Gold IRAs are becoming popular as people become more interested in precious metals. But what exactly is a Gold IRA? And what do you need to know before you open a Gold IRA?
Gold IRAs are Individual Retirement Accounts that allow you to hold gold coins or bullion or other precious metals in your account.
Gold IRAs can potentially help protect your retirement savings from volatility, but it’s helpful to understand what they are, the different types of Gold IRAs, and what you should consider before diving in.
What Is an Individual Retirement Account (IRA)?
An Individual Retirement Account is a retirement savings account that allows you to set aside money for your future. IRAs are tax-advantaged, meaning you can enjoy lower taxes on your account over time.
There are two basic types of IRAs: Traditional and Roth. With a Traditional IRA, you make contributions with pre-tax dollars. With a Roth IRA, you make contributions with after-tax dollars.
Minimizing the tax burden is one of many reasons people open IRAs.
What Is a Gold IRA?
A Gold IRA works in much the same way as a regular IRA, except that you are purchasing physical gold and other approved metals, like platinum or silver, in coin, bullion, or palladium bars, for example.
As with non-gold IRAs, you can choose a Traditional IRA and contribute to it with pre-tax dollars. If you choose a Roth IRA, that uses after-tax dollars and is generally tax-free. Despite the differences between gold IRAs and other IRAs, the contribution and distribution rules remain the same.
One of the main differences between Gold IRAs and other types of IRAs is that the fees are often higher. Because gold is a physical item, it needs to be transported and stored securely, thus the higher cost. The good news is that any expenses incurred to set up and maintain your gold IRA are generally tax-deductible.
Common Reasons for Opening a Gold IRA
Some of the reasons individuals choose to open a gold IRA include:
Gold is a non-correlated asset, meaning its price movements are not generally influenced by other asset classes like stocks and bonds. Historically, gold prices tend to move in the opposite direction from paper assets, which can help make gold an option for diversifying your assets and potentially helping protect retirement savings from market volatility.
Historically, gold has been seen as a hedge against inflation because it retains some value during periods of inflation. Bolstering this historical view, gold has consistently outperformed the U.S. dollar over the last century.
Protection from Market Volatility
Gold is often seen as a safe haven asset because it tends to hold some value during economic uncertainty and market volatility.
Types of Gold IRAs
Besides knowing what a Gold IRA is, it’s helpful to understand the different types.
Traditional Gold IRA
With a traditional Gold IRA, you can make contributions with pre-tax dollars, and your account is tax-deferred. This means you won’t have to pay taxes on your deductible contributions and earnings until you withdraw the money from your account at retirement.
Roth Gold IRAs
With a Roth Gold IRA, you make contributions with after-tax dollars. This means you generally don’t have to pay taxes on any qualified distributions when you withdraw the money from your account at retirement.
SEP Gold IRAs
Simplified Employee Pension (SEP) Gold IRAs are traditional IRAs specifically designed for small business owners and the self-employed. These accounts have the same tax benefits as traditional IRAs.
The key difference with SEP Gold IRAs is that they allow you to make much larger contributions than traditional or Roth IRAs. For 2024, the contribution limit for a SEP IRA is generally the lesser of $69,000 or 25% of the individual’s annual earnings, which is significantly higher than the limit for a traditional or Roth IRA.
These features can make SEP Gold IRAs an option for anyone who’s self-employed or owns a small business.
What are IRS-Approved Coins for Gold IRAs?
Beyond the different types of Gold IRAs, it’s vital to understand what assets are eligible for purchase. The IRS has strict guidelines regarding what kinds of gold coins and bullion can be held in a Gold IRA.
- Purity: Generally, gold purity must be 99.5%, silver 99.9%, and platinum 99.95%.
- Accredited manufacturers: coins, rounds, and bars must be produced by a mint-certified refiner or manufacturer that can meet minimum fineness mandates.
- Original mint packaging: proof coins must be held in their original packaging and include a certificate of authenticity. Non-proof coins (bullion) must be damage-free and in uncirculated condition.
- Made to exact specifications: any small bullion bars must meet exact weight specifications.
