Investing

This Is How a Gold IRA Works

golden retirement nest egg

With everything that’s going on in the world today, more and more people are getting nervous about their financial well-being. Stock markets are down double digits across the board, and everywhere you look there seems to be a sea of red.

After months of brushing off high inflation, a weak economy, and war in Europe, it seems as though markets are finally coming to grips with reality. Now more people understand just how dangerous and uncertain the future is, and they’re looking to protect their assets accordingly.

Many of those people have decided to turn to gold to help protect their assets, as gold has a long and well deserved reputation as a safe haven asset during times of financial distress. And one investment vehicle in particular, a gold IRA, continues to gain in popularity. Here is how a gold IRA works.

What Is a Gold IRA?

You may be wondering what a gold IRA is, and you’re not alone. To those whose experience with IRAs comes from traditional brokerages, the idea of investing in gold through an IRA may seem strange or foreign. But as long as you follow all the rules and regulations, investing in gold through a gold IRA works just the same as investing in stocks or bonds through a conventional IRA.

Advantages of Investing in Gold

Many people choose to invest in a gold IRA because it allows them to benefit from the many advantages of investing in gold. There are four primary advantages to investing in gold.

Diversify Your Portfolio

If there’s no other reason to invest in gold, portfolio diversification is it. Even the most anti-gold investors will often begrudgingly admit that putting a portion of your investment portfolio into gold can provide diversification.

Far too many people think that investing in a broad array of stocks and bonds, or mutual funds and index funds, is sufficient to diversify their portfolios. They neglect to consider that their assets are completely dependent on the performance of Wall Street and the US financial system for their value. In the event of a systemic financial crisis, these portfolios may be overexposed to stocks or to US dollar assets, which could cost them dearly.

That’s why more and more people are turning to gold to diversify their financial portfolios. Being inadequately diversified in the face of a coming recession could lead to major losses.

Protect Against Crashes

Owning gold can also help protect you against loss in the event of financial crashes. Many people watched in horror in 2008 as stock markets lost over 50% of their value. Trillions of dollars of investor wealth were wiped off the books in mere months. But during that same time period as stocks were falling, gold actually gained 25%.

If you had been invested 100% in the S&P 500 in October 2007, you would have experienced about a 56% loss by March 2009. But if you had moved 30% of your portfolio into gold in 2007, your total loss by March 2009 would have been only 32%.

Your total asset value also would have recovered quicker after the crisis, and even today your portfolio would be slightly higher in value versus someone who had stuck 100% with stocks. That’s how gold can work to protect and defend your wealth.

Defense From Inflation

Gold has also traditionally served as a safe haven asset during times of high inflation. With inflation currently at levels we haven’t seen in 40 years, inflation defense is going to become increasingly important.

The last time the US faced such significantly high systemic inflation was during the stagflation of the 1970s, when inflation peaked at 11%. During that decade, gold’s average annualized growth rate was over 30%. That’s phenomenal performance in any year, but to keep that up over the course of a decade is unheard of.

If inflation becomes entrenched today, as it was during the 1970s, many people are banking that gold could repeat that type of performance. And if that happens, those who own gold could look back in 2030 or beyond and be incredibly happy that they made the decision to buy gold.

Asset Growth

Gold is an asset that doesn’t just gain value during bad times, either. In fact, over the long run its performance can be even better than stock markets.

Since 2001, gold’s average annualized growth rate is 9.44%. Compare that to the S&P 500 at 5.14%, or the Dow Jones Industrial Average at 5.17%.

As you can see, gold has the ability to outperform stock markets even during a period in which stocks have seen many bull markets. And you can put that ability to good use through a gold IRA.

Advantages of a Gold IRA

A gold IRA has an additional advantage over other methods of investing in gold such as buying gold coins or buying shares in gold exchange-traded funds. The gold coins or bars that you buy for a gold IRA can be purchased with pre-tax dollars, and your gains within your gold IRA accrue tax-free until you decide to take a distribution.

This is the same as any other IRA account, which is why a gold IRA is a popular choice for those with existing tax-advantaged retirement accounts such as a 401(k), 403(b), TSP, or IRA. As long as you follow the gold IRA rules and regulations, protecting your retirement savings with a gold IRA can be done relatively easily.

Gold IRA Rules

As with any IRA or other tax-advantaged retirement account, you need to follow various rules and regulations. You may want to consult with your tax advisor or financial advisor to make sure that you’re following these regulations and not accidentally exposing yourself to taxes or penalties.

The rules and regulations pertaining to gold IRAs are largely the same as those pertaining to other IRA accounts. Here are some of the most important gold IRA rules to be aware of.

Rollovers and Transfers

Many people choose to fund their gold IRA through a rollover or transfer from an existing retirement account such as a 401(k) or Traditional IRA. Sometimes this is done to protect investment gains made in these retirement accounts. Other times this is to put funds in orphaned accounts managed by previous employers to better use.

