Many Americans are using this period of high inflation, potential recession, and recent bank closures as an opportunity to review and reconsider their financial situation and goals.
Some participants might engage in reassessing their investments or, in numerous instances, completely modifying their investment strategy.
If you are a consumer who falls into this category, you may want to think about investing in gold. Gold has long been regarded as a secure option for holding cash, especially during times of inflation. An option that many people choose is to invest in gold through an individual retirement account (IRA). In the following section, we will explain two methods you can use to do so.
How to buy gold in an IRA
There are two methods available for including gold in your IRA.
1. Open a self-directed gold IRA
An individual retirement account, commonly known as a gold IRA or self-directed IRA, enables individuals to invest in specific precious metals, real estate, and other alternative assets, unlike other IRAs that do not provide such investment opportunities.
Before purchasing gold using one of these accounts, it is necessary to locate a custodian that has been authorized by the IRS to handle gold IRAs, such as a bank, brokerage, or other financial institution. Once you have found a custodian, you can proceed to open your account and fund it by either depositing cash or transferring funds from another eligible retirement plan.
According to the IRS, there are restrictions on the amount individuals can contribute to an IRA, whether it is self-directed or not. For the current year, individuals under 50 years old can contribute a maximum of $6,500, while those 50 and older can contribute up to $7,500.
After opening and funding your account, you must locate a precious metals dealer and select the gold bullion, bars, or coins you wish to buy. It is important to ensure that the chosen items adhere to the IRS criteria; otherwise, they would be regarded as “collectibles” and contravene the IRS regulations. Consequently, obtaining these items would be considered withdrawals, potentially resulting in a 10% penalty for individuals below the age of 59.5.
Once you have selected the approved metals you wish to purchase, you can instruct your custodian to make the purchase on your behalf. Subsequently, the acquired gold must be securely stored in an IRS-approved depository. It is important to note that purchasing the metals personally or keeping them at home is strictly prohibited by the IRS. Therefore, if you decide to establish a gold IRA, exercise caution when selecting your custodian as these accounts may pose a potential risk of fraudulent activities, as stated by the Securities and Exchange Commission.
2. Use your existing IRA to invest in gold securities
You can also invest in gold if you already have an existing IRA, such as a traditional or Roth one.
Although it is not possible to buy physical gold unless you have a self-directed IRA, you have the option to invest your IRA funds in alternative forms of gold, such as gold-focused mutual funds, gold futures, gold ETFs, or gold stocks. Additionally, it is also feasible to invest in gold mining companies.
Especially during challenging economic periods, opting for this approach can prove wise if you desire the diversity and secure haven that gold provides, while avoiding the inconvenience of physically buying gold or establishing a new account.
Are there any limitations on how I can hold physical gold?
In order to utilize an IRA for investing in gold, adherence to two IRS guidelines is necessary. Firstly, the gold you invest in must be IRS-approved, with the specific options on the approved list being subject to alteration. The IRS specifies that the gold should meet the criterion of being “highly refined bullion.”
This is typically how it appears.
- 99.5% pure gold
- Must be produced by a company that’s nationally accredited
- Must be in complete, original packaging
- Must include the certificate of authenticity
- Coins must be uncirculated and damage-free
- Bars must be manufactured to the exact weight
Second, you can’t hold the gold in your possession. Though you are its owner, the gold must be stored off-site in an IRS-approved depository. Your gold IRA custodian can help recommend a suitable depository for your investments.
When will the physical gold be in my possession?
In order to avoid any penalties, individuals must be at least 59.5 years old to make a withdrawal from a gold IRA. At this age, they have the option to either withdraw and possess their gold investments or convert these assets into cash by liquidating them.
If you decide to withdraw funds from your gold IRA prior to reaching the age of 59.5, you will incur a penalty of 10%.
What are the benefits of owning physical gold in an IRA?
Investing in gold can prove to be a prudent strategy for protecting and potentially increasing your wealth.
These are only a few advantages of possessing physical gold.
- Diversification: Putting all your investments in one basket can be risky. Investing some of your funds into gold is a nice way to diversify and reduce your portfolio’s overall risk.
- Protection from economic downturns: Having your funds in gold also helps reduce losses if the economy — and especially the stock market — takes a turn.
- A hedge against inflation: As the value of the dollar declines, so does your purchasing power. Gold can protect against this loss, as its value currently outpaces that of the U.S. dollar.
- Wealth growth: If you believe gold will grow in value, it could increase your long-term wealth. For reference, gold prices have climbed quite a bit over the past decade.
If you’re uncertain about whether owning physical gold is the most effective utilization of your funds, it is advisable to consult with your financial advisor or accountant. They can provide guidance tailored to your individual goals and financial situation.
How you can fund a gold IRA account to get started
In order to begin a gold IRA account, it is necessary to select a custodian. These are firms responsible for overseeing gold IRA accounts and providing reports to the IRS.
After you have created your account, you have the option to fund it using any of these three methods.
- Cash: Invest cash into your IRA by sending a check or wire payment to your custodian.
- Rollover: Withdraw funds from an existing retirement account and deposit them into your new IRA. You must do this within 60 days of withdrawing the funds to avoid penalties. To learn how to do this, check out our guide to initiating a gold IRA rollover.
- Transfer: Have the administrator on your current retirement account transfer all or a portion of your funds to your new IRA custodian. To learn how to do this, check out our guide to initiating a gold IRA transfer.
Keep in mind that the maximum yearly deposit for a self-directed gold IRA is $6,000, increasing to $7,000 for individuals aged 50 or above.
Investing in gold can be a wise strategy to safeguard the value of your money in the long run. However, it may not be suitable for everyone. If you are uncertain about whether gold investment, or any other form of investment, is appropriate for you, seeking guidance from a financial advisor or tax professional is advisable. They can assist you in making an informed choice aligning with your budget and objectives.