRAs a good idea for your Portfolio – or should you steer clear?

You’re probably familiar with “regular” IRAs, or Individual Retirement Accounts.

IRAs are tax-advantaged accounts that invest in traditional assets, including Stocks, Bonds, ETFs and Mutual funds. Many online and in-person Brokers service two types: traditional IRAs and Roth IRAs.

The distinctions are fairly simple, but can make a massive difference in your long-term Wealth and tax strategy. The overarching goal is to pick the account(s) that lower your lifelong tax burden – not just taxes here and now. 

Traditional IRAs let you make tax-free contributions to your Retirement account. Then, when you make qualified withdrawals in retirement, you pay income taxes on the amount you pull out. In-between, your money grows tax-deferred (as long as you leave it alone). Typically, traditional IRAs make the most sense when you expect to make more money now than in retirement. 

But traditional and Roth aren’t the only IRA choices you have available. You can also open what’s called a self-directed IRA, or SDIRA, in both Roth and traditional flavors.

A self-directed IRA is a Retirement account where you call the shots. You can use SDIRAs to make tax-advantaged Investments and trades in normally-unpermitted assets, such as derivatives, FOREX – and yes, Gold. Your only limits are relevant legal and contribution constraints.

Because Gold IRAs fit a niche spot in the IRS tax code, they have a few other regulations to consider.

To start, you’ll need to open your IRA with an IRS-approved Custodian or Trustee. Essentially, this is the Brokerage that will actually manage your account. Many mainstream Brokerages don’t offer these accounts, so you may have to find a specialty Custodian.

Because the IRS only permits cash contributions to IRAs, you also can’t donate your own Gold to your account. Once you set up your Roth or traditional IRA, you’ll have to contribute cash (or rollover an existing Retirement account), then use the cash to purchase Gold from an approved Broker.

If all this sounds complicated, don’t fret. Many Gold IRA Custodians, Brokers, and depositories network to make the Gold purchasing, shipping, and storage process painless. They’ll even walk you through which Investments the IRS permits so you don’t run afoul of any rules.

• Tax benefits. Gold IRAs offer the same special tax treatment as regular IRAs. Traditional Gold IRAs offset your tax bill until retirement, while Roth IRAs tax contributions up front so you can enjoy tax-free withdrawals. 

• More control. Since Gold IRAs are always self-directed, you’re 100% in charge of your contributions and Investment strategy. But beware: the responsibility of doing your due diligence can be a double-edged sword for some.

• Long-term growth potential. The purpose of a Retirement account is to save for the future – often your distant future. While Gold may not experience the astronomical returns of the stock market, its value does appreciate over time. Some investors consider an IRA the perfect place to hold such a long-term asset.

• Diversification. Gold’s low to negative correlation with Stocks and Bonds means that it responds differently to market stimuli. Historically, when Stocks drop, Gold rises, and vice versa. Investors often use Gold as a financial hedge to balance their Portfolios and reduce long-term risk.

• • Higher fees. Because Gold IRAs come with so many rules regarding purity, shipping, and storage, they’re more expensive than other kinds of IRAs. The startup fees alone can range from $100 to $300. From there, you’ll also have to consider:

  • Seller’s fees (also called the markup)

  • Shipping fees

  • Storage and insurance fees

  • Ongoing Custodian or management fees

  • Cash-out costs for closing your Gold IRA

• Loss of tax-advantaged opportunities. Between Gold’s slower growth and restrictive contribution limits, Gold IRAs may limit your tax-advantaged retirement growth. (On the other hand, because Gold holds its value, it can help preserve value for years to come.)

• Funding restrictions. Unfortunately, you can’t move your own Precious metals into a Gold IRA; all Gold must be purchased with contributed funds. Your Custodian must handle all Precious metal transactions on your behalf.

Generally, yes: Gold IRAs are quite safe – if you choose a legitimate one. However, you have to stay on the lookout for Precious metal scams that would take your money and run. To safeguard your finances, it’s essential to start with a trustworthy Custodian.

A few factors to look at include:

While exact recommendations vary, generally, experts say you should keep no more than 5-10% of your Portfolio in Precious metals. That gives you wiggle room to hedge against financial crises while ensuring the rest of your Portfolio is hefty enough to produce gains. Additionally, it prevents your Gold allocation from lowering your diversification potential elsewhere. 

The purpose of investing for retirement is having a nest egg to fall back on when you leave the workforce. Smart Investments build up your Wealth long-term so your Portfolio can carry you through to the end of your days.

From that angle, it might look like Gold is a tricky Investment. Because Gold doesn’t produce income, its long-term returns are typically much lower than the stock market’s.