What is a gold-backed IRA? How can you tell it apart from other types of IRAs? Why do investors consider opening gold IRAs? Do the benefits of such an account match the glittering appeal of gold? Well, you are about to find out about this and more in today’s article, in which we shall discuss what you should expect from a gold-backed IRA. Read on to find out more.
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Gold as an asset
Gold stands out from other metals in the way its value goes beyond the surface. The lustrous appearance is just one of the elements that make it quite attractive to those who own it. It is also a durable asset that has historically kept or increased its value during seasons of economic instability. With inflation, political unrest, geopolitical tension, and stock market crash occurring more frequently in the past and present decade, investors have known better than to forget to add some gold to their investment portfolios.
Those who are out to diversify the wealth in their Individual Retirement Accounts (IRAs) have gained confidence in the capability of gold to provide them with a sure anchor when other paper assets are experiencing record-breaking volatility. The fact that the IRS allows investors to add gold to their IRAs is actually such a win for them.
What is a gold-backed IRA?
A gold-backed IRA also referred to as a precious metal IRA, is an Individual Retirement Account that includes assets such as physical gold, as well as other IRA-approved precious metals. You can, as such, open your gold IRA and put the following precious metals in it:
An IRS-approved custodian is charged with holding the contents of a Gold IRA. A reliable custodian should help the owner of the gold IRA understand the status of their account, upon request.
In case you are wondering, a gold IRA functions in the same manner as the regular IRAs (traditional IRAs), with the only difference being that instead of holding paper assets in them, you can purchase and own physical precious metals in forms such as bullion coins, and bars.
Since gold is the most common precious metal that is used for the purposes of investment in a gold-backed IRA, the term “gold IRA” is used as a blanket term to refer to any type of Individual Retirement Account (IRA) that contains any type of IRA-approved precious metal.
You will, in most cases, have little to no say in the selection of the type of investments that you will hold in your regular IRA or employer-sponsored 401(k) since such retirement plans are aimed at being conservative in nature. When you open a gold-backed IRA, which is a self-directed IRA, you are immediately empowered to begin making your own investment decisions. With your gold IRA, you have the liberty to invest in a wider variety of assets, including the already-discussed precious metals, in the various forms allowed by the IRS.
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How can I invest in a gold IRA?
If you are out to hold physical gold in your IRA, the very first step is for you to open a self-directed IRA ( popularly abbreviated as SDIRA). An SDIRA is a unique type of IRA that you get to manage directly, with the oversight of a custodian. The custodian needs to be an IRS-approved firm. With regular IRAs, the custodians exist in the form of financial institutions such as:
- Trust companies
Gold IRA custodians are, however, mostly stand-alone companies that mainly focus on the provision of retirement investment custodial services.
You are also required to select a precious metals dealer so that you can acquire genuine precious metals that you will then put in your gold IRA. The one thing that I think is quite important for every investor who wants to open a gold IRA to know is the fact that not every self-directed IRA custodian allows you to access the same investment choices, as far as physical precious metals are concerned.
You should therefore take the time to consult with the support staff in your preferred company, about their range of investment offerings. Note that your SDIRA can take up the operational framework of a traditional IRA ( in which all your contributions are tax-deductible), or a Roth IRA (in which all your distributions are tax-free).
Funding your account
In the next step, you are required to fund your account by making contributions. You should always stick to the annual contribution limits set by the IRS. It is possible to fund your newly-created gold IRA by making a transfer or rollover from your already existing retirement investment plan such as:
- Traditional/Roth IRA
- 459 plan
After that, you can begin picking the investments that you will hold in your account so that your custodian and the precious metal dealer can proceed to execute the transaction on your behalf.
With a gold-backed IRA, you cannot simply purchase any bar, coin, or ingot. The IRS has set “fineness” standards that are a factor of the precious metals’ purity and weight. The precious metals you purchase also have to be stored in a depository that is approved by the IRS.
What are the benefits of opening a Gold IRA?