Most of the time these rollovers and transfers from an existing retirement account to a gold IRA can be done tax-free. Goldco specializes in helping customers like you perform rollovers or transfers so that you can protect your existing retirement assets and ensure that your funds are put to good use.

Contribution Limits

Contribution limits are the same for a gold IRA as they are for any other IRA account. For 2022 the contribution limit to an IRA is $6,000 if you’re under age 50, and $7,000 if you’re over age 50. These limits of course don’t apply to rollovers and transfers, which can be any sum you want.

IRA-Eligible Gold Coins and Bars

Not all gold coins and bars are eligible for investment through a gold IRA. The tax code forbids collectibles, including coins, from being owned by an IRA. The exceptions are for certain coins produced by the US Mint, as well as coins and bars meeting minimum fineness requirements, which are .995 (99.5% pure) for gold coins.

Most gold coins produced today meet these fineness requirements, as they are produced specifically for the investment market. There are numerous coin options that you can choose from.

What this means, however, is that most older coins are not eligible for purchase through a gold IRA. If you were to attempt to purchase these coins with IRA assets, it would be considered a distribution, and would subject you to potential taxes and penalties. You also can’t purchase coins you already own with gold IRA assets, as this would violate rules against self-dealing.

With over a decade of experience helping customers buy gold coins, and with established relationships with mints around the world, Goldco’s representatives can ensure that the coins you buy are indeed eligible for IRA investment.

Tax Treatment

Most gold IRAs are Traditional gold IRAs, in which investments are made with pre-tax dollars and gains are taxed only at distribution. But you can also open a Roth gold IRA, in which investments are made with post-tax dollars and gains are not taxed at all.

There is also the possibility of a Roth conversion, in which you convert pre-tax dollars from existing retirement accounts into a Roth gold IRA. In general, whatever can be done with a conventional IRA can be done with a gold IRA.

Required Minimum Distributions

Regulations pertaining to required minimum distributions (RMDs) are the same for a gold IRA as they are for other IRA accounts. If your gold IRA is a Traditional IRA, you will be required to take RMDs once you reach age 72. If you attempt to take a distribution before age 59 ½, you will be subject to potential taxes and penalties.

Keep an eye on these regulations and discuss them with your financial advisor and tax advisor, as Congress is debating changing some of these regulations and possibly even eliminating RMDs altogether.

Gold IRA Custodian and Depository

As with any other IRA account, your gold IRA assets will need to be managed by a custodian. Goldco partners with gold IRA custodians who have years of experience in the precious metals industry.

Your gold IRA coins and bars will also be stored at a precious metals depository. Goldco partners with depositories who have significant experience helping keep our customers’ assets safe and secure.

3 Easy Steps to Start a Gold IRA

At Goldco, we believe that buying gold shouldn’t have to be difficult. We do everything we can to make sure that our customers can benefit from owning gold. And that’s why there are just three easy steps that you can take to start your gold IRA.

Sign Your Gold IRA Agreement

If you choose to open a gold IRA, you would first sign an agreement choosing to do business with Goldco.

Fund Your Gold IRA

Once you have opened your gold IRA, you can decide how you want to fund your account. Rollovers or transfers from existing retirement accounts are a popular option, and can be done tax-free in most cases.

Goldco’s representatives have helped thousands of customers get started with the gold IRA rollover process, and they can help you too. But be sure to consult with your financial advisor and tax advisor to make sure that you’re not going to incur any tax liabilities.

Select and Purchase Metals for Your Gold IRA

Once you have funded your gold IRA, you get to decide which gold coins or bars you want to buy. That’s part of the beauty of a self-directed gold IRA, the ability to control your asset allocation so that you buy what you want, when you want. You are in complete control of your investments.

Goldco offers coins and bars from mints around the world, and our established relationships mean that we can offer you coins that are guaranteed to be authentic. Once you have purchased your coins, they will be shipped to the depository you choose, which will then keep your gold safe and secure. And when you decide to take a distribution, you will be able to take that distribution either in cash or in gold.

Interested in a Gold IRA?

Buying through a gold IRA shouldn’t be difficult. With Goldco’s years of experience and thousands of satisfied customers, we know just what it takes to streamline the process of buying gold so that you can get started protecting your wealth as quickly as possible.

If you’re looking to safeguard your retirement savings, a gold IRA could be just what you’re looking for. The ability to seamlessly roll over or transfer funds tax-free from existing retirement accounts, the numerous gold coin and bar options available to you, and the ease of providing quick diversification and protection make a gold IRA an increasingly attractive option in today’s uncertain financial environment.

Why let your hard-earned savings remain subject to the potential pitfalls of Wall Street? If you’re nearing retirement, you can’t afford to sit through another financial downturn and watch your retirement savings disintegrate before your eyes. You may not have time to recoup your losses, especially if the recovery from the next crisis is one that is long and protracted.

Every day that your assets remain unprotected is another day that they’re at risk of loss. Don’t leave your wealth vulnerable any longer. Call the experts at Goldco today to learn more about how gold can help protect your savings.

 

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