Gold IRA Pros and Cons – Maximize Your Investment

gold IRA nest egg

If you’re worried about the value of your investments, you’ve probably thought about different ways that you can protect your hard-earned wealth. A weak economy, high inflation, and the potential for a stock market crash are all factors that can cause investors to fear for the value of their investment portfolios.

But there are ways to protect your wealth and maximize your investment. One of those is a gold IRA, an increasingly popular investment vehicle that thousands of Americans have turned to in order to protect their retirement savings.

What Is a Gold IRA?

A gold IRA is a tax-advantaged investment vehicle that allows you to invest in physical gold coins or bars within an individual retirement account (IRA). This special type of self-directed IRA allows you to maintain all the same tax benefits as any other IRA account, while benefiting from the many advantages of investing in gold.

Since gold often gains value during times of economic hardship or market turmoil, investing in gold is a common way for investors to protect their assets against a potential market downturn. And with a gold IRA, investing in gold can be done with relative ease.

How Does a Gold IRA Work?

The most common way of investing in a gold IRA is through a rollover or transfer from an existing retirement account, such as a 401(k), 403(b), TSP, IRA, or similar account. Rollovers or transfers from these accounts into a self-directed gold IRA can be done tax-free. This enables you to protect your existing tax-advantaged retirement assets with an investment in gold.

The gold IRA process is relatively simple and quick. Once you work with a trusted partner like Goldco, you can start the rollover or transfer process from your current retirement account into your new gold IRA.

As soon as your gold IRA is funded, you can then decide which gold coins or bars you would like to purchase. After that purchase has been made, your gold coins or bars will ship to the precious metals depository of your choice for safe and secure storage.

Gold IRA Rules

A gold IRA is subject to the same rules and regulations as every other IRA account. This means that your IRA account is not able to invest in collectibles, and that your maximum annual contribution is $6,000 for 2022, or $7,000 if you’re over age 50.

Additionally, a gold IRA is also subject to required minimum distributions (RMDs) once you reach age 72. And if you want to distribute assets from your gold IRA before you reach age 59½, you could be subject to additional penalties for early distribution.

Just like any other IRA, the assets in a gold IRA must be managed by an IRA custodian. And your gold IRA assets must be stored with a depository. Goldco partners with experienced gold IRA custodians and gold depositories who have significant experience in the precious metals industry.

The Pros of a Gold IRA

Investing in a gold IRA has many significant benefits.

1. Portfolio Diversification

A gold IRA can be a good way to diversify your investment portfolio. Investing in a mix of stocks and bonds is generally considered by many to be sufficient diversification. But in the event of a significant market crisis or a systemic crisis, both bonds and stocks could lose value.

That’s why many savvy investors decide to branch out from ordinary investment assets into alternative investments such as real estate, commodities, or precious metals. They can help offer a measure of diversification that you just won’t often find with stocks, bonds, or mutual funds.

2. Hedge Against Inflation and Market Turmoil

Gold is often looked to as a hedge against inflation and market disturbances, and for good reason. Gold’s history of rising in price when other assets are in decline has made it a popular investment hedge.

During the 1970s, when stocks remained nearly flat over the decade, gold’s average annualized growth rate was over 30%, at a time when inflation peaked at 11%. And during the aftermath of the 2008 crisis, when stocks were struggling to regain their pre-crisis levels, gold nearly tripled in price.

That performance during times of high inflation and a weak economy has made many investors sit up and take notice. Many of them vowed after 2008 that they would invest in gold the next time a crisis came. Is now that time?

3. Tax-Advantaged Precious Metals Investing

One of the advantages of a gold IRA is that it doesn’t require you to divest your tax-advantaged assets in order to invest in gold. There are undoubtedly many people who think that in order to invest in gold they would have to sell their 401(k) or IRA assets and then buy gold. But if you do that, you’ll subject yourself to income taxes and perhaps even penalties.

By investing in a gold IRA, however, you can make a simple and seamless transition from a 401(k), TSP, IRA, or similar account into a gold investment tax-free with a rollover or transfer from your existing retirement accounts. But as with any investment, be sure to consult with your tax advisor or financial advisor first to make sure that you’re doing everything by the book so that you don’t inadvertently subject yourself to taxes, penalties, or fees.