Opening a gold IRA in the present-day world will offer you the following benefits:
1. Tax benefits
A gold IRA offers you the same special tax benefits as the regular IRAs, in that all contributions made to a traditional self-directed IRA are tax-deductible, while the distributions taken from a Roth self-directed IRA are tax-free.
2. More control over your investments
All gold IRAs are self-directed IRAs, and they give you the means to directly manage your holding as you also make the investment decisions.
3. Long-term hold
You can use your gold IRA to hold your precious metals for several decades, until you are ready to cash them out, without the fear that they will suddenly go missing. The fact that the IRS-approved depositories used to store the precious metals held invested through a gold IRA must be insured means that you can rest assured that you won’t lose your assets due to unexplainable causes.
Frequently Asked Questions about Gold Backed IRAs
1. Why should I invest in gold?
According to financial experts, adding gold to one’s portfolio reduces the overall volatility, hence creating a hedge against economic downturns. This ensures that you as an investor has a greater opportunity for capital appreciation. It is particularly wise to consider doing this in the present-day world when there are many factors contributing to market volatility.
2. How long should I hold gold in my gold IRA?
It is a good thing to consider holding gold in your IRA over a long-term horizon. Despite the knowledge that every asset has its unique risks, you can benefit more from letting the gold in your IRA sit for a longer period.
3. What types of precious metals can I hold in my gold-backed IRA?
You can purchase and hold precious metals such as gold, silver, platinum, and palladium in your gold IRA. Not all types of these precious metals are allowed for use in IRA investments. They have to meet the fineness standards set by the IRS.
4. Which retirement plans are eligible for a gold IRA rollover?
Currently, the following accounts can be converted to gold IRAs:
- Tax-sheltered annuity
- Roth IRA
- Traditional IRA
- SEP IRA
- Thrift Savings Plan
- Simple IRA
- Pension Plan
The conversions are subject to terms and conditions set by the IRS, which you should confirm before getting started.
Also read our other posts on precious metals, retirement investments and other related subjects:
Also read: What is a 401(k) to gold IRA rollover?
Gold Retired’s Top-5 Recommended Bitcoin IRA Solutions
Thank you for making it to the end of this post on what a gold-backed IRA is. I hope that you enjoyed reading it and that you now have sufficient information to help you know what to expect when you open your gold IRA. Let me know if you have more questions with regards to today’s topic- drop them in the comments section and I will get back to you ASAP.
I wish you well,
Eric, Investor and Team Member at Gold Retired!
Hmm, I wish I had known about this strategy many years ago, as I would have dealt with much less volatility over the long run. I am glad I found this article because it seems there are ways to manage IRA accounts that are more flexible than I originally thought. I do like the strategy of investing in gold, and I appreciate your practical advice toward achieving this goal in my own retirement accounts.
First of all, thank you for your comment! Make me very happy to hear that you found the post educational and that you learned new things from reading it! It is never to late to acheive your investing goals!
Thank you again!
Hi, I am part of the NY & NJ Deferred Compensation Plan in the NY State retirement system. I have inquired to see if I can back my pension savings in Gold, but unfortunately, they do not have anything like that or allow it in that system, according to the people I spoke to. They say that I can transfer 1/2 of my savings to a Charles Schwab Mutual Fund or ETF, but that’s the extent of it, being that they are an investment vehicle of the program. I was wondering if you had any other suggestions for me, or thoughts, as if I withdraw any of my savings now just to invest on my own, I will be heavily penalized for the withdrawal. Thank you.
Firts of all, thank you for your comment!
The best advice I can give is to get in touch with the most professional advisors I know about when it comes to these things, Augusta Precious Metals: https://goldretired.com/augusta-precious-metals-review-on-a-no-nonsense-ira-dealer or simply by calling them directly on this number: 855-976-3593
It might be worth to contact all our top-5 recommendation actually: https://goldretired.com/best-gold-investment-companies
Hope that helps?