Can I Use My IRA to Buy Gold?
Under certain conditions, the IRS allows Individual Retirement Accounts (IRAs) to invest in physical gold coins or bullion. As with other investments held within an IRA, these assets must remain under the custody of an IRA custodian.
That means there will be costs associated with buying, storing and selling investments – it’s crucial that you understand these fees before beginning to invest.
Self-Directed IRA
Self-Directed IRAs (or self-directed retirement accounts, SDRs for short) allow investors to invest in alternative assets like physical precious metals as part of their retirement portfolios, thanks to the Tax Payer Relief Act of 1997. An IRA may hold such investments alongside traditional financial instruments like stocks and bonds.
To purchase physical gold within a Self-Directed IRA, it’s essential that you work with both a precious metals dealer and an approved IRA custodian. They can handle the entire process for you – from setting up your IRA account through to selecting and purchasing eligible physical metals – then having them stored safely at an independent third-party depository.
Some dealers provide innovative IRA investing practices, such as permitting you to buy and hold eligible coins and bars directly from them instead of an IRA custodian – this practice isn’t permitted by the IRS and could lead to severe penalties if caught.
Allocated Storage
As opposed to stocks and bonds, precious metals require physical storage in order to prevent theft. Storing them at home is risky as it puts your family, friends and neighbors at greater risk in case of fire or burglary.
Storing precious metals at your bank’s safe deposit box could leave them vulnerable. Should an area branch close down suddenly, the bank could open your box and sell off your valuables just like everyone else’s assets would do – potentially at great loss to you!
Instead, allocated storage of gold bullion means that you own the physical coins and bars you invest in – meaning if the provider goes out of business, your precious metals won’t disappear with them! As a result, allocated storage costs slightly more than unallocated storage but this expense can be offset with lower insurance premiums.
Segregated Storage
Gold investors with an IRA must store their metals in approved depository locations. Storing precious metals in safe deposit boxes or home safes would violate IRS rules and could potentially result in them forgoing tax benefits when withdrawing them at retirement age.
Physical gold investments may provide diversification benefits to an IRA portfolio, but investors should remember that it does not yield dividends or yield, nor will its value necessarily appreciate like stocks do. Gold can also be volatile, and its price may drop during market volatility.
There are three types of IRAs that can hold gold: traditional gold IRAs, Roth gold IRAs and SEP gold IRAs. All three options allow investors to fund them with pretax dollars; taxes only need to be paid when taking distributions during retirement. An established custodian may provide a list of authorized dealers selling precious metals; it is the investor’s responsibility to choose what bars and coins to purchase from that list.
Taxes
Gold has long been considered an effective hedge against inflation, protecting or even increasing purchasing power over time. However, precious metals IRAs require special custodian and depository arrangements and adhere to all the same rules and penalties that apply to traditional IRAs.
These include one-time account setup fees, annual maintenance fees, storage and insurance fees (paid to the depository), seller markup fees (if applicable) and account closure fees when cashing out your investment. While many companies advertise no account fees at all, they often compensate by increasing metal costs when investing.
If you want easier access to gold and other alternative investments without opening an entirely new type of retirement account, exchange-traded funds or mutual funds that track precious metal indexes or prices may provide easier access. They provide diversification similar to physical precious metal IRAs while being tax-efficient; just make sure any company with buyback programs may tax these withdrawals when eventually withdrawing them in kind.
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