4. Full Control Over Your Investments

A self-directed gold IRA puts you in full control of your investments. You decide which custodian and depository to deal with. You decide which gold coins or bars you want to buy. You decide when to buy or sell your assets. And when you decide to take a distribution, you can take that distribution either in cash or in physical gold, allowing you to continue owning gold even after you remove it from your tax-advantaged account.

More and more people are discovering the advantages of a self-directed IRA and the many benefits it can bring when it comes to exercising control over your investment assets. If you’ve been chafing at limited investment options with your existing retirement accounts, maybe it’s time to start thinking about a self-directed gold IRA.

The Cons of a Gold IRA

While investing in a gold IRA has many advantages, there are some disadvantages too.

1. Limited Access to Funds

Like most IRA accounts, you won’t have immediate or instantaneous access to your funds. And if you suddenly find yourself in financial trouble due to loss of a job, loss of retirement income, or sudden medical bills, you won’t necessarily be able to treat your gold IRA like a cash cow.

This is a drawback common to many types of retirement accounts, not just a gold IRA. There are certain times when you can draw on funds from an IRA without incurring penalties, but you’ll want to consult with a tax advisor to make sure that if you have to do so, you won’t harm yourself financially.

2. Can’t Store Gold at Home

Another disadvantage of a gold IRA is that you can’t store your gold at home. That’s because gold IRA assets, like the assets of any IRA, must be managed by an IRS-approved custodian. While it’s theoretically possible for a person to be approved as an IRA custodian by the IRS, the hurdles are so great that it’s just not possible for all but the richest and most dedicated of investors.

But even though you can’t hold your gold assets at home, you can rest assured that they’re perfectly safe and secure at the precious metals depositories with whom Goldco partners. And if you really want to hold your gold investment in your hand, you can take your distributions, including required minimum distributions (RMDs), in physical gold if you choose to do so.

3. Can’t Invest in a Gold IRA Forever

Gold is often considered a long-term investment, not a short-term get rich quick scheme. Accordingly, the time horizon of many gold investors runs into years or decades, not months or weeks. Many gold IRA investors would undoubtedly prefer to hold onto their gold IRA assets for decades into retirement.

Unfortunately, IRS RMD regulations require you to start taking distributions from your gold IRA once you reach age 72. So at some point in retirement you will likely need to liquidate the assets in your gold IRA.

The good news is that if you want to keep owning gold, you can take those distributions in the form of physical gold coins or bars, the same ones you purchased. So you can keep owning gold well into retirement if that’s what you want to do.

4. Fees and Expenses

As with any other investment, there are fees and expenses associated with a gold IRA. These can come in the form of setup fees, account maintenance fees, and gold storage fees, among others. The most competitive fee structures are often those that charge a flat fee no matter how much gold you own.

But because of that, it often makes the most sense for those with larger amounts of money to invest to open a gold IRA since fees take up a smaller percentage of their gains. While gold can make great gains year to year, fees can eat into some of those gains, which could discourage those with smaller sums invested.

For that reason, there’s generally a break even point at which it makes the most sense to start thinking about a gold IRA. Depending on which provider you go with, it generally makes the most sense to start thinking about a gold IRA if you have $25,000 or more that you want to invest in gold.

Of course, if you have less than that but you still want to buy gold, there are options out there for you. While it may not make sense for you to roll over retirement assets below $25,000 into a gold IRA, if you have cash or cash equivalent assets such as bank deposits, money market funds, etc., you can always use those to buy physical gold. Those purchases can then either be stored at a depository of your choosing, or you can take delivery of those gold coins or bars yourself.

Is a Gold IRA Right for You?

The decision on whether or not to open a gold IRA is a personal one, one which requires careful thought, planning, and consultation with a trusted financial advisor or tax advisor. But if you decide that the advantages of investing in a gold IRA outweigh any conceivable disadvantages, then you might want to start the process of opening a gold IRA.

The bull market in stocks that has gone on since 2016 has made many new 401(k) millionaires. But if stocks crash in the future, many of those millionaires risk becoming 401(k) paupers.

Don’t let the gains you’ve made vanish into thin air. Call the experts at Goldco today to learn more about how you can protect your retirement savings with a gold IRA.

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