IRS-approved coins eligible for Gold IRAs are:
- American Eagle gold coin
- American Eagle silver coin
- American Eagle platinum coin
- Maple Leaf palladium coin
Additionally, there are 10 other approved one-ounce options, including:
- Gold Mexican Libertad
- Gold Chinese Panda
- Gold Britannia
- Gold Vienna Philharmonic
- Gold Canadian Maple Leaf
- Gold Australian Kangaroo
- Gold American Buffalo
- Proof Gold American Eagle
- Gold Australian Swan
- Gold Somalia African Elephant
It’s important to note that not all gold coins are eligible for purchase in a Gold IRA. Working with a reputable gold seller can help you choose which coins may be right for you. Knowing precisely what you’re buying is helpful to making an informed decision.
U.S. title 26 § 408 defines the restrictions for buying approved coins.
What Are Some Considerations of Getting a Gold IRA?
Gold IRAs have many of the same rules as other IRAs but also have distinct differences as they are based on physical products.
Gold IRA accounts must be set up and managed by an IRS-approved custodian, and specific documentation and tax-reporting requirements must be considered. Additionally, you will need to consider storage, as the coins cannot be kept in your home.
Gold IRAs must be established by an IRS-approved custodian. Custodians are financial institutions or firms that the government has approved to hold precious metals on behalf of their clients. Not all gold IRA companies offer this service
It is helpful to note that your custodian does not typically recommend dealers from which to purchase metals for your IRA. They may, in some cases, share their list of contacts, but it is up to you to select dealers.
On the other hand, some dealers might recommend custodians for you to work with, but you are free to choose one based on your own research and preferences.
When you open a Gold IRA, you will need to complete some paperwork. This process includes an application, documentation of your identity, and Social Security number. You will also need to fund your account with a check or wire transfer.
One of the benefits of a Gold IRA is that your account generally grows tax-deferred. However, you will still need to report those earnings when you file your taxes. The IRS requires all taxpayers to report any gains or losses from their investments on their tax returns. A Roth Gold IRA is an exception as you pay into it using after-tax dollars, so its income generally is not taxable.
Another important consideration is storage for your gold. Because gold is valuable and prone to theft, it cannot be stored in your home. Instead, your custodian will keep it in a secure, insured, IRS-approved vault or depository. You will need to pay storage fees to your custodian, but these fees are typically much lower than the cost of insuring and storing gold yourself—and, as we mentioned above, it’s generally tax deductible.
Taking Withdrawals from Your IRA: When and How Much?
You won't have to pay taxes on your deductible contributions and earnings until you withdraw the money from your account at retirement. However, there are some restrictions.
If you withdraw funds before you reach age 59½, you may be subject to a 10% early withdrawal penalty.
When setting up your withdrawals, you will have two options. You can either take a lump sum distribution or take periodic distributions.
With a lump sum distribution, you receive all the money in your account at once.
With periodic distributions, you will receive regular payments from your account over time.
Withdrawal Restrictions, Required Minimum Distributions
When you reach the age of 72 (73 starting in 2023; 70-1/2 if you were that age before January 1, 2020), you are subject to mandatory withdrawals from Traditional IRAs. Required Minimum Distributions (RMDs) are calculated based on your life expectancy and may increase your taxable income in the year of withdrawal.
Your first RMD is due on April 1, the year after you reach the appropriate age. As stated above, if you withdraw funds before the age of 59-1/2, you will pay income tax on that amount plus a 10% early withdrawal penalty. There are exceptions, however; if you are experiencing medical hardship, have lost a job, or are facing other circumstances, you may be eligible for a waiver of these fees.
Required Minimum Distributions - RMD Worksheet
Rosland offers a calculator to help you calculate your RMD for a Traditional IRA. Note that the same rules apply to Gold IRAs.
Roth IRA Distributions, Taxes on Early Distributions, and Exceptions
There are certain considerations for Roth Gold IRA distributions based on your age at the time of withdrawal and how long you’ve held the Roth IRA.
If you are 59-1/2 years old or younger and your account is less than five years old, your withdrawal will be subject to taxes and penalties. You can, however, avoid penalties if you are using the funds for specific reasons, such as a first-time home purchase, education expenses, or if you become disabled or pass away.
If you are 59-1/2 or older, penalties may be incurred if you’ve held the account for less than five years, but you will generally not pay taxes on the withdrawal.
The foregoing discussion is for informational purposes only. Rosland does not provide tax advice. You should consult your own tax advisor before engaging in these kinds of transactions.