Gold Backed IRAs are a Good Retirement Investment Strategy for Specific Goals
Deciding whether or not to rollover an existing IRA into a gold backed IRA is no small decision and requires weighing specific individual goals.
A gold IRA is a good retirement investment decision based on the following criteria:
- Your individual gold investing goals vs. your short and long-term needs
- Weighing the tax advantages vs. fees associated with a gold IRA
- How much you are willing to allocate,
What is a gold or precious metals IRA?
A gold IRA is a self-directed individual retirement account that invests in actual tangible, physical assets such as gold and other precious metals. Gold or precious metals IRAs serve as a layer of protection from inflation, stock market volatility, and economic instability
These gold-backed Individual Retirement Accounts offer more flexibility and control to the investor than a traditional IRA that invests solely in mutual funds, stocks, bonds, and other paper assets that are more prone to manipulation and panic induced market fluctuations.
1. Your individual gold investing goals vs. your short and long-term needs
The right gold IRA for the right goal
If your investment strategy is portfolio diversification, risk and loss mitigation, and overall preparation, a traditional gold IRA would be appropriate. This strategy involves holding gold or precious metals as a hedge against losses elsewhere, whether depreciation within the stocks, bonds, or paper assets holdings or overall inflation. This is a long-term strategy.
A traditional gold IRA would NOT be suitable for:
- A ‘shiny object’ driven, short term investor looking to move in and out of metals or for quick returns.
- Day-to-day expenses that are paid with distributions. If this is your goal, a Roth Gold IRA would be a better option than a traditional gold IRA.
- People who only want to store their IRA-invested metals at home. Home storage of IRA precious metals assets is not permitted due to IRS standards and regulations. However, gold IRA companies such as Birch Gold Group, Noble Gold Investments, and American Hartford provide investment products specifically for that purpose. See our list of gold IRA company reviews to learn more. Read here.
2. Weighing the tax advantages vs. fees associated with a gold IRA
To start, if you are considering investing in gold and precious metals, you are already gaining a tremendous tax advantage, a protection of your wealth from the relentless invisible tax called inflation. This is an instant win right out of the gate.
As you can see from the 50-year gold value chart above, the consistent, upward trend and appreciation of gold over time. If you simply flipped this chart on it's head, what you would essentially see illustrated is the downward trend and depreciation of the dollar over time.
With any investment vehicle, there are tax advantages and tradeoffs. It is completely dependent on one’s goals, short and long-term goals.
A gold IRA often comes with additional fees when compared to a traditional or Roth IRA that invests solely in stocks, bonds, and mutual funds. Because you are storing and securing actual tangible, physical assets, there are custodian and storage fees associated with a gold IRA. Once again, IRS regulations strictly prohibit precious metals invested within a gold IRA to be stored at home, but within a secured and approved depository.
Gold IRATax Advantages:
For rollovers into a traditional gold IRA, this account functions as a tax-deferred retirement savings account and works like pre-tax traditional IRAs. Your contributions and any gains will not be taxed and, in most cases, contributions are tax-deductible as well.
With IRA rollovers, the existing IRA custodian will give the account holder the money they wish to withdraw. The account holder then has 60 days to deposit the funds into your new gold IRA account. If this deadline is not met, there is a 10% penalty on the withdrawal if you're under 59 1/2 years of age.
As we discussed previously, your individual investment goals greatly determine which IRA is appropriate. A basic summary of the two options we discussed earlier explains the variance in terms of the tax structure.
Traditional Gold IRA
Traditional gold IRAs are tax-deferred, so any gains or contributions aren’t going to be taxed. Bear in mind, this IRA has an annual limit. For people under 50 the limit is $6,500. For people over 50, $7,500. As discussed before, all taxes must be paid once distributions begin. Hence, this type of gold IRA is better suited for long-term holding.
Roth Gold IRA
In contrast, Roth gold IRAs do not provide tax reductions upfront as with a rollover to a traditional gold IRA, but with Roth gold IRAs, no taxes are due once distributions begin during your retirement. Therefore, this is more suitable to for short-term holding.
3. How much are you willing to allocate?
What percentage of your portfolio should you hold in gold will depend greatly on your present net worth, portfolio size, and present earnings. Standard diversification is in the range of 5-10%, a high inflation allocation approach would be 10-20%, and record inflation hedging is 20% and as high as 25%.
As in many cases with nearly every gold IRA rollover, the greater the minimum initial investment, the greater the access to better pricing. Review our list of the best gold IRA companies to decide which company best fits your individual situation. Read here.
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Gold IRA FAQs
Author, lifelong investor, and creator of PreciousMetalsInvestmentPortfolio.com