Are Gold IRA Investments a Good Idea?

What will you receive as you begin becoming a gold IRA retirement investor? For starters, you have an opportunity to take a piece of your nest day and transform it into gold.

What will you receive as you begin becoming a gold IRA retirement investor? For starters, you have an opportunity to take a piece of your nest day and transform it into gold. But is this really the best move to make for your retirement fund? Not every type of IRA account allows precious metals investments within. But throughout this article, you’ll learn helpful tips to better understand things to look for in an IRA to determine if you can build a golden retirement nest egg too.

Before we move in to explain the benefits of a gold IRA investment, we urge you to get a free consultation with our recommended gold IRA Company, GoldCo. Click the link below to get a free gold investing kit to find out how you can protect your retirement savings.

Critical Takeaways

• This type of retirement account is called a self-directed IRA, and it gives account holders the ability to buy physical gold and other precious metals to save for retirement.
• There are higher fees associated with a gold IRA as opposed to a Roth or traditional IRA account that only permits mutual funds, stocks, and bond investments.
• A precious metals IRA account is a wonderful hedge against inflation, yet it remains a single asset class nonetheless.

Gold and Its Shifting Price

In September 1999, the price of gold was roughly $255 per ounce. Little more than 20 years later in August 2020, the value of gold reached a high of $1973 per ounce. Right now, in April 2022, the price of gold is $1923, which isn’t too far from its August 2020 price.

As you can see, gold was experiencing significant growth but it has flatlined over the last few years.

A gold IRA account is a specific type of individual retirement account that gives investors the opportunity to purchase physical precious metals including silver, palladium, platinum, and gold. This is much different than purchasing the typical retirement assets like stocks, bonds, or keeping your money in cash.

In 1997, Congress created the opportunity to purchase precious metals in an IRA account, which didn’t exist until this time. This major change is a big boon to investors looking to diversify their portfolio for retirement.

The Growing Trend of Gold IRA Accounts

Investors understand that gold IRAs are very appealing because they allow them to add further diversity to their portfolio. The price of gold typically moves in the opposite direction of paper investments, which means adding gold to your retirement portfolio is like adding an inflation insurance policy to your life. This is an approach that is balanced and minimizes risk over the long run, which is a smart choice for gold IRA investors.

For quite some time, there wasn’t too much demand for gold IRA accounts because it was a complicated transaction process. Only the most persistent investors pursued these accounts in the past.

At the time, it was important to find a custodian or trustee. You also needed to have a depository with approval from the IRS. Then you had to purchase these precious metals and make sure they were approved, and then they needed to be transferred to your depository via the custodian of your IRA account.

Things have changed since the housing market and financial crash in 2008 that ultimately ended in the beginning of the great recession. The popular choice for investors was to open gold IRA accounts and things haven’t changed since then. Many more gold companies began springing up at this time, so it was easier to find a reputable custodian and gold IRA company to work with to help investors. In fact, many one-stop shops sprung up which led to massive gold IRA growth.

Weldon economic news definitely has a major impact on the price of gold. The strong gold IRA interest remains strong, which is particularly true in the current inflationary environment.

Gold IRA Rules to Live By

The interesting thing about gold IRA accounts is you have the option to open a Roth or traditional self-directed IRA. No matter which version you happen to choose, you can use a precious metals IRA account to begin investing in precious metals like silver, gold, platinum, or palladium in the form of bullion or coins.

Brett Gottlieb from Comprehensive Advisor claims that the most important thing to think about is determining if you want to own physical gold in a precious metals IRA. Or would you prefer owning gold stocks, gold or silver ETFs, or mutual funds with exposure to gold investments. It’s important to know the differences in each of these potential strategies.

If you decide to invest in the physical precious metal, you have to pay close attention to the specific criteria and rules created by the IRS. There are particular fineness standards that the IRS requires to invest in bars or coins for a precious metals account. And a trustee must hold onto all of your gold IRA investments as opposed to the actual owner. This means they require storage in an approved depository with IRS approval.

Or another way to put it, you cannot hide your gold bullion in a safe at home, in a safety deposit box at the bank, or bury it in your backyard. Otherwise you’re breaking the rules and you will be subject to early withdrawal taxes and additional penalties.

And remember, all of the typical rules for regular IRA contributions and taxes still apply to precious metals IRA accounts as well.

Choosing the Right Custodian or Broker

To begin investing your retirement money into physical precious metals, you have to open a self-directed IRA account. This account is the specific type that allows investors to invest in other types of investments including precious metals, real estate, and cryptocurrencies amongst other alternative assets.

You also need to find the best broker to help you when opening a gold IRA. They will help you discover the best custodian for account administration purposes and they will help you choose the perfect gold and silver products for your IRA while following all of the rules and regulations set forth by the IRS. This is important because you want to remain compliant at all times because you’ll face penalties and fees if you break the rules.

Typical custodians usually consist of credit unions, savings and loan associations, brokerage firms, trust companies, and banks. These groups of people typically have state or federal approval to help individual investors with asset custody services and they also act as financial advisors as well. They do not help you choose the precious metals dealer because it’s your job to find a company that you trust. This is always going to be your responsibility. But many custodians have great relationships with hundreds of different precious metals brokers throughout the United States, and they may open up their list of trusted companies to you.

On the other hand, many times things work the other way. You may find a trustworthy precious metals company online and they can help you by connecting you with one of their valuable and trustworthy custodians.

