Can You Use Your IRA to Buy Gold?

Gold can provide tax-advantaged growth. But before investing in it through an IRA, certain key considerations need to be kept in mind.

Physical gold IRAs incur extra costs, including set-up and maintenance fees, storage charges, seller markup charges and cash-out fees (for selling your precious metals to third-party dealers). These additional expenses can quickly add up.

Taxes

Gold IRAs require investors to work with a different custodian than usual, meaning additional fees for your account and its transactions as well as storage fees may apply.

Although initially disallowing investments in collectibles within an IRA account, this changed in 1986 with U.S. minted gold coins becoming eligible for investment, followed by bullion that’s 99.5% pure being added later that same year. Unfortunately, however, no clarity from the IRS as to which types of gold count as collectibles.

Therefore, it’s essential that when selecting dealers and products for your precious metals purchases, proper research should be performed. Look for dealers that belong to trusted trade groups like the American Numismatic Association, Industry Council for Tangible Assets or Professional Numismatists Guild; these groups have proven themselves reliable providers over time. Likewise, these organizations may help connect you with an IRA custodian which may offer lower account setup and ongoing fees.

Fees

Gold provides a secure haven in times of financial instability, protects against inflation and can help grow wealth through increased purchasing power. Gold can be found everywhere from treating chronic illnesses like cancer to making smartphones and computers to producing oxygen for Mars; with only limited supplies remaining it will always maintain value as an asset.

When investing in physical gold via an IRA, it’s essential to be aware of all applicable fees. These may include one-time account setup costs, annual maintenance fees, seller markups, storage (at an approved depository), insurance premiums and cash out fees.

Fees must be assessed to ensure they don’t diminish your rate of return or reduce growth in the investment portfolio. Fees can add up quickly, so it is wise to understand them ahead of time. If fees prove excessive, consider searching for another strategy instead.

Storage

Physical gold doesn’t offer dividends or interest payments like stocks and mutual funds do, meaning it cannot save you from taxes when taking required minimum distributions at age 72.

Precious metals IRAs must be stored at a depository and therefore incur storage fees that tend to be higher than traditional IRAs. Many firms that offer self-directed IRAs use an established network of depository locations; it’s best to conduct your own due diligence prior to opening an account.

Importantly, it’s also crucial that you remember you cannot store IRA-approved gold at home as that would violate IRS regulations. Theft can be an issue and precious metals could even be lost through natural catastrophes such as earthquakes or fire. The IRS has specific criteria for acceptable storage methods and failing to comply could result in steep penalties; an excellent IRA custodian will offer guidance and help navigate these regulations, possibly even providing home storage solutions for your IRA-approved gold.

Cash-out

Gold IRAs can be challenging and time-consuming to manage, and can concentrate your investments into just one asset class, making them more risky than an IRA invested in stocks or alternative assets.

If you opt for either a traditional or Roth gold IRA, contributions are made with pretax dollars and distributions are taxed as ordinary income when taken in retirement. Any distributions prior to age 59 1/2 will incur an early withdrawal penalty of 10%.

After account setup fees are paid, annual storage and insurance costs will also accrue. A sales markup could vary depending on whether you invest in bullion coins or proofs; when closing your gold IRA dealer will want to repurchase precious metals at current wholesale rates – meaning a significant portion of your investment could be lost as part of their return policies.


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