How to Open a Gold IRA Account Tax- and Penalty-Free

tax-free investing options for a gold IRA

With the likelihood of recession growing all the time, more and more Americans are looking at ways to protect themselves and their wealth against the possibility of loss. The fears are particularly acute for Americans whose retirement savings are held in tax-advantaged accounts such as IRAs and 401(k)s. With trillions of dollars being invested in these accounts, protecting them is no small feat.

One of the problems that investors in tax-advantaged accounts face is that withdrawing funds from these accounts triggers potential tax liabilities and penalties. With many working Americans looking at tax rates of over 20%, plus penalties of 10% if you distribute assets before age 59½, taking money out of your retirement accounts could cost you dearly.

Of course, if you think that the recession could result in losses of 50% or more to your investments like in 2008, you may feel that the potential tax hit is worth it. Still, there’s no reason to subject yourself to taxes and penalties if you don’t have to. And with a gold IRA you can help protect your assets tax- and penalty-free.


What Is a Gold IRA

A gold IRA is an IRA account that owns and holds physical gold coins or bars. Whereas most conventional IRAs invest in non-physical financial assets like stocks, bonds, or shares in funds, a gold IRA actually owns physical gold that you can take possession of when you take a distribution.

A gold IRA is a type of self-directed IRA, meaning that you as the investor are in charge of determining which gold coins or bars you want to buy, where you want your gold stored, which custodian you want managing your gold, and when and how you decide to take a distribution. You may also hear a gold IRA referred to as a gold-backed IRA, a precious metals IRA, or some other term.

Advantages of Investing in Gold

Investing in gold can have many benefits, and investing in gold through a gold IRA can add some more. Here are a few of them.

Diversify Your Portfolio

One of the most important roles gold plays is that of portfolio diversification. You’ve probably heard of the classic 60/40 portfolio to diversify your investments and minimize risk. But keeping all of your assets in financial products that are dependent on Wall Street’s performance for their value can be risky.

During the 2008 financial crisis, for instance, both stock and bond markets faced difficulties. And now that we’re facing another recession and bond markets are facing rising interest rates and lower prices, diversification is becoming more important than ever.

Many 401(k) plans offer a limited range of investment options, sometimes only a few dozen types of funds that invest in conventional financial assets. Trying to protect your investments with this limited range of choices can be frustrating.

But with a self-directed IRA you are in charge of your investments and you can choose to invest in a wide variety of possible assets, including real estate, private equity, or precious metals. Diversifying your investment portfolio with a gold IRA can help you alter your risk profile and reduce your exposure to financial markets during periods of recession and economic turmoil.

Asset Protection

Gold has been a safe haven asset for centuries and continues to play that role today. Central banks are buying gold today at a record pace, and retail investors continue to pile into gold in order to try to protect their wealth ahead of a coming recession.

Gold’s reputation for maintaining value is well earned. During the 2008 financial crisis, for instance, gold gained 25% during the same period markets lost over 50%. And gold nearly tripled in price from 2008 to 2011, providing gold owners with significant benefits at a time when markets were struggling to regain their footing.

Wealth Accumulation

While gold’s reputation is as a countercyclical asset that performs well when markets aren’t, gold can also provide significant value even when markets are doing well. For instance, gold has grown at an annualized rate of nearly 9% since 2001, providing gold investors with a rate of return that has beaten numerous other assets.

Hedge Against Inflation

Gold also has a reputation as a hedge against inflation. During the stagnation of the 1970s, for instance, gold’s annualized gains were over 30% over the course of the decade. Many investors are betting that gold will provide similar performance if high inflation becomes entrenched over the coming years.

It’s certainly not debatable that gold maintains its purchasing power better than the US dollar. Since President Nixon closed the gold window in 1971, the US dollar has lost 86% of its purchasing power, while gold has gained over 5,000% in value.

Tax-Free Gains

One of the advantages to investing in gold through a gold IRA is that your gains accrue tax-free. If you choose to invest in gold through a Traditional gold IRA, which uses pre-tax dollars to buy gold, you only pay taxes at distribution. If you choose to invest in gold through a Roth gold IRA, you don’t pay any taxes at distribution.

The Decision to Open a Gold IRA

The decision on whether or not to open a gold IRA is one that you will have to make based on your own personal financial goals and your current financial situation. But there are a few things you’ll need to keep in mind.

Gold IRA Rules and Regulations

A gold IRA is subject to the same rules and regulations as other IRA accounts, so it’s worth familiarizing yourself with those first.

Ban on Collectibles

Like any other IRA, a gold IRA is prohibited from investing in collectibles. Here’s where it can get tricky.

