Should You Get a Gold IRA? Weighing the Pros and Cons

Investing in Gold: A Guide

Gold and other precious metals comprise an alternative asset class that is widely considered to be a “safe haven” during recessions, as well as a hedge against inflation. But how should you actually invest in gold, if you choose to do so?

What is a Gold IRA?

A gold IRA is technically a self-directed IRA, which is a type of IRA that lets you hold nontraditional retirement assets — like precious metals or real estate or cryptocurrency — in compliance with IRS regulations.

Types of Precious Metals That Can Be Held in a Gold IRA

You can hold other precious metals such as silver, platinum and palladium in your gold IRA. For this reason, you might sometimes see the terms “silver IRA” or “precious metals IRA” used. The latter is technically the most accurate description, but “gold IRA” is the term most commonly used to describe this type of investment vehicle.

Advantages of a Gold IRA

If you want to own gold for its investment potential, you might benefit by having your precious metals held inside of an IRA. Gold IRAs are a niche investment product best suited to sophisticated investors who are already familiar with buying and selling physical precious metals. Some of their benefits include the following.

Tax Benefits

As previously mentioned, a gold IRA gives you the same tax benefits as a regular IRA, with pre-tax contributions that can lower your taxable income, and no taxes due until you take withdrawals.

Portfolio Diversification

Precious metals investments, including those in gold IRAs, are often used to provide diversification in a portfolio. Keep in mind, however, that many financial advisors recommend having just a small percentage of your nest egg invested in precious metals, like 5-10%.

Protection Against Inflation and U.S. Dollar Weakening

Gold can play a valuable role in a portfolio by acting as a store of value, meaning that it will retain its value over time. Since it often moves inversely to the stock market, gold can mitigate losses during recessions and provide peace of mind during periods of market volatility.

Potential for Long-Term Growth in Your Retirement Savings

Precious metals are sought after because they have intrinsic value — although their prices can fluctuate, especially in the near term. If you plan to open a gold IRA, make sure your time horizon is sufficient to ride out these fluctuations.

Disadvantages of a Gold IRA

While holding physical gold in your retirement account might sound appealing, gold IRAs aren’t a good choice for every investor. There are some particular drawbacks that come with this type of account, and not being knowledgeable about these important details could result in making a potentially costly mistake with your nest egg. Some of the disadvantages are detailed below.

Fees

Gold IRAs have considerably higher expenses than conventional 401(k)s or IRAs. The gr…ome of their sales and marketing literature might imply, you should not rely on gold IRA companies for investment advice.

Custodian and Dealer Selection

Most gold IRA companies let you choose your account custodian — the trust company that handles the administration of your IRA — and depository institution, although some require you to use ones with which they have a relationship.

Risk Tolerance

While you could theoretically roll over the entire balance of your existing retirement account into a gold IRA, doing so would be extremely risky. A conventional retirement account holding stocks and bonds gives you the opportunity to be exposed to a variety of assets, which provides you with diversification, income-earning potential and liquidity (important for performing portfolio reallocations).

Amount You Will Invest

You can fund a precious metals IRA by rolling over money held in a 401(k), 403(b), 457, pension or Thrift Savings Plan account. If performed correctly, this transfer won’t trigger any tax liabilities or penalties. Consider your retirement income needs, time horizon and risk tolerance to determine how much to invest in a gold IRA.

Tax Implications

Like other types of tax-advantaged retirement accounts, gold IRAs have specific tax implications. Calculating your anticipated income in retirement will help you figure out what kind of account — traditional IRA versus Roth IRA — will perform better in terms of reducing your overall tax burden.

How to Open a Gold IRA

If you’ve conducted your due diligence and decided that a precious metals IRA will be a good fit for your retirement plan, then you just need to choose your provider, your funding source and your gold bars, coins or ingots.

Find a Gold IRA Company

Setting up a gold IRA starts with selecting a gold IRA company — essentially, a metals dealer that sells you gold or other precious metals. That company helps you open and fund your account, and connects you with an IRA custodian and a depository institution, both of which have to be IRS-approved. Money has a list of the best gold IRA companies.

Open the Gold IRA Account

The gold IRA company also will guide you through the process of establishing the account. Your best bet will be to have them initiate an institution-to-institution transfer of the money you plan to use to buy your gold and silver. If you conduct the rollover yourself, the IRS has very strict rules that can trigger significant penalties if you run afoul of them, even inadvertently.

Choose Which Precious Metals to Invest In

The gold IRA company will help you select what kinds of approved precious metals you can put in your account: IRA-eligible gold and silver are most common. Since one of the key features of a gold IRA is owning physical precious metals, you can choose gold bullion in the form of gold bars or rounds, as well as many varieties of gold coins and silver coins. Some gold IRA companies also offer IRA-approved platinum and palladium.

Gold IRA FAQ

Is gold a good investment? Gold has been sought after throughout history as a store of value. Today, it can be useful as a hedge against market volatility and high inflation. The best gold investment will depend very much on your personal finances, your retirement plan timeline and your risk tolerance. Investing in gold has both advantages and disadvantages.

More from Money:

Best Gold IRA Companies

What Is a Gold IRA?

How to Buy Gold

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