Gold IRA: How It Works

Key takeaways

• A gold IRA is a retirement account that allows you to hold gold or other precious metals as part of the retirement investment.
• Gold and other precious metals must meet IRS-prescribed purity requirements to be eligible for placement into the fund.
• You can experience both the tax benefits of a traditional/Roth IRA and the hedging, diversification, and inflation defense that precious metals provide.
• You can set up a gold IRA through an IRS-approved custodian.

What is a Gold IRA?

A gold IRA is an individual retirement account (IRA) that allows the placement of gold and other precious metals as part of the overall investment.

Gold IRAs are largely the same as standard IRAs, but have several differences. Some of them, like the diversification they provide, are quite positive. Others, like the increased fees, are less favorable.

Understanding Gold IRAs

Whatever type of IRA you choose, they function the same way. You place money into the account and use the money to invest in different financial vehicles.

Now, the IRS limits the total amount of contributions that you can place into an IRA each year. For 2024, the limit is $7,000 for those under 50. Investors over 50 may commit as much as $8,000 to their accounts.

An IRS-approved custodian typically manages standard IRAs and are not managed by the investor himself or herself. The custodian is capable of investing on your behalf, but is limited as to the types of vehicles that he/she can use in the account.

Because precious metals fall outside those limitations, a gold IRA is what’s known as a self-directed IRA by default. Even though gold IRA holders still need a custodian to administer the account, the task of investing and the choice of investments rests entirely with the investor.

Because the administration of the account involves storing and safeguarding the gold and other precious metals, you expect higher fees with a gold IRA versus a standard IRA. Simply put, there is an added cost to the custodian for proper security of the holdings.

How to Set Up a Gold IRA

If you want to start a gold IRA, the first step is to contact an IRS-approved custodian that handles gold IRAs. Several companies specialize in this sort of thing, so do your research diligently and go with a company with a sterling reputation.

You’ll need to fund the account once you’ve engaged your chosen custodian. Depending on the type of IRA you choose, you can use pre-tax or after-tax dollars to fund.

Then, choose the gold you want to buy and make the purchase. Bear in mind, though, that you’ll have to pick items that meet purity requirements.

Gold must be 99.5% pure or higher unless you buy American gold Eagles (which are 91.67% pure). Other precious metals have even higher requirements.

After you purchase the precious metals, store them with your custodian. Then, you hope the investment appreciates.

You cannot freely withdraw the proceeds from your account before age 59 and a 1/2, or six months before your 60th birthday. Before then, any withdrawals are subject to an additional 10% tax.

After you turn 73, you must receive monthly IRA distributions. The size of these contributions is calculated by dividing your account balance by a life expectancy factor. Each year, the remaining balance is divided by a new factor, as prescribed by the IRS.

IRA Eligible Gold Products

JM Bullion offers a full suite of gold products that meet the eligibility requirements for placement in a gold IRA. You can take a look at our gold IRA page if you want to see the whole slate, but here are some of the most popular gold products that are IRA-eligible.

IRA Approved Gold Coins

IRA Approved Gold Bars

Types of Gold IRAs

As mentioned, gold IRAs share many characteristics with standard IRAs. So, unsurprisingly, the types of gold IRAs are the same types of standard IRAs available to the public. They are:

• Traditional – The IRA is funded using pre-tax dollars and defers any taxes you might have to pay on that money until you begin withdrawing it at retirement. At that point, you’ll owe taxes on the money you’ve invested and any profits you’ve realized on top. The nice thing about traditional IRAs is that you can claim a tax deduction on your contributions each year that you make them.
• Roth – A Roth IRA receives contributions on income after it has been taxed, so there’s no way for you to claim any tax deduction on those funds. However, once you reach the age where you can withdraw your money, you are not bound to pay any taxes – including, amazingly, capital gains taxes.
• SEP – A Simplified Employee Pension IRA, or SEP, is a third type of IRA set aside for small business owners and other self-employed individuals. This kind of IRA is a form of traditional IRA, so all contributions occur prior to taxation. However, the primary advantage is the contribution limit on SEP IRAs – you can contribute up to 25% of your income to a $70,000 maximum.

Benefits and Risks of Gold IRAs

Generally speaking, investing in an IRA is a good financial decision. Socking away money for a period of life where you won’t be as able or willing to work is a smart choice. However, like all things, there are upsides and downsides of investing in one – and for gold IRAs in particular, there are some added considerations you have to know.

Benefits

Needless to say, the tax benefits on any type of IRA are one of their selling points. You can either use them to reduce your taxable income for many years, or you can legally evade capital gains taxes and other taxes on the back end.

IRAs may also offer some investment options that you cannot use with a 401(k). In addition, standard IRAs may have lower fees than 401(k)s, and it’s even possible you can find a gold IRA with lighter fees.

With respect to gold IRAs, you gain the benefits of owning gold, too. Because the value of gold tends to vary inversely with both inflation and the economy, it can grant your IRA some of the same hedging benefits. In some cases, it can even add another revenue stream to your investment.

Risks

There are some downsides associated with IRAs, of course, including one that is specific to gold.

The biggest problem with traditional and Roth IRAs is the contribution limit. Even if you max out your contributions every year, you probably won’t have enough to retire completely on the account balance alone.

Another issue is that early withdrawal penalty. If you withdraw from your account before you turn 59 and six months, you’ll be subject to a 10% tax on your withdrawal – on top of any income taxes you might pay in addition.

Finally, bear in mind that you might miss out on more lucrative (though riskier) options when you buy gold for an IRA. If you plan on seeing significant gains with your IRA, gold is not that – it’s a way to inject safety and stability against some of the riskier investment vehicles.

Final Thoughts

A gold IRA is an excellent investment, but it is not for everyone. Placing gold in your IRA has much of the same effect as buying gold for the rest of your investments—it adds diversification against economic downturns and the declines that other investments may experience.

If you decide you want to invest in a gold IRA, you will need to find an IRS-approved custodian who specializes in precious metals IRAs. You will also need to confine your investments to gold products that are 99.5% pure or greater, unless you choose to invest in American Gold Eagles.

Once you have a custodian in place, we can help you with your purchase of IRA-eligible gold. Reach out to one of our trained counselors via live chat or phone. The live chat function is accessible at the bottom right portion of this page and is available 24 hours a day.

Our counselors are manning the phones between 8 AM and 6 PM CST, Monday through Friday. Call us at 1-800-276-6508, and we’ll get things moving.