How Do Gold IRA Plans Work?

gold IRA plan questions

With the Federal Reserve continuing to hike interest rates, markets are finally getting wise to the reality that the easy money that has helped fuel the stock market in recent years is now gone. The Fed is focusing on fighting inflation, and doing so by raising interest rates and reducing the size of its balance sheet. With no more easy money, and with the economy facing recession, markets could be facing some difficult months ahead.

It’s no wonder, then, that many Americans are looking at ways to protect their wealth, and are looking at alternative assets to do that. One of those assets is gold, and one popular method of investing in gold is through a gold IRA.

What Is a Gold IRA?

If you’ve never heard of a gold IRA, it’s nothing more than an individual retirement account (IRA) that holds physical gold coins or bars rather than more common assets like stocks and bonds. If you’ve never heard of a gold IRA, that’s probably because the custodians you deal with don’t offer gold as an option.

Not every IRA custodian has the desire or ability to manage precious metals assets like gold. If you want to start a gold IRA, you’ll need to find a custodian who manages precious metals IRAs.

Types of Gold IRA Accounts

Like most IRA accounts, there are two types of gold IRA accounts. A Traditional gold IRA uses pre-tax dollars to buy gold. Your gains accrue tax-free and you only pay taxes at distribution.

A Roth gold IRA uses post-tax dollars to buy gold. Your gains also accrue tax-free and you pay no taxes when you take a distribution.

How to Start a Gold IRA

Starting a gold IRA isn’t any more difficult than starting any other IRA. The only difference is that you’ll need to find a custodian who has experience managing precious metals assets.

A gold IRA is a type of self-directed IRA, and not all IRA custodians offer self-directed IRAs. Since looking for a self-directed IRA custodian who has experience in precious metals can be daunting, it can help if you work with trusted partners like Goldco who have experience in this arena.

Goldco partners with experienced and trusted IRA custodians to help our customers make the process of starting a gold IRA as quick and simple as possible. Call a Goldco representative to find out more about the IRA custodians we work with, and the various options available to you when starting a gold IRA.

How to Fund a Gold IRA

One of the most popular methods of funding a gold IRA is through a 401(k) rollover. If you have assets held in a 401(k) account from a former employer, those funds can be rolled over into a gold IRA tax-free.

Some 401(k) accounts allow in-service rollovers, a type of rollover that allows you to move 401(k) assets into an IRA while you’re still working. You’ll want to contact your 401(k) plan administrator to determine whether your 401(k) funds are eligible for a rollover.

Rollovers and transfers can also be made from other types of tax-advantaged retirement accounts, such as 403(b), 457, IRA, TSP, SEP IRA, and SIMPLE IRA accounts. Again, each of these types of rollovers or transfers can be done tax-free.

You can also start a Roth gold IRA either through rolling over assets from an existing Roth account, or by performing a Roth conversion by rolling over assets from existing pre-tax accounts.

There’s also the option of starting a gold IRA from scratch, although this runs into the problem of annual IRA contribution limits. For 2023, the annual contribution limit for IRA accounts is $6,500 ($7,500 if you’re over age 50).

Because the custodial and storage fees will generally run around $180 per year, this is equivalent to about a 2.8% annual fee for a $6,500 account, which is quite high. That’s why we prefer to work with rollover IRAs starting at $25,000 in assets, in which case that $180 in annual fees is only 0.72%, an even lower amount. And the more money you roll over into a gold IRA, the lower that $180 in annual fees becomes as a percentage of your assets.

While there’s certainly nothing wrong with trying to start a gold IRA from scratch, it would take you 4 years of maximum contributions to get to the point where fees aren’t taking a big bite out of your returns.

Types of Gold You Can Buy

Once you have set up a gold IRA and funded it, the next step is to determine what types of gold you want to buy. Gold coins and bars will be the most common options here, but not every gold coin or bar is eligible for a gold IRA.

The US tax code forbids IRA accounts from purchasing collectibles. And it classifies all coins or metals as collectibles, with some exceptions. Specifically, Gold American Eagle and Silver American Eagle coins are not considered collectibles for IRA investment purposes, as well as any coin or bullion meeting minimum fineness standards for futures contracts.

