Gold IRAs come in different forms, just like traditional investment accounts. Investors can choose between:
- Traditional Gold IRAs: These are retirement accounts that are funded with pre-tax dollars. This means that contributions and any winnings increase tax-deferred. Withdrawals are taxable in retirement.
- Gold Roth IRAs: Contributions made to a Roth Gold IRA are funded with after-tax money, which means there are no immediate tax advantages. You’ll pay taxes when it’s time to start receiving distributions in retirement.
- September Gold IRA: Like traditional SEP IRAs, gold SEP IRAs are available to small business employees or self-employed individuals. You are only taxed on retirement withdrawals, not contributions you make. The IRS limits contributions to a SEP IRA of any kind. This means that individuals can contribute up to 25% of compensation or $66,000 for 2023 ($69,000 for 2024), whichever is less.
Risks of Gold IRAs
- Is holding gold a good idea for an IRA? For most of recent history, the answer has been no. Gold must be stored and does not pay dividends or generate income. It is used in industry and jewellery, but most yellow metal is generally found in bank vaults and safes. People believe that it is a reliable guardian of valuables under challenging times.
- Gold soared in the early 1980s, then remained in the $300 to $500 per ounce range until about 2006. Gold peaked at over $1,800 an ounce after the 2008 financial crisis before falling back into the $1,100 to $1,300 range. It hit an all-time high of over $2,000 in the summer of 2020, at the height of the coronavirus pandemic, but fell below $2,000 as the economy recovered. In November 2023, the price of gold remained bullish, surpassing $2,000 an ounce.
- It’s easy to see that gold performs well during financial uncertainty, significantly when the broader stock market experiences increased volatility. However, despite its ups and downs, it is considered a viable investment opportunity.
- When gold was trading sideways (at least from 1980 to 2006), the IRA would have made more money if it had been invested in gold and the stock market in general. While gold hasn’t moved much during this period, the S&P 500 would have returned an average annual return of 14.49%.
- This doesn’t mean that precious metals don’t have a place in your portfolio, although they should. But if history is any guide, gold has a long way to go to match the returns of the broader economy, as measured by markets in general.
Individual retirement accounts are tax-advantaged accounts that help people save for retirement. They come in various forms, including traditional IRAs, Roth IRAs, and gold IRAs. As mentioned above, a gold IRA allows investors to store their money in gold or other precious metals. These accounts should be kept separate from regular IRAs.
A gold IRA is also called a precious metals IRA. They can be created with pre-tax funds or as a Roth IRA, purchased with after-tax money. Unlike other IRAs, these accounts require buying and storing physical gold. As a result, gold IRAs require a custodian (usually a bank or brokerage firm) to manage the account.
Traditional IRAs allow investors to only own stocks, mutual funds, or other traditional investments. The Internal Revenue Service (IRS) allows IRA account holders to purchase bullion and coins minted in gold or other approved precious metals, such as silver, platinum, or palladium.