Investing in a gold individual retirement account (IRA) essentially means converting a portion of your retirement savings into gold. However, it’s crucial to determine whether a gold IRA fits into your investment strategy. Not every IRA account permits gold investments. Gold ira rollover guide aims to clarify the criteria you should consider in your IRA to ascertain if it supports building a retirement fund backed by gold.

Gold IRAs: The Rising Popularity

Gold IRAs are increasingly favored by investors seeking a varied retirement portfolio. “Gold prices typically move inversely to paper assets. Therefore, incorporating a gold IRA into a retirement plan acts as a hedge against inflation,” explains Moy. He suggests that this approach balances risks, particularly beneficial for long-term retirement planning like IRAs.

Moy, during his time as the director of the Mint, noticed that gold IRAs weren’t widely sought after due to their complexity, appealing only to the most determined investors. “It requires selecting a trustee or custodian for the IRA and finding an approved depository. Additionally, you must purchase the authorized gold or other precious metals and ensure it’s delivered to the depository in a trackable manner,” he states.

However, the popularity of gold IRAs surged post the 2007-2008 financial crisis and the subsequent Great Recession. A spike in gold sales, coupled with the emergence of numerous companies simplifying these transactions, has transformed gold IRA investments into a more straightforward process, leading to significant growth in gold IRA investments.

The interest in gold IRAs has also been fueled by global economic factors. “The growing appeal of gold IRAs continues, driven by the potential inflationary effects of the Federal Reserve’s stimulus measures and a marked increase in global geopolitical risks,

Key Principles of Gold IRAs

“Gold IRAs come in both traditional and Roth formats,” explains Daniel Sentell, formerly the director of communications at Broad Financial, a financial services firm based in Monsey, New York, offering these accounts. Regardless of the type, a gold IRA invests solely in tangible gold, whether in coin or bullion form.

Brett Gottlieb, a financial advisor and the founder of Comprehensive Advisor in Carlsbad, California, advises first deciding if you prefer a physical gold asset in your portfolio, as opposed to stocks of gold companies, gold mutual funds, or gold index-tracking exchange-traded funds (ETFs).

Should you choose physical gold, specific requirements must be met for it to qualify for inclusion in an IRA. “The gold coins or bars must adhere to IRS purity standards and must be held by the IRA trustee, not the owner of the IRA,” states Moy. Furthermore, “this gold must be stored in a facility approved by the IRS.”

This means that storing the gold in home safes, safe deposit boxes, or closets is not permitted. Moy adds that “all standard rules related to IRA contributions, distributions, and taxation still apply.”

Selecting a Broker or Custodian for Gold IRA

To invest IRA funds in gold, setting up a self-directed IRA is necessary. This IRA type is directly managed by the investor and can include a broader variety of investment options than typical IRAs.

For a gold IRA, acquiring a broker to purchase gold and a custodian to set up and manage the account is essential. “The custodian will be responsible for safeguarding your physical gold,” explains John Johnson, president of GoldStar Trust in Canyon, Texas.

Custodians are often financial institutions like banks, trust companies, credit unions, brokerage firms, or savings and loan associations, authorized by federal and/or state bodies to offer asset custody services to individuals and advisors. They don’t choose metal dealers for their clients; this is the investor’s duty. That said, experienced custodians may have connections with numerous dealers nationwide and might share this network.

Sometimes, the recommendation can come from the dealer. “Metal dealers might suggest an IRA custodian,” Johnson notes, “but consumers are always at liberty to find custodians themselves.”

Picking the right company is a complex decision, as it’s a niche service not commonly provided by major brokerages, Moy points out. He emphasizes several key factors:

• Transparency: Look for upfront cost disclosure to avoid unexpected fees later on.
• Reputation: Seek a company with a strong track record, as evidenced by ratings from independent bodies like the Better Business Bureau or the Business Consumer Alliance. Assess customer feedback and complaint histories.
• Flexibility: Choose a company that adapts to your specific investment needs and goals.
• Credentials: Ensure the company holds all necessary licenses, registrations, insurance, and bonds to safeguard your investment. Request proof of these credentials.

Pros and Cons of Gold IRAs

Pros

• Investing in a gold IRA shares many benefits with direct gold investments. Gold is commonly used to protect against inflation, offering a safeguard in uncertain market conditions. Unlike individual stocks or bonds, which can potentially drop to zero value, gold’s price never falls to zero.
• Gold IRAs offer similar tax benefits to standard IRAs, where the growth is tax-deferred until retirement. However, early withdrawals before age 59½ can incur penalties.

Cons

• Compared to other IRA types, gold IRAs incur higher maintenance costs due to the intrinsic expenses of gold investment. These include brokerage and account setup fees, as well as additional charges for storing and insuring the gold. Investors might also face markups on sales and extra fees when closing the account.
• Gold is notably illiquid, meaning selling large quantities quickly or without a price reduction can be challenging. Its price can also fluctuate significantly in a short period. This volatility becomes a concern for IRA owners mandated to start distributions at age 73, as they might be compelled to sell their gold holdings at less than optimal prices.

Challenges with Required Minimum Distributions (RMD) in Gold IRAs

The timeline for starting required minimum distributions (RMDs) from a traditional gold IRA is determined by your age or birth year. The commencement date for your RMDs is April 1 of the year following the year you reach:

• Age 73, for those who reached this age after January 1, 2023.
• Age 72, for those who reached this age between January 1, 2020, and December 31, 2022.
• Age 70½, for those who reached this age before December 31, 2019.

Given that metals are not easily liquidated, securing the necessary funds for these RMDs can pose a challenge. This might necessitate selling some of your gold holdings at a less than ideal time. However, this issue can be mitigated by withdrawing the total amount of your RMDs from other traditional IRAs.