How Does a Gold-Backed IRA Work?

gold backed IRA

Between a banking crisis, high inflation, and the ongoing risk of recession, it’s no surprise that more and more Americans are trying to protect their wealth. Memories of the 2008 financial crisis and the losses that resulted are still at the back of many people’s minds, and the desire to avoid a repeat of those losses remains strong.

Many people are starting to turn to alternative assets such as precious metals like gold, and have been looking for ways to invest in gold. One method is through a gold-backed IRA which, although it has been around for years, is still not entirely familiar to many people.

A gold IRA can serve as a means of protecting and safeguarding your wealth as part of a strategy to minimize loss in the face of recession and financial crisis. And starting a gold-backed IRA can be done with relative ease. But if you’re not already familiar with gold IRAs, you might be wondering how a gold-backed IRA actually works.

Advantages of a Gold IRA

A gold IRA offers numerous potential advantages. Here are four of them.

Store of Value

One of gold’s most enduring traits is that it is a store of value and source of wealth. The gold vaults at Fort Knox, Scrooge McDuck’s money bin, or the legend of El Dorado all conjure up images of unimaginable wealth. Ask the man on the street what he thinks of when he thinks of gold, and the odds are that the answer will be wealth or riches.

Even central banks look to gold as a store of value, as they are purchasing gold at the fastest rate since 1950. While individual investors may not have as much money to throw around as central banks, a gold-backed IRA can still play a role in helping your assets maintain their value.

Safe Haven Asset

Gold has also been trusted as a safe haven asset for centuries, as its ability to maintain its value in the face of economic and political crises has made it a favored asset choice during times of trouble. The past few years have seen gold regain popularity as a safe haven, as more and more people have looked to buy gold to help protect their wealth against the uncertainty of the future. This year is no different, as total demand for gold coins and bars is up 5% so far year on year.


Another important role gold can play is that of diversifying an investment portfolio. Many people think that investing in a bunch of different stocks and bonds is all that’s needed to diversify. But putting all your money into assets that rely on the health of Wall Street or the US economy for their performance can concentrate your risk.

Gold has a reputation for being a countercyclical asset, one that performs well when the economy is not. Holding gold can therefore change the risk profile of your portfolio and can help protect you against loss in the event of a recession or financial crisis.


Finally, gold can also play a role as a liquid asset. It may not be as liquid as cash, but unlike cash it will hold its value against inflation. Since 1971, the US dollar has lost 87% of its purchasing power, while gold has gained over 5,000% in value.

Because gold markets operate around the world 24/7, there is always someone buying or selling gold. So if you need to drum up some cash quickly, your gold holdings can be a good source of quick liquidity.

Getting Started With a Gold IRA

Starting a gold IRA isn’t really any more difficult than starting any other gold IRA. The major difference is going to be finding a custodian that is able to manage precious metals assets.

Most IRA custodians aren’t set up to manage precious metals assets or other alternative assets. In some cases it’s because there’s no financial incentive to do so, while in other cases it just isn’t worth the effort.

Setting up a gold IRA requires finding a custodian that is able and willing to manage the physical gold coins and bars that make up your gold IRA. Goldco partners with established gold IRA custodians with track records of successful management of precious metals assets. This ensures that your gold-backed IRA assets are being taken care of properly.

Funding a Gold IRA

Once you’ve decided to start a gold IRA, you’ll have to make a decision about funding it. It’s technically possible to start a gold IRA from scratch. But because the annual maximum contribution to an IRA is $6,500 (or $7,500 if you’re over age 50), that might not make financial sense.

Because a gold IRA requires storing physical metal assets, there are annual fees associated with a gold IRA. Expect to pay a couple hundred dollars a year between account maintenance fees and storage fees paid to the depository that stores your gold.

These fees could take a big bite out of smaller accounts, such as an account with a $6,500 balance. That’s why Goldco normally requires starting a gold IRA with a minimum of $25,000. That way the annual fees will only take up a small portion of your assets each year.

