Before we get to the Gold, we’ll start with a quick primer of what an IRA (individual retirement account) actually is. We want to make sure that when you read about the details of a Gold IRA, you know the sorts of terms and rules we’re referring to.
An IRA is a tax-sheltered account that you can contribute to for your retirement. Because you do not have to pay the same taxes on funds you put into the IRA, you actually face stiff tax penalties for withdrawing from the account before you retire. And an IRA is transferable to other retirement accounts. That means if you already have an IRA, you can transfer it to a Gold IRA with no penalty.
What Makes a Gold IRA Different
In order to have actual, physical gold in your portfolio, you need to have a special, designated Gold IRA. But there are two important points to understand. The first point is that you do not possess the gold in your IRA. That means that any gold that you have in your home cannot be added to your Gold IRA. If you do this, and the IRS catches you, they will penalize you and shut down your Gold IRA account.
The second thing to know is that you don’t necessarily need a Gold IRA account to invest in the gold market. With a normal IRA you can use your funds to invest in a gold mining company, or buy stocks in a gold trading company. This allows you to diversify your portfolio away from tech stocks or real estate without the extra steps needed to actually set up a Gold IRA.
How a Gold IRA Functions
Like with any IRA, you will need a broker to assist you in your Gold IRA set up and maintenance. There are very strict laws regarding Gold IRAs and having a broker is not only helpful, but necessary.
Remember, you can transfer your existing IRA funds into a Gold IRA, so you won’t necessarily need to start from scratch.
The functions of the Gold IRA are largely operated by your broker, but like all IRAs, the broker will only act at your direction. Once you are set up, you make the call on what gold to buy and in what quantities.
After you’re set up, you can purchase gold in any of the approved forms: minted US coins; minted bars or ingots; certain coins minted by other countries that meet fineness requirements.
Anything termed a collectible is not allowed in your Gold IRA. That means that a special minting that was never in circulation is not an option, nor are any antique gold or silver wares that you may find.
Once you’ve purchased the gold, you work with your broker to have it transported from the seller to your safekeeping location. As we mentioned above, you cannot store your IRA gold in your residence. Most of the approved locations for storing your retirement metals are banks and gold depositories. Some brokers may have other storage options available to you.
If you ever come to physically possess the gold in your IRA, the IRS will count that as a withdrawal, similar to if you pulled cash out of your traditional IRA. In this case, though, not only will the IRS penalize you with taxes, they could also close out your entire Gold IRA.
After you’ve purchased and stored your gold or other precious metals, the Gold IRA operates much as the assets in any other IRA. Like with investments in a traditional retirement account, you can sell your metal assets at any time. If you pocket the profits, you must pay the tax penalty, or you can re-invest those profits and keep them tax-free in your IRA.
Despite the common name, these IRAs can hold any of the four approved precious metals: silver, gold, platinum, and palladium. All of them must meet purity standards.
Many people find that buying coins is preferable to bars or ingots. Coins are harder to forge than bars, and they’re much cheaper. It can be difficult to move tens of thousands of dollars at one time to purchase a 1 kilogram bar. On the flip side, many investors can move a few hundred dollars at a time until they can purchase a gold coin.
The second benefit to purchasing coins versus bars is transportation and storage. Purchasing a few coins at a time can be much cheaper to transport and store than several gold bars.
Lastly, finding a trusted broker is the key to success. We recommend researching Gold IRA brokers to make sure you’re going with a reputable company. Some operations claim to broker physical gold, but in reality only sell shares of gold holding companies. Speaking with your existing financial advisor or a banking professional can be a great place to start.