The Best Way to Add Gold to an IRA

Gold American Eagle coins

What goes up must come down. And with high flying markets making more 401(k) millionaires than ever, many people are worried about what happens when markets correct.

Many people have already taken steps to protect themselves financially by buying gold, but many others may not have any idea how to. After all, if you have an IRA or 401(k), how can you use those funds to buy gold?

Unbeknownst to many people, it is possible to add gold to an IRA, or to gain exposure to the gold price or to gold markets through your IRA. But there are several ways to do that, each with its own advantages and disadvantages.

What Is an IRA?

An IRA is an individual retirement account, a type of tax-advantaged retirement option that first developed in the mid-1970s. While 401(k)s are the dominant type of workplace retirement plan, Americans actually hold more money today in IRAs than in 401(k)s.

Aside from the fact that IRAs predated the development of 401(k)s, one additional possible reason for that is that you can roll over funds from 401(k) accounts to IRA accounts tax-free, assuming your 401(k) account allows rollovers. These rollovers can help you access a greater variety of investment assets than may be available to you in your 401(k).

Can an IRA Invest in Gold?

What many people don’t realize is that IRA accounts can invest in gold. In fact, aside from a pretty narrow list of assets specifically forbidden from IRA acquisition, an IRA can own just about any asset there is.

While most people are familiar with investing in stocks, bonds, and shares in funds with their IRA accounts, IRAs can also own physical assets, including real estate, commodities, and physical gold coins and gold bars.

3 Ways to Invest in Gold With Your IRA

For those looking for exposure to gold or to the price of gold, there are three primary ways of doing that with an IRA. And each method has its pros and cons.

1. Gold ETFs

Exchange-traded funds (ETFs) are one popular method of investing in assets which traditionally have been out of reach for mainstream investors. There are ETFs that track hundreds of different commodities, stock indices, geographic regions, etc.

Gold ETFs generally hold gold within a fund and sell shares in that fund to investors. They aim to track the price of gold.

Gold ETFs can be a way to gain exposure to gold markets, especially for those who only want to expose themselves to gold for the short term. Shares in gold ETFs can be easily bought and sold, even online, and so they have become a popular way for people to gain exposure to gold markets.

But gold ETFs have drawbacks too. One of the disadvantages of gold ETFs is that you don’t actually own gold. Nor do you have the option of converting your ETF shares into gold.

Not only that, but the layers of custodial and sub-custodial arrangements that surround the gold in ETFs make it difficult to determine whether ETFs actually own the amount of gold they say they do. This is why you’ll often hear of paper gold vs. physical gold.

In the old days, banks that held gold might try to issue more banknotes than they had gold backing for. And if a bank run occurred and customers tried to redeem their notes for gold, they’d quickly find out that there wasn’t enough gold, and their notes became worthless.

That’s the fear with gold ETFs. If enough people liquidate their shares in the ETF, will there actually be enough gold for the fund to sell to make those people whole?

While that doesn’t seem like a likely scenario today, who knows what might happen during a crisis.

2. Gold Mining Stocks

Another way to gain exposure to gold is through purchasing gold mining stocks. That can be done either by buying individual stocks or by buying shares in funds that invest in gold miners or that track gold mining stock indices.

The theory is that if the price of gold is rising, gold miners should be making more money, and thus the price of their stocks should increase as well.

What that doesn’t take into account however, is that the price of extracting gold may also be rising too, which could eat into profit margins. Then there’s the risk of worker strikes, government seizures, shipping problems, inefficient management, etc., all of which could send gold mining stocks tanking even when the gold price is rising.

3. Physical Gold

The final way of adding gold to an IRA is through actually purchasing physical gold coins and gold bars with your IRA assets. You won’t be able to do this through your normal brokerage IRA though, you’ll need to start a self-directed gold IRA to do this.

Self-directed IRAs are administered by custodians who have experience managing IRAs that invest in alternative assets such as real estate, private equity, agricultural commodities, and precious metals. Once you start a self-directed IRA with a custodian who is able to administer precious metals assets, you can fund your gold IRA with a tax-free rollover or transfer from your 401(k), 403(b), TSP, IRA, or similar retirement account.

Once your gold IRA is funded, you can then use those funds to purchase gold coins or gold bars that are IRA-eligible. It’s important to remember that not every gold coin is eligible for acquisition by an IRA.

Gold American Eagle coins (1986-present) and any gold bullion coin with a fineness of .995 or greater are eligible for purchase by an IRA. If you’re unsure how to determine whether a coin is IRA-eligible or not, it can help to work with trusted partners like Goldco, who sell IRA-eligible coins and source them directly from the mints that produce them.

Learn More About a Gold IRA

If you’re interested in learning more about gold IRAs, how they work, and how you can start one, talk to the experts at Goldco today. With over a decade of experience and over 5,000 5-star reviews, Goldco’s specialists have helped thousands of people benefit from adding gold to their IRAs.

Don’t leave your hard-earned savings exposed to a potential financial crisis. Call Goldco today to learn more about how you can add physical gold to your IRA.

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