By law, coins are considered collectibles for purposes of IRA investments. But there is a loophole that allows certain coins to be held in an IRA. Those include certain coins minted by the US Mint, along with coins that satisfy certain minimum fineness requirements. So what does this mean for you?

If you hoped to buy popular coins like South African Krugerrands for your gold IRA, or you thought you could stock up on older American double eagle $20 gold coins, you’re out of luck. Those coins fail to meet the minimum fineness requirements for a gold IRA.

Gold coins purchased by a gold IRA must have a fineness of at least .995, meaning that they have a gold content of 99.5%. The only exception to this is for the American Gold Eagle series of gold coins minted currently by the US Mint.

If you attempted to purchase any other type of gold coin with your gold IRA assets it would be considered a distribution and would trigger potential taxes and penalties. So you have to be careful when it comes to purchasing gold coins for a gold IRA.

Thankfully most mints today produce gold coins that are specifically designed to be IRA-eligible. Goldco has established relationships with mints around the world so that we can offer you IRA-eligible gold coins and keep you from having to worry about whether the gold coins you want to buy are going to trigger taxes or penalties.

Taxes and Penalties

Distributions from a Traditional gold IRA will require you to pay taxes on those distributions. And if you take that distribution before you turn age 59½, you could be required to pay an additional 10% penalty.

Distributions from a Roth gold IRA are subject to the same rules and regulations as any other Roth IRA. For most people this means distributions are tax-free, if you are at least age 59½ and your Roth IRA has been open for at least five years. Otherwise you can withdraw your contributions at any time, but not your earnings.

Maximum Contributions

A gold IRA is also subject to the same restrictions on maximum contributions as other IRA accounts. For 2022 the maximum amount you can contribute to your IRA accounts is $6,000. That limit increases to $6,500 for 2023.

It’s important to remember that this limit does not apply to rollovers or transfers from other tax-advantaged accounts into an IRA account. So if you have existing tax-advantaged accounts such as a 401(k), 403(b), TSP, or similar retirement account that you want to roll over into an IRA, there’s no limit to how much you can roll over.

Required Minimum Distributions

Just as with other IRA accounts, a Traditional gold IRA is subject to required minimum distributions (RMDs). Currently RMDs start at age 72, although there has been discussion in Congress about raising that age limit or doing away with RMDs altogether. Roth gold IRAs are not subject to RMDs.

Funding a Gold IRA

Once you make the decision to start a gold IRA, you’re going to decide how to fund it. Because of the low annual maximum contribution threshold, and because fees for gold storage can eat away at those small sums, the most popular method of funding a gold IRA is through a rollover or transfer from an existing tax-advantaged retirement account.

Rollovers can sometimes come from old workplace 401(k) plans that have been sitting around neglected and forgotten for years. Or they can come from workers who actively manage their retirement accounts and who want to protect the assets they’ve worked so hard to build up.

The best part of a gold IRA rollover is that it allows you to protect your existing retirement savings tax- and penalty-free. You don’t have to worry about paying taxes on distributions, or paying penalties if you’re under 59½. The process is seamless, and can get you on the road to protecting your portfolio with gold.

3 Steps to a Gold IRA

There are three easy steps to getting started with a gold IRA. First, you sign an agreement with Goldco stating that you understand Goldco’s terms of doing business. A company representative can help you through this process.

Second, you fund your gold IRA. For most people this means performing a 401(k) to gold IRA rollover. Goldco’s representatives can help you through this stage of the process too, which will require you to withdraw funds from your existing retirement account and roll them over into your gold IRA.

Finally, once your gold IRA is funded, you decide which gold coins or bars you want to buy. Goldco works with numerous mints around the world to offer you a wide assortment of gold coins and bars in various sizes.

Once you’ve decided on which coins you’ll purchase, and the purchase is finalized, you’ll be the owner of physical gold coins or bars that are stored in a safe and secure bullion depository. The only thing you’ll have to think about after that is when to take a distribution.

Is a Gold IRA Right for You?

If you think a gold IRA might be right for you, now is the time to get started. Recession at this point seems more and more certain, and the only question is how severe it’s going to be.

Remember that all through 2008 we were told not to worry, that the economy was going to be fine. But by September it seemed as though the bottom was falling out and the financial system was on the verge of collapse.

If the next recession is as bad or, God forbid, worse, it’s better to be prepared ahead of time rather than scrambling around at the last minute trying to protect your investments while they hemorrhage money. Don’t wait until it’s too late to protect your hard-earned savings. Call Goldco today to learn more about protecting your portfolio with gold.


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