Investing
With everything that’s going on in the world today, Americans are getting more and more nervous about the future. The past several years have seen incredible growth in markets, turning many American workers into 401(k) millionaires. But with growing uncertainty about the future, many of these workers are wondering how safe their money will be in the coming years.
That uncertainty, and the fear of growing economic instability, is driving thousands of people to buy gold. Gold has a long history as a safe haven asset during times of economic turmoil, and its performance in the aftermath of the 2008 financial crisis reawakened in many people’s minds the benefits of owning gold to protect your wealth.
One popular method of gold investing today is a gold IRA, an option that many investors were once unfamiliar with. But as more people start looking at ways to own gold, the existence and benefits of a gold IRA are becoming more readily apparent.
If you’re not familiar with a gold IRA, you’re not alone. Many people think of IRAs as accounts held at brokerages or through employer-sponsored retirement plans. They’re not aware of the existence of self-directed IRA accounts such as a gold IRA.
A gold IRA is nothing more than an IRA account that owns and holds physical gold coins or bars. It gives you the benefits of ownership of tangible, physical gold, while simultaneously offering you the same tax advantages as any other conventional IRA account.
A gold IRA works just the same as any other IRA account. Once you make the decision to open a gold IRA, you can work with a trusted partner like Goldco to fund your gold IRA and use your assets to buy gold coins or bars.
Many people choose to fund their gold IRA via a rollover or transfer of assets from their existing 401(k), 403(b), TSP, IRA, or similar retirement accounts. These rollovers or transfers normally occur tax-free, allowing you to lock in gains made in your existing retirement accounts and protect your wealth with an investment in physical gold.
A gold IRA is subject to the same rules and regulations as any other IRA. You’ll want to consult with your financial advisor and tax advisor to make sure that your decision to open and fund a gold IRA doesn’t inadvertently expose you to taxes and penalties.
And be sure to keep an eye on what Congress is doing, as Congress has made changes to retirement account rules in recent years and continues to discuss additional changes to retirement accounts that could impact your retirement savings. Here are five important aspects of gold IRA rules to keep an eye on.
Right now, a gold IRA follows the same rules and regulations as other IRA accounts, meaning that your maximum annual contribution to a gold IRA (aside from rollovers or transfers) is $6,500, or $7,500 if you’re over age 50.
Those contribution limits will rise to $7,000 and $8,000 respectively for 2024. Future contribution limits are indexed to inflation, and normally increase every year.
You also must begin taking required minimum distributions (RMDs) at age 73 if your gold IRA is a Traditional gold IRA. If your gold IRA is a Roth gold IRA, you don’t need to take RMDs.
Like other IRA accounts, there can be penalties for taking early withdrawals. These will follow the same rules as other IRA accounts.
The primary differences to note are those between Traditional and Roth gold IRA accounts. In a Traditional gold IRA, most withdrawals before age 59½ will incur taxes and penalties.
Roth IRAs are a little more complicated. Contributions to a Roth IRA may be withdrawn tax-free and penalty-free at any time.
Earnings within a Roth IRA can be withdrawn tax-free and penalty-free once you reach age 59½ and have held your account for at least five years. Withdrawing before you reach age 59½ or before you have satisfied the five-year rule can subject you to taxes and penalties.
Of course, there are exceptions to these rules too, such as withdrawals to pay for a first-time home purchase, education expenses, medical expenses, etc. If you feel the need to dip into your IRA for emergency spending, it can help both to familiarize yourself with IRA withdrawal rules and to consult with a tax advisor to see what impact a withdrawal might have on your taxes.
A gold IRA can only acquire certain types of gold coins and bullion. These include the Gold American Eagle series of coins produced by the US Mint, and any gold coin or bar produced to a fineness of .995 or higher (99.5% gold).
As beautiful as older gold coins can be, most of them are not IRA-eligible since their gold content often is only 90%. Attempting to buy Krugerrands or older UK sovereigns with gold IRA assets, for example, would be considered a distribution of IRA assets and could result in you having to pay taxes and penalties.
Goldco partners with mints around the world to bring our customers IRA-eligible gold coins that are guaranteed to be 100% authentic, enabling you to buy gold coins with engaging designs that also satisfy IRS requirements for acquisition by a gold IRA.
A gold IRA is also required to be managed by a custodian, and your assets will be stored at a precious metals depository. Goldco partners with experienced gold IRA custodians and gold depositories who have significant experience in the precious metals industry.
That last rule is perhaps one of the most important ones to keep in mind.
If you’ve been looking into buying gold through a gold IRA, you may very well have come across something called a home storage gold IRA. A home storage gold IRA purports to be a gold IRA that allows you to buy gold with a gold IRA and store that gold at home.
Just imagine that you can set up a gold IRA, use pre-tax dollars to buy gold coins, make tax-free gains, and hold all of those gold coins at your home. It almost sounds too good to be true, doesn’t it? And that’s because for most people it is.
