Can I Buy Gold in an IRA? Here’s How to Invest in This Precious Metal

Individual Retirement Account (IRA) is the nest egg you need to safeguard at all costs. Buying gold with your IRA would mean turning your investment into physical gold. Gold is a precious metal, which has been an investment instrument for a long time. You might be thinking “Can I buy gold in an IRA?” YES, you can! 

Did you know that the IRS specifically bars you from investing your IRA in collectibles? You can turn your IRA investment into Gold, but you must follow some strict conditions to not lose out on the tax-saving benefits.

Fluctuating Price of Gold

Throughout the years, gold prices have had their share of ups and downs from $255 per ounce in September 1999 to $1737 in March 2021, and there have been breathtaking highs such as $1937 in August 2020. All in all, gold holds a gradual growth with some slumps in between. 

Gold has an intrinsic value that cannot be ignored. Whatever the market condition might dictate, gold will always have some market value. It used to be impossible to invest your IRA in Gold, but the Taxpayer Relief Act of 1997 introduced the possibility of IRA investment in Gold and has become an integral part to investing and saving on taxes. 

How Gold IRAs Work

An economic downturn, like the Stock Market Crash of 2008, tends to drive people away from traditional stocks, bonds, and mutual funds because stocks can plummet at any moment due to negative press or brand news. The investors tend to move their money from stocks to more secure and stable physical assets, such as precious metals including coins and bars of gold. 

The paper assets and the gold market move in opposite directions. It makes perfect sense for an individual investor to pour some money in Gold as an attempt to maintain a diversified portfolio. If you put money in a gold IRA, your investment works as a shield against inflation and related risks. Diversification can help you stay afloat during any kind of economic emergency. 

The Taxpayer Relief Act clearly defines what kind of investment in gold will be protected by the tax relief feature. The Act says that a Gold IRA can be invested only in gold coins and Gold Bullion with at least 99.5% purity. Gold can neither be jewelry nor owned previously. 

At that point, the entire process of investing in a Gold IRA is quite complicated and cumbersome for an average gold investor to wrap his head around. 

The complex process includes finding a custodian for the IRA and IRS Approved Depository, and then buying the gold and transferring it to the approved depository in a way that the custodian could register and oversee it. There was no provision for physical ownership by the investor in any home or safe, and that reason is likely why the Gold IRA was not popular prior to 2008.

The 2008 market crash brought a monumental shift, however. More people tried to invest their money in the Gold IRAs to save their investment, but as popularity increased, several companies came forward to simplify the investment process. As a result of combined interest from buyers and sellers, the gold IRA investment witnessed rapid growth. 

The federal reserve’s stimulus packages kept coming in hence the possibility of imminent actual inflation fueled the growth of gold investing, where any precious metals investment works as a hedge against inflation.

Why Do You Need a Custodian?

The process of investing in Gold may be tiresome but it’s not complicated as one may think. You need to set up a Self-Directed IRA (SDIRA) first, and the IRA is usually managed by a custodian whereas the individual investor does not have any investment authority over it. An SDIRA gives the investor freedom of managing his or her own investment, and access to a range of extra investment instruments that are not available to general IRAs. For a smooth and hassle-free investment process, you must involve a broker and a custodian. 

When you buy a gold coin or bullion, a broker can help with the process while the custodian can store it away for safekeeping. Custodians are generally banks, trusts, other financial corporations, or even brokerage firms that have the required permit that provides physical asset custody service authorized by state and federal agencies. You can choose your custodian and gold broker separately and work with them. Custodians tend to have tie-ups among themselves, which they can share with you if requested. It’s advisable to do your due diligence and research in advance before you commit to a custodian. 

A Good Custodian Must Have Gold IRA Investment Expenses
  • No Hidden Charges And Conditions
  • Markup/Spread
  • Reputation
  • IRA Account Setup Fee
  • Customized Approach
  • Custodian Fee
  • Eligibility
  • Storage & Selling Fee

Guidelines to Choose a Custodian

There are certain guidelines you should follow to properly choose your custodian to avoid any unnecessary hassle in the foreseeable future:

No Hidden Charges and Conditions

There should be complete and irrevocable trust between you and the company. Before you cut a deal with the custodian, they should inform you of all charges. It’s your responsibility to clearly ask about all the fees applicable and if possible, get it in writing so there are no extra charges other than those mentioned to you. There shouldn’t be any other hidden conditions that can later spark a dispute. 

