Gold-Backed IRA Pros and Cons

gold IRA nest egg

Between fears of a banking crisis and fear of recession, more and more Americans today are looking at ways to protect their hard-earned money. The search for safe havens in the face of potential danger is well underway.

Many Americans have decided to start looking at alternative assets such as precious metals, including buying gold through a gold IRA. But a gold-backed IRA isn’t necessarily the most familiar investment vehicle there is, particularly to people new to purchasing precious metals.

If you’re looking to protect your assets with gold, here are a few of the pros and cons of a gold-backed IRA.

What Is a Gold-Backed IRA?

A gold-backed IRA, or simply a gold IRA, is an individual retirement account (IRA) that owns physical gold coins or bars. Whereas most IRA accounts own financial assets like stocks and bonds, or shares of exchange-traded funds that might own gold, a gold IRA actually owns gold coins or bars.

When you open a gold IRA and fund it, you decide which coins or bars you want to buy with those funds. A gold IRA is a type of self-directed IRA and offers a level of control that you won’t find in many other types of IRA accounts.

Benefits of Gold

There are numerous benefits of owning gold. Here are four of the most important ones.

Safe Haven and Store of Value

One thing gold is known for is being a safe haven and store of value. Gold has been synonymous with wealth over the centuries, and its ability to maintain its value over time is almost legendary.

During times of crisis, gold becomes one of the safe havens people cling to. We’re witnessing that once again today, as high inflation and fears of recession are driving up gold demand.

Inflation Hedge

Gold can also serve as a hedge against inflation due to its ability to maintain its value. Gold has increased in value over 5,000% since President Nixon closed the gold window in 1971, while the US dollar has lost 87% of its purchasing power.

Gold’s performance during the 1970s stagflation was phenomenal as well, with 30% annualized gains over the course of the decade, far outpacing the rate of inflation. If inflation remains problematic this decade, many gold owners are hoping for gold to repeat that kind of performance.

Portfolio Diversification

Many people think that just investing in a handful of stocks and bonds, or investing in a single diversified fund, is enough diversification. But investing in financial assets that depend on the well-being of Wall Street or on the health of the US economy for their performance could result in concentrating risk.

Many proponents of diversification believe that exposure to a broad range of asset types, industries, and even geographic regions can help alter the risk profile of a portfolio. And gold can help in doing that.


Because gold is traded around the world 24/7, it is one of the most liquid assets in the world. Gold can be sold quickly to raise cash, whether that’s at your local coin or jewelry shop or through international exchanges.

Unlike financial markets that can freeze when assets begin to lose value rapidly, there is always demand for gold. If you’re looking for assets that can provide you with quick liquidity when needed, gold could be the next best thing to cash itself.

Advantages of a Gold-Backed IRA

In addition to the benefits that can come from owning gold, a gold-backed IRA can offer some additional benefits. Here are four of them.

Tax-Free Growth

Probably the most important advantage of a gold IRA is that it allows for tax-free growth. Its tax rules are the same as any other IRA account.

If your gold IRA is a Traditional IRA, you make gains tax-free and only pay taxes when you take a distribution. When you take a distribution, or are required to take a required minimum distribution (RMD), the tax rate you pay is your ordinary income tax rate, whereas if you sell gold owned outside an IRA you would pay taxes at the collectibles tax rate, which could end up being higher than your income tax rate.

If your gold IRA is a Roth gold IRA, not only are your gains tax-free, but your distributions are tax-free as well, subject to the standard Roth IRA conditions that you are at least age 59½ and have held the account for at least five years.

Depending on your financial situation, these tax benefits of a gold IRA could end up being beneficial to you and could help minimize your tax burden in retirement.

Protection of Existing Retirement Savings

Because a gold-backed IRA is a tax-advantaged retirement account like any other IRA account, it allows you to transfer funds into it from other tax-advantaged accounts. You can choose to roll over funds from a 401(k), 403(b), TSP, or similar retirement account into a gold IRA, or you can transfer funds from existing IRA accounts into your gold IRA. These would of course be subject to the usual IRS rules and regulations.

But this allows you to protect existing retirement savings through owning gold, by making a tax-free rollover or transfer. Many retirement plans don’t offer a cash option for those looking to move their retirement savings out of risky investments, or at best they might only have a money market option to protect your savings.