The Internal Revenue Code has pretty strict requirements when it comes to IRAs. In particular, 26 U.S.C. 408(a)(2) requires of IRA trustees that: “The trustee is a bank (as defined in subsection (n)) or such other person who demonstrates to the satisfaction of the Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of this section.”
So in other words, if you’re not a bank already (and who is?), you’ll have to prove to IRS that you’re capable of acting as an IRA trustee. And what defines being capable according to “the satisfaction of the Secretary”?
Well, thankfully IRS provides a list of 10 criteria you’ll have to meet in order to become a non-bank trustee or custodian. They include:
Those criteria put the ability to start a “home storage gold IRA” out of reach of all but the wealthiest and most dedicated investors. IRS even has a list of approved non-bank trustees, with a total of 70 operating throughout the entire country.
So could you become your own gold IRA trustee? Maybe. But the hurdles are so high that no one ever tries to do it.
You wouldn’t know that from some of the advertising you’ve probably seen online, which make it seem that a home storage gold IRA is perfectly legitimate and easy to achieve. What really happens, if you try to do it without knowing what you’re getting yourself into, is that you potentially open yourself up to taxes and penalties for violating the laws and regulations surrounding gold IRAs.
That’s why if something you read about a home storage gold IRA seems too good to be true, it probably is. And that’s also why consulting with your tax advisor and financial advisor, and working with trusted partners like Goldco, can help keep you from getting yourself into a difficult situation.
Don’t let any of this dissuade you from buying gold, however. Even if a home storage gold IRA isn’t an option, a regular gold IRA can offer you the benefits of owning gold, and do so in a way that can help you protect and defend your retirement savings.
Here are four of the potential benefits that come with owning gold.
One of the major benefits of owning gold is that gold has traditionally acted as a hedge against inflation. During the 1970s, for instance, gold’s average annualized gains were over 30% per year, at a time when inflation peaked at 11% and stock markets gained about 4% for the decade.
With inflation remaining problematic today, that ability of gold to protect against inflation is once again in high demand.
Gold has also traditionally been trusted to act as a store of value. Whereas the US dollar has lost 87% of its purchasing power since 1913, gold’s purchasing power has remained relatively steady, and its dollar price has increased by over 5,000% since then.
Many people expect the gold price to continue rising in the future, as the threats of recession and stock market corrections could help push the gold price ever higher. While it may seem fantastical to think of gold at $3,000 or $5,000 an ounce, 20 years ago people might have laughed at $1,000 gold, yet here we are at $2,000 an ounce.
Gold’s status as a safe haven is reaffirmed every time a crisis threatens. From Russians worried about sanctions, to Germans worried about the euro, to Britons worried about Brexit, to Americans worried about a stock market crash, people flock to gold the moment the future becomes uncertain.
They know that in a world dominated by paper assets and paper wealth, being able to fall back on tangible physical assets provides safety and security that is almost incalculable. And when it comes to physical assets that serve as safe havens, it’s hard to find something that’s more trusted than gold.
Even people who aren’t overly enthusiastic about gold often begrudgingly admit that gold can play a useful role in portfolio diversification. And if diversifying your portfolio is one of your goals, gold can be an important part of that diversification.
Many people think that investing in a broad index fund or holding a variety of stocks and bonds is enough diversification for a portfolio. But investing only in financial assets like stocks and bonds can leave you at risk in the event of a systemic crisis.
In 2008 we saw that wide classes of assets lost value, including stocks, bonds, and even normally safe investments like money market mutual funds. Tying up 100% of your wealth in assets that depend on Wall Street’s health and performance for their value isn’t necessarily the best way to diversify.
This is where gold can come to play a role. Whether you’re investing 5% or 50% of your portfolio in gold, gold can help you diversify your portfolio and adjust the risk profile of your investments.
And with a gold IRA, you can diversify your existing retirement savings with physical gold while retaining the same tax advantages you currently enjoy.
The decision to buy gold is a personal decision that’s up to each individual. Whether or not to invest in gold, and how much to invest in gold, very often depends on your state in life. How long you want to own gold, how close you are to retirement, how much income you’ll need after you retire, and your overall risk tolerance are all factors that play a role when you think about buying gold.
Thousands of investors today have made the choice to buy gold because they see an uncertain future ahead of them, with fewer opportunities for growth and significant downside risks. If you’re worried about the future, and you want to maintain as much of your wealth as you can, maybe it’s time for you to start thinking about gold.
Goldco’s precious metals experts have helped thousands of people just like you through the process of buying gold. They’re ready to answer any questions you have about gold IRAs, gold coins, and the process of rollovers and transfers.
It’s never too late to protect your hard-earned retirement savings. So call Goldco today to learn more about how owning gold can benefit you.
This article was originally published in April 2022 and was updated in December 2023.
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