Should You Get a Gold IRA?

There are many ways to invest funds in an IRA. Generally, these are invested in stocks, bonds, mutual bonds, and annuities. However, since the 1990s, it has been possible to invest gold in certain IRA accounts.

Despite this, people are still not familiar with gold IRA accounts and how they function.

Like a traditional IRA, a gold IRA is funded through contributions and managed by an IRS-approved custodian. There are traditional and Roth account options, which determine taxation and benefits. Gold IRA funds can be invested in precious metal coins and bullions, such as gold.

When it comes down to investing in gold, doing this through an IRA is one of the most popular benefits. That is due to the unique benefits this type of retirement fund offers account holders.

In this article, we’ll explain what a gold IRA is and how it works. This will highlight why this type of IRA is a popular choice for those looking to diversify their investment portfolio.

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What is a Gold IRA?

With traditional IRA accounts, there are limitations on the assets that can be used to fund the account. Of course, a traditional IRA is typically funded through contributions.

However, these funds can then be invested within the account. Typically, this is done through stocks, bonds, and annuities.

However, with a gold IRA, you can invest in your retirement fund with gold and other precious metals. As the name suggests, gold IRA account holders will be able to own these precious metals instead of the more traditional assets discussed above.

For the most part, the price of gold has seen steady and significant growth over the years. For example, in November 2001, the price of gold was around $426 per ounce.

Ten years down the line, and one ounce of gold is now worth about $1800.

Despite brief periods where the value of gold has dropped, the rate has primarily been increasing since the turn of the century. This is just one of the reasons why gold IRA accounts appeal to those investors looking to diversify their portfolios.

It’s important to note that not all IRAs will allow account holders to invest in gold. However, if you’re considering a gold IRA, it’s essential to understand exactly how it functions.

This will help you decide whether this type of portfolio diversification is the right financial move for your future!

How Does A Gold IRA Work?

As mentioned above, a gold IRA is a retirement account that can be used to invest in various precious metals. For instance, the account holder will be allowed to invest by purchasing gold, platinum, and silver.

These precious metals will be in the form of coins or bullion. However, it is also possible to invest with gold ETFs.

Despite this means of investment, the account functions very similarly to a regular IRA. Like other IRA accounts that invest in usual assets, there are two main types of gold IRA accounts.

There are traditional and Roth variants, which will determine how your account is taxed and how you benefit from this.

Regardless of the type of gold IRA you choose, you’ll only be able to invest through the above-mentioned coins and bullion. However, before you’re able to do this, you will need to fund your IRA account.

As is the case with regular IRAs, you’ll be able to do this through contributions. However, contribution limits will still apply to a gold IRA based on your income and filing status.

However, by completing a Transfer Request Form, account holders will also be able to fund a gold IRA through an IRA-to-IRA transfer. This will allow those with existing IRAs to invest in gold – even if their current retirement account does not support this type of investment.

Another way in which a gold IRA and a regular IRA are similar is how they are managed. Of course, you will need an IRS-approved custodian to manage your gold IRA. 

This means that your custodian will manage aspects like paperwork and tax reporting for your investments. In terms of account fees, gold IRA accounts have higher fees than those who trade in usual assets.

Like the limits to contribution limits, similar regulations will apply to withdrawal rules. Generally, penalty and tax liabilities will apply when funds are withdrawn from the account before the holder reaches the stipulated age of retirement.

Once the account holder reaches 70, they will need to begin receiving calculated distributions.

How your withdrawals are taxed, however, will depend on your type of gold IRA. Like any IRA, this type of account is also tax-advantaged. However, the manner in which you benefit from investing in gold will also depend on the type of gold IRA you open.

What Are The Tax Benefits of a Gold IRA?

Before we consider the tax benefits of a gold IRA – regardless of your account type – it’s crucial to consider how the IRS classifies gold. When you invest in gold personally, it is classified as collectibles by the Internal Revenue Service.

This means precious metals that were personally invested in are subject to short-term capital gains tax. However, long-term capital gains tax does not apply to privately buying gold.

Instead, those gains will be taxed the same way as regular income. However, this means that gold investors risk a massive tax hit, with a collectible tax rate of up to 28%.

Instead, many prefer to invest gold through an IRA due to the unique tax benefits. When you invest in gold through an IRA, you may not be in possession of the assets.

Throughout the investment period, your precious metals will remain at an approved intermediary location. Once you eventually retire, you will be able to take possession of these.

With a traditional gold IRA, payment of taxes will be deferred until you begin withdrawing from the retirement fund. However, contributions within the annual limit will be tax-deductible.

Due to the IRS’s classification of gold, your investments will be taxed as income, with a relatively marginal rate. This allows account holders to avoid the aforementioned collectible tax rate.

For those anticipating higher tax brackets once they retire, there are always Roth IRAs. With a Roth gold IRA, account holders will be able to invest in certain precious metals using contributions that have already been taxed.

This means that, once the account holder retires, any interest earned will be tax-free. However, as tax is paid on contributions, these will not be tax-deductible.

Whether you choose a traditional gold IRA or a Roth gold IRA, your retirement account will offer you tax advantages. The type of account you choose ultimately depends on your financial needs.

However, this is ultimately the best way to invest in gold and avoid a hit from the collectibles tax.

Should You Get a Gold IRA?

While gold IRA accounts have been around for more than a decade, many people are still unfamiliar with this financial product. In terms of investing in gold, however, this is a method that is preferred by investors.

This is primarily due to the tax benefits provided by a gold IRA, which functions much like an ordinary IRA.

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