Gold is known to be an inflation-resistant tangible investment that continues to appreciate during periods of political turmoil or stock market crashes. Apart from the consideration of the potential economic crisis, many investors are also willing to diversify their asset allocation by investing in gold.
If you want to buy gold in an Individual Retirement Account (IRA), then you cannot use a regular IRA account, but have to open a separate gold IRA account, also known as a precious metal IRA (precious metal IRA).
A Gold IRA works in much the same way as a regular IRA account, subject to the same contribution limits and distribution rules, except that investing in gold, you invest in tangible assets (coins, bars) rather than a paper asset. Alternatively, invest in precious metals such as silver, platinum, and palladium.
Advantages of a Gold IRA
• Tax Benefits: Gold IRAs offer some of the same special tax treatment as standard IRAs (contributions are tax-deductible) and Roth IRAs are tax-free.
• Long-term Holding: Physical gold is not very liquid, but neither is IRA. Given that it’s a long-term, buy-and-hold investment, gold is a great fit for an IRA, whose assets are typically not touched for decades until retirement.
• Better Management: Gold IRAs are always self-managed, which means you manage your holdings and make all investment decisions directly.
Risks of a Gold IRA
• No Tax Benefit on Income: Bullion does not pay interest, dividends, or other returns. So it doesn’t take advantage of the tax-free growth aspect of IRA investments. You can only get a breakout from any capital gain from selling gold at a profit.
• Higher Fees: You cannot keep your gold in a safe at home or in a bank. Instead, you have to pay a custodian for storage and insurance. Plus, there is a fee to buy, mail, and ship your precious metal purchases. Gold IRA custody fees also tend to be higher than regular IRA administration fees.
• Funding Restrictions: If you have an investment in precious metals, you cannot transfer into a gold IRA. Individuals are also not allowed to buy precious metals and deposit them into a gold IRA, and the custodian must handle all transactions on your behalf.
In today’s uncertain world, it can be said to be an “anti-inflation artifact”, and gold IRAs are even more conservative investments.