For gold, this means that any coin or bar that has at least 99.5% gold (.995 fineness) is going to be eligible for a gold IRA. Sadly, some favorite coins like South African Krugerrands, Austrian 100 Corona coins, or Swiss 20 franc coins are not eligible for an IRA. And if you attempted to buy one of these coins with your IRA funds, it would be considered a distribution and would subject you to taxes and penalties.

Most mints and refiners around the world are aware of these regulations, and so they produce their coins and bars to at least the minimum fineness, with many gold coins produced today containing 99.9% pure gold. Goldco works with mints around the world to bring you these coins, ensuring that the coins you buy are not only IRA-eligible but also 100% authentic.

How Your Gold Is Managed and Stored

All IRA assets have to be managed by a custodian. If you have an existing IRA account, at Schwab, Fidelity, or through a bank, for example, you’re probably already familiar with how an IRA custodian functions. But many of these commonly known IRA custodians don’t deal with gold or precious metals.

This is where working with Goldco can help you. With our established relationships with gold IRA custodians, we can put you in touch with experienced custodians who will ensure that your gold is properly managed.

Gold IRA assets will also have to be stored at a bullion depository. Goldco works with established bullion depositories who have experience keeping customer assets safe and secure. You can rest easy knowing that the gold in your gold IRA is safe and sound, ready when you need it.

You may have heard of something called a home storage IRA, which purports to allow you to buy gold for a gold IRA and store that gold at home. If it sounds too good to be true, that’s because it is.

The IRS requires that all IRA assets be managed by a custodian and, while it’s theoretically possible for you to become an IRS-approved custodian, the hurdles are so high and the requirements so detailed that almost no individual could qualify. People who have tried the home storage IRA route, however, have faced the ire of the IRS, and have ended up having to pay massive amounts of taxes and penalties.

Don’t let your hard-earned money fall victim to a scheme that sounds too good to be true. Work with trusted partners like Goldco who work hard to make sure that your gold IRA is done by the books.

How Can I Access My Gold?

Since you can’t store your gold IRA assets at home, you may wonder how you can access your gold. Like any other IRA, you can take distributions from your account. And like any other IRA, those distributions are governed by the rules and regulations for IRAs.

If your gold IRA is a Traditional gold IRA, any distributions you take before age 59 ½ are subject to a 10% early withdrawal penalty, as well as any income taxes you may owe. Once you turn 73, you’ll be required to take required minimum distributions (RMDs). You can take those distributions either in cash or in gold.

If your gold IRA is a Roth gold IRA, you can withdraw contributions at any time, but not earnings. Distributions of earnings are subject to the same regulations as any other Roth IRA. If your account is less than five years old and you’re under age 59½, a distribution of earnings could subject you to taxes and penalties.

Once you’ve reached age 59½, if you’ve had your Roth IRA less than five years, withdrawing earnings could subject you to taxes. Once you’ve held the IRA for five years, you’re no longer subject to taxes and penalties. And, unlike a Traditional IRA, there are no RMDs for Roth IRAs. Any distributions you may choose to take can be either in cash or in gold.

There are many people who prefer to make their gold investment in tangible form because they want to be able to hold and feel the gold they own. Even keeping it in a secure depository doesn’t satisfy them, as they feel that a bird in the hand is worth two in the bush. That’s okay, and that’s why Goldco also offers direct cash sales of gold coins and bars if you want to take physical delivery of your gold.

But if you have existing retirement accounts that you want to protect, and you want to keep the tax-advantaged status of your retirement savings, a gold IRA can be a good choice to help you achieve your financial goals. If you’re willing to forego a few years of being able to hold your gold now in order to be able to hold your gold in the future, maybe it’s worth looking into a gold IRA.

Is a Gold IRA Right for You?

Every individual has different financial goals and different financial abilities, and not every asset is going to suit each individual the same way. Some people have a natural aversion to gold, and think of it as nothing more than a barbarous relic. Others think gold is the answer to all of our problems, and are devoted to gold as a cure for every financial ailment. And then others are somewhere in between, or may know a little about gold but not enough to consider themselves experts.

No matter how much or little you know about gold, there’s no harm in learning more about it. And the experts at Goldco can help you in that learning process, including learning more about how gold IRA plans work.

Gold has been trusted as a safe haven asset and an inflation hedge for centuries. Many people have benefited from owning gold, and Goldco has thousands of satisfied customers who extol the virtues of gold. If you’re looking to secure your financial future, call the experts at Goldco today to learn more about how gold can help play a role.

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