So if the maximum annual contribution to an IRA is $6,500 a year, how do you start an IRA with $25,000 or more? That’s through an IRA rollover, one of the most popular methods of starting a gold IRA.

Executing a Gold IRA Rollover

A gold IRA rollover is a way of funding a gold-backed IRA with existing tax-advantaged retirement funds. Funds can be rolled over into a gold IRA from a 401(k), IRA, TSP, 403(b), or similar account.

Funds rolled over from 401(k)-type accounts into an IRA are generally referred to as a rollover, while funds rolled over from one IRA to another are generally referred to as transfers. And the best thing about these movements of funds is that they can take place tax-free.

Once you decide to fund your gold-backed IRA with a rollover, you’ll need to contact your existing account custodian to inform them of your desire to execute a rollover. This normally means providing your custodian with details of your gold IRA account, including your gold IRA custodian’s name, address, and your IRA account information.

You’ll likely have to fill out and sign paperwork to get the rollover started. The easiest and most hassle-free way of doing a rollover is to make a direct transfer from your existing retirement account to your new gold IRA account. This means that funds are moved directly from one custodian to another, and ensures that the rollover occurs without tax consequences.

Expect the process of rolling over funds from a 401(k) into a gold IRA to take about one or two weeks, depending on how quickly your existing custodian releases funds, and whether funds are transferred electronically or with a paper check.

Choosing Your Gold IRA Assets

Once your gold IRA has been funded, you can start to choose which gold assets to purchase for the gold to back your IRA. It’s important to remember that a gold-backed IRA isn’t allowed to purchase just any gold.

The Internal Revenue Code generally considers coins and metals to be collectibles for purposes of IRA investing, and prohibits IRA accounts from owning collectibles. There are certain specific exemptions from the collectibles definition when it comes to gold coins, however, such as American Gold Eagles and any gold coin minted with a fineness of .995 or higher.

Mints that produce investment-grade gold coins today are aware of these requirements, which is why most gold coins produced today for the investor market are produced with .999 fineness, allowing them to be purchased for a gold-backed IRA.

Goldco works with mints around the world to bring our customers IRA-eligible gold coins so that you don’t have to do the hard work of determining whether the coins you want to buy are eligible for an IRA or not.

Gold IRA Rules & Regulations

In addition to the rules forbidding IRA ownership of collectibles, there are numerous other IRA rules and regulations that you need to be aware of.

Gold IRAs, like other IRA accounts, come in two flavors, Roth and Traditional. Traditional IRA accounts are more common, investing with pre-tax dollars and only paying taxes when you take a distribution. Roth IRA accounts invest with post-tax dollars and pay no taxes at distribution, as long as the account has been open for at least five years. Contributions to a Roth IRA account can be withdrawn at any time, but earnings can only be withdrawn after the five-year holding period, and can only be withdrawn tax-free once you reach age 59½.

Withdrawals from a Traditional IRA before age 59 ½ can result in a 10% penalty, in addition to any applicable taxes.

Gold IRA accounts are also subject to regulations surrounding required minimum distributions (RMDs). RMDs from a Traditional IRA account begin at age 73, while a Roth IRA account is not subject to RMDs.

Learn More About a Gold-Backed IRA

A gold-backed IRA can play an important role in helping to protect and diversify your portfolio. But like any important financial decision, you should do your research before you make a decision. That’s especially true if you have limited experience with gold or with IRAs.

Goldco’s experts have years of experience helping thousands of customers benefit from owning gold. We’ve made more than $2 billion in precious metals placements, and we work hard to ensure that our customers are happy. We even offer a Goldco BuyBack Guarantee.

If you want to learn more about how a gold IRA can benefit you, call Goldco today to talk to one of our representatives. With recession on the horizon, a banking crisis in the background, and inflation remaining problematic, now is the time to start thinking about protecting your hard-earned savings. A gold-backed IRA may be just what you need to do that.

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