Reputation

The company should have an excellent track record with its customers, which should be verifiable from third parties like BBB (Better Business Bureau). Look for company reviews and complaints on verified platforms to get an idea about what you are getting yourself into. Scan the company’s approach towards their potential customers. If they tend to sell and push their products aggressively, you should leave them for a company that opts for an educational approach towards their customers. 

Customized Approach

Look for companies that offer you plenty of customized solutions, based on what works for you. Instead of providing an average or substandard service to all their customers, they should be more focused on you.

Eligibility

Before nodding to any financial transaction, always check whether the companies have the necessary certifications and authorizations to carry out the tasks in question. They should have the necessary licenses, bonds, and insurance to protect your investment. Ask them to verify their necessary documents before you could commit to the deal.

Gold IRA Investment Expenses

There are several costs and fees that come with an investment in Gold IRA. You should be fully aware of these expenses before you decide to invest in Gold. 

Markup/Spread

Although Gold has a market rate, companies charge a markup on the rate. The markup rate differs from company to company and depends on what kind of gold you are purchasing. This is the declared profit of the companies from each sale. Even when an individual investor wants to sell, there are certain prerequisites for each kind of gold such as Bullion bars, gold bars, bullion coins, and more.

IRA Account Setup Fee

This is applicable when you are first setting up your IRA account. Not every company picks Gold IRA as an option, and this setup fee can vary for each company. The setup fee is a fixed, one-time fee.

Custodian Fee

This is an annual fee charged by the custodian for the safekeeping of your gold investment. It can be high if the company is different from the one in which you keep all other investments and can be accompanied by other transaction fees as well.

Storage Fee

The gold is stored in a secure and qualified facility such as a locker, but safekeeping comes with a storage fee.

Selling Fee

If you choose to cash out at any point, the company will offer you a reduced price of gold of the current market price. This is the cash out fee that may bite into your investment in case you did not increase your investment significantly by the time you are withdrawing.

All the above expenses are mostly associated with a precious metal investment. Before you invest in a Gold IRA, take a closer look at all these costs to make sure you are making a wise decision. These costs can significantly harm the value of your investment if you try to withdraw too soon without any significant growth in gold prices.

Checkbook IRA

This is a rare investment opportunity, and its benefits are always scrutinized by the IRS. A checkbook IRA can only be opened by a limited liability company (LLC) with a business checking account. It is also an SDIRA (self-directed IRA), which can bypass the requirement of a custodian and all the associated costs including the storage fee.

This is the only IRA that allows you to purchase treasury-minted American Eagle bullion coins with your retirement fund and hold the coin investments personally without the requirement of a custodian and all the associated costs. An investment in this IRS-approved coin allows you to enjoy the tax code exception with the checkbook IRA account., but you need to invest cautiously as you could be at risk of getting in trouble with the IRS.

Rolled Gold IRA

In most cases, you can set up a new IRA account with the gold investment in mind and start with an SDIRA, which is equipped for gold investment. If you already have an IRA or 401(k) account, you can rollover all or some part of it towards a gold IRA. The process is quite easy, all you have to do is fill out an application and the gold IRA account will be prepared within 48 hours. 

Next, you sign a transfer request which becomes available to all the custodians. The custodians then initiate the transfer amongst themselves. When funds are finalized in the new Gold IRA, a custodian representative calls the investor to zero in on the purchase type preferred by the investor, following the fixed amount of money.

Gold-Specific Risks

Gold carries a certain level of market volatility and like any other type of investment, there will be ups and downs in gold prices. Like the stock market, no one can exactly predict the gold price in the future. But unlike stocks, shares, and exchange-traded funds, gold has an intrinsic value. A mutual fund investment or a share’s market value can sometimes be zero (like what happened during the 2008 market crash), but the value of gold will never be zero and is supported by history. 

If your portfolio is well diversified between shares, bonds, and gold, you will have reasonable security against economic mishaps. When paper assets are in trouble, your gold investment will most likely increase to insure you against any heavy loss. This provides a finite level of security to your investment making gold IRAs a preferred choice in most cases.

Conclusion

When it comes to investing in an IRA, everyone has their personal investment choices and types. Your chosen investments have a direct correlation with the total value of your IRA. If you already made up your mind that you want to opt for a precious metal investment, Gold IRA can be a good choice. 

We hope the above article gave you more clarity to go ahead with buying gold in an IRA. Before you commit to investing in a Gold IRA, you should do your due diligence and conduct research. If you aren’t fully aware of its know-how, you should consult a trusted financial advisor for any kind of investment on retirement plans.