With a rollover or transfer of retirement savings into a gold IRA, you can maintain the tax-advantaged status of your funds and can buy gold without having to first liquidate your savings. So if you thought you would have to cash out your 401(k) before being able to buy gold, think again.

Ease of Buying and Selling

A gold-backed IRA can also make buying and selling gold relatively easy. Working with a trusted partner like Goldco, you choose the coins you want to buy.

Your coins will be managed by your IRA custodian and stored at a bullion depository, so you don’t have to worry about the safety and security of your gold. And when it comes time to sell your coins, Goldco can help you too.

Tangible Physical Asset

Unlike the stocks, bonds, or fund shares that you may own in a normal 401(k) or ETF, the gold you own in your gold-backed IRA is a tangible, physical asset. You choose the gold coins or bars you want, store them in a bullion depository, and when you take a distribution you can even choose to take physical delivery of that gold.

Being a tangible, physical asset, gold brings peace of mind that paper or electronic assets can’t. And unlike stocks and bonds that can lose all their value when the company that issues them ceases to exist, an ounce of gold in your hand is always going to be an ounce of gold.

Disadvantages of a Gold-Backed IRA

Of course, like any other asset, there are some disadvantages and drawbacks to a gold IRA as well. Here are a few of them.

Must Distribute to Take Physical Possession

Because IRA assets must be managed by a custodian, the gold in your gold-backed IRA is always going to be stored in a bullion depository. If you’ve heard of something called a “home storage gold IRA”, it’s an arrangement that purports to allow you to start a gold IRA and keep your gold at home.

If that kind of arrangement sounds too good to be true, that’s because it is. The gold in your IRA has to be under the control of an IRA custodian, and you’re not an IRS-approved IRA custodian. People who have tried to start home storage IRAs have found out the hard way that it’s not allowed, and have had to pay hundreds of thousands of dollars in taxes and penalties.

Many people who want to buy and own gold want to be able to hold it in their hands. For them, a direct cash purchase of gold may be preferable to a gold IRA, because it allows them to hold and store their gold at home where it’s accessible to them at any time. But if you want the tax advantages of a gold IRA, you’ll have to accept that you can only touch your gold once you take an in-kind distribution from your IRA.


Because your gold is stored at a gold depository, you’re going to pay some fees every year to maintain your gold IRA. Between account maintenance fees and storage fees, expect to pay a couple hundred dollars every year in fees.

These fees can take a bite out of your gains, especially from smaller accounts, which is why there’s generally a $25,000 minimum to start a gold IRA, otherwise fees start becoming too high percentagewise. But because these fees are often fixed fees and don’t vary with account asset size, they can take a smaller percentage out of larger accounts.

Expenses aren’t unusual for investments, as you’re probably familiar with expense ratios for assets such as mutual funds or exchange-traded funds. In many cases the fees charged for a gold IRA are competitive with the expense ratios on those types of investments.

No Dividends

Finally, gold doesn’t pay dividends like some stocks do. That’s a drawback that people like Warren Buffett like to use to denigrate gold’s usefulness as an investment asset. But not all stocks pay dividends. And not all investors are dividend investors.

Dividend investing can be a useful way to build wealth or to gain additional income, but it’s just one potential investment strategy. And a great many investment assets don’t pay dividends, so gold isn’t that different in that respect. But if you’re looking for something that will pay dividends rather than just appreciate in value, gold isn’t it.

Is Gold Right for You?

Ultimately the decision on whether to start a gold-backed IRA is something that you’ll have to decide on based upon your own financial situation and financial goals. Gold can offer price growth, wealth protection, and serve as a safe haven asset.

If you think the US economy is on the verge of a serious recession, then you may think gold could help protect your assets against loss. On the other hand, if you think the US economy is poised for rapid economic growth and a stock market boom then you might not see the point in owning gold.

But whichever choice you make, working with trusted partners can help you navigate the process of starting a gold-backed IRA. With over $2 billion in precious metals placements and thousands of satisfied customers, Goldco has developed a reputation for quality customer service and quality precious metals products. Give us a call today to learn more about how a gold-backed IRA can help you safeguard your savings.


Goldco Wealth Protection Guide Book and eBook

Request Your Free Guide

Free Precious Metals Guide

Complete the Form Below

Goldco Wealth Protection Guide Book and eBook

Request Your Free Guide

Free Precious Metals Guide

Complete the Form Below

Ready to protect your retirement savings?

Request Free Kit