Determining the best company to use has its complications, because this is a specialized field and many gold companies do not provide this service to their customers. There are a few important criteria to consider when determining the best gold company to work with. These criteria include the following:

• The company should be transparent with their customers and provide upfront costs without hidden fees or other surprises.
• The company should have a stellar track record with third-party review websites including the Business Consumer Alliance and Better Business Bureau.
• The company should remain flexible enough to meet investor goals, wants, needs and recognize that everyone will have different needs for their services. You want a company that can cater directly to you.
• The company should have the necessary qualifications including insurance, bonds, registrations, and license that keep your investments protected. Ask for these verifications when necessary.

Associated Gold IRA Costs

Opening a precious metals IRA requires account holders to pay additional expenses. Some of these charges include the following:

• Sellers markup – every seller is going to markup their products by a certain percentage. This is how they make money. Make sure you know and understand the seller’s markup before getting into business with them. Typically, the markup is around 5% from the best gold companies.
• Account setup – more than likely, you will have to pay a one-time account setup fee to open your precious metals IRA account. If you do this through one of the better gold brokers they often waive the account setup fee and other fees during the first year.
• Fees from your custodian – every IRA custodian is going to charge an annual fee or they may even charge a per transaction fee, depending on how they operate. Make sure you find a gold IRA custodian with inexpensive fees, or at least make sure you know the fees and are comfortable with what they charge you.
• Storage facility fees – you must store your gold and other precious metals in an approved depository. They typically charge a yearly fee between $100-$150 per year.
• Cashing out expenses – more than likely, you will also have to pay expenses if you decide to close out your gold IRA when selling your precious metals. Many gold dealers will buy your precious metals back from you without charging an additional fee. But in other cases, you may have to pay an additional fee to sell your gold, silver, platinum, or palladium.

In fact, certain companies guarantee to buy back precious metals from their customers at wholesale rates. But this doesn’t mean you won’t lose money when you close your account, so keep that in mind because it’s a definite possibility.

Required Minimum Distribution Complications

When a retiree reaches age 72, they reach the age for a required minimum distribution, which means they have to begin taking distributions from their retirement account. This holds true whether you have a traditional, Roth, or precious metals IRA account. In many cases, you may need to sell some of your precious metals in order to take the distribution to receive the cash. This is a problem that you can overcome by taking the distributions from a traditional IRA as opposed to a precious metals IRA, so it’s beneficial to have both types of accounts.

Opening a Checkbook IRA

Would you prefer avoiding the need for a gold IRA custodian and the associated costs that come along with having one? You have an option of opening a checkbook IRA, which is a self-directed account that forgoes management from a custodian. It’s very complicated to set up this account because you must do so through a limited liability company and have an available business checking account, which are only two of the specific requirements for this account type.

Nevertheless, this account is an interesting way to go because it let you purchase IRS approved physical gold, silver, and platinum American Eagles, which are given special tax-code exemptions, which means you can actually keep them at home without storing them with the IRS. This is described in greater detail in Internal Revenue Code 408 (m). The IRS has this type of IRA account under scrutiny, so definitely keep this in mind.

Gold IRA Rollovers

Do you already have a 401(k) account or traditional or Roth IRA? If so, this gives you the ability to rollover this account and use the money to fund your precious metals IRA. It’s the same rollover process that works for other retirement accounts as well. You’ll fill out an application, open an account within 24 to 48 hours, and then initiate the rollover from there.

After the transfer request is received by both parties, the custodians will talk to one another and begin the funds transfer to the new gold IRA account. Once the funds become available, the account rep will let the account holder know and they can begin purchasing precious metals from this point forward.

Special Risks for Gold IRAs

No matter what, every investment has its risks and it has its rewards and gold isn’t an exception. In fact, they typically share the same risks and rewards as any other investment because the price can go up one minute and go down the next and have volatility as well. It’s very difficult to accurately predict the future of an investment and gold is no different.

Regardless of the risks, this commodity has a very strong history over the last 5000 years. And over the last 50 years, the value of gold has increased by roughly 10% per year on average. Will it happen overnight? Probably not, but if you hold this investment for the long term, you will see excellent returns.

If the price of gold does flatline or drop, this typically tends to mean that paper assets are doing very good at the time. If you have a balanced portfolio, your gold investments might dip briefly, but other investments will begin to experience gains. The majority of these risks for traditional IRAs also exist. And the traditional IRA account has different risks that you will not experience as a gold IRA account holder.

Although, investing in physical gold definitely has its risks. In one area, your definitely subject to theft. It’s possible that somebody could technically break into the depository and still your gold from it. This is highly unlikely since the depositories that qualify have to meet the strictest security standards. Your investments should remain protected here at all times.

Some custodians are also untrustworthy and steal from their clients. They are willing to commit fraud and steal your precious metals, so definitely understand this risk as well.

Final Thoughts

When describing a gold IRA, it is typically known as an alternative investment. This means the investments aren’t traded on public exchanges like the stock market. Gold definitely has big return potential, but the price can also plummet quickly, which definitely happens at times. If the price of gold is rising, you should be careful about whether or not you should be investing in it at that particular moment or if you should wait for the market to bottom out.

Are you thinking about opening a gold IRA account? Talk with a financial advisor first to figure out how much of your overall portfolio should be invested in precious metals. Generally speaking, it’s never a good idea to put all of your eggs in one basket. They typically recommend only investing 10% to 15% of your overall retirement portfolio in gold and other precious metals. This is a good rule to live by and it’s why you should consider when investing paper assets and turning them into physical gold and other precious metals.