Before we begin, it is worth noting that not all IRA accounts will allow you to invest in gold. But by the end of this article, you should be able to spot the ones that do. If you’re reading this then you probably know what an IRA is. If you don’t, let’s have a quick breakdown.
What is an IRA?
An IRA or individual retirement account is a type of retirement plan offered dominantly in the USA. They allow users to save up for retirement without the worry of being taxed. Typically an IRA can offer tax-free growth or you can defer the tax for a later date.
So, what does it mean if I invest gold in an IRA? Is this a good financial plan? Is gold a stable asset to invest in?
We would answer these questions and more in this article; just make sure you read carefully so you don’t miss out on anything. Click here to learn more about the benefits of investing.
How Does it Work?
In a Gold IRA, investors actually own physical assets, so if you were to own “x” amount of gold, its equivalent will be locked up somewhere depending on your arrangement with your custodian.
Investing in a gold IRA doesn’t work like conventional IRAs. Before you begin you need to:
- Find a trustee or a custodian
- You need to get an approved depository
- Once that is done, the approved gold has to be purchased and moved to the intended depository. Note that all these have to be done in a way that the overseer can give a statement on it.
You can see that the process of investing in gold is quite complicated; this is why few investors are interested in it. But for those who look past the upfront commitments, there are tons of benefits to be enjoyed. A simple Google search on say, “IRA investing gold” should reveal its many benefits.
How Can I Fund My Gold IRA?
If you’re done setting up your gold individual retirement account, you need to transfer funds into the intended account of purchase. This would validate your purchase of the asset. If you hold an existing retirement account, you can also turn this over to an IRA directed by yourself.
This is a people’s favorite because it exempts you from paying taxes. You might be wondering how this works. Well, you can’t be taxed because the funds are still in a qualified retirement plan.
Alternatively, you can stick with the annual IRA contribution limit and make a cash deposit each year. When you feel you have adequate funds, you can now proceed with your purchase of gold for the account.
However, you can’t just buy any gold found on the market as there are strict rules imposed by the IRS regarding the type of physical gold bars that can be stored in this account. What you should know is that gold bars or coins with purity levels below 99.5% are not allowed. The IRS is very concerned with maintaining purity levels.
If you have an interest in gold coins, you can also purchase this for your gold individual retirement account. So long as it meets the required purity mark. Coins that are allowed include;
- Australian Gold nugget
- American Gold Eagle
- American Buffalo
- Canadian maple leaf
- Kangaroo coins
When Did the Gold IRA Investing Option Start?
The prospect of the use of gold and valuable metals as bonds in any individual retirement account started in 1997. It was created by Congress. This was called the Taxpayer relief act of 1997.
Is Gold a Stable Asset to Invest in?
To get a better understanding, let’s look at the value of the asset over the years compared to now. In September 1999, the price of gold per ounce started out at $255 and reached a high of $1,937 as of August 2020; only to retrace on March 2021 to $1,737 per ounce.
With these stats, it is safe to say that there has been notable growth in the value of gold. Even though there have been minor retracements in the price, it is still projected to rise in the future.
The price movement is stable and not prone to violent fluctuations. So to answer the above question; yes, Gold is a stable asset to invest in compared to other investment options like stocks and bonds.
What are the types of Gold IRAs?
Different Gold IRA types offer varying benefits. Whatever your goals are, you should find a plan that suits your needs.
Traditional Gold IRA
In your hunt for a perfect gold individual retirement account, you would find traditional types to be the most common. But how do they work?
Any amount of money put into a traditional gold IRA can be deducted when filing your income tax.
Users particularly love it because of the generous amounts it saves them yearly in tax, so long as they make a deposit in the year in question.
Subsequently, if you decide to make a withdrawal from a traditional IRA, you are required to pay tax on the complete amount that was withdrawn.
Roth Gold IRA
The simplest way to explain this plan is to simply reverse the meaning of a traditional IRA. When you deposit money to a Roth gold IRA you are required to pay tax. This money becomes tax-free once it is inside your account.
Withdrawals do not require any tax payment. You have zero restrictions when withdrawing your Roth IRA contribution. Something other IRAs do not do. Visit https://www.quickenloans.com/ to learn more about Roth IRA.
Final Thoughts
There are also SEP gold IRA. These are suited for small businesses and users who are self-employed. Their mode of operation is quite similar to traditional IRAs with one difference. They give owners of businesses the option to deposit for themselves and their employees.
Peter Sundin was born and raised in New Jersey. He has contributed to Buzz Feed, Details and TODAY and served as a commentator for NPR, MSNBC and HuffPost Live. As a journalist for Morning News Ledger, Peter mostly covers national news. Aside from earning a living as a freelance journalist, Peter also works as a dog walker.