Investing in a gold IRA or retirement account can provide many benefits, including growth, a hedge against inflation, and the opportunity to own a tangible asset that can rise in value due to its scarcity. You can get all of these benefits while also taking advantage of the tax-related IRA perks.
But even so, not everyone is a good candidate for a gold IRA or retirement account. So, you should consider all of the potential advantages and drawbacks of a gold IRA, as well as making gold a key part of your retirement plan.
Who Should Consider a Gold IRA and/or Retirement Account?
Investors consider many of the same items when investing in a gold IRA and other types of accounts. For instance, you need to ensure that your investment portfolio matches your objectives, as well as your tolerance for risk and your time frame until retirement.
There are some investors who feel that gold is not a good retirement investment because it does not pay any interest or dividends – and it can cost money to store and protect.
For example, Warren Buffett, the man who is considered the world’s greatest investor, states that gold has no utility, so in turn, it is not a viable investment option.
But, there are many investors who feel that the United States dollar is losing purchasing power. So, gold can provide a store of value for investors during times of crisis. In fact, there is a growing concern that the U.S. dollar will be devalued by inflation and debt.
Investing in physical gold provides you with a tangible asset – one that won’t likely lose 100% of its value. This is not the case with stocks or mutual funds.
Consider how much value the stock market lost during the recession of 2008, and during the 2020 COVID-19 pandemic (and corresponding stock market tumble).
During these times, equity investors watched the stock market fall by 3- or 4-figures within one trading day. They also watched a large percentage of their hard-earned retirement savings disappear.
Given this, you should ask yourself several questions to help decipher whether opening a gold IRA is right for you:
- Will an alternative asset class like gold and precious metals fit in with your financial plan?
- Can attain the proper type and amount of diversification that you need in your portfolio by including a gold IRA?
- If gold is right for you, how much of your overall portfolio should be allocated to this particular investment class?
- Can you offset the costs that are associated with investing in a gold IRA with the potential returns?
- If physical gold is not in your best interest, would another gold-related option – such as a mutual fund or exchange traded fund – be a better fit for you?
- Are you comfortable making key investment decisions in a self-directed IRA account?
While you should not fill your entire portfolio with just one type of asset, investing in gold can help you to diversify. Therefore, just like many other investments, you should consider all of the advantages and possible drawbacks to owning a gold or precious metals account. Some important advantages to consider include:
- Tax Benefits – You can get tax-related benefits with any type of IRA account – including a gold IRA account. For example, a traditional IRA can offer pre-tax contributions and tax-deferred growth in the account. This means that you can generate a return on the contributions, as well as on the previous gains, and on the funds that would otherwise have been taken in taxes. Roth IRAs can offer you tax-free growth, as well as tax-free withdrawals. This can be comforting because no one knows what income tax rates will be in the future, but it is much more likely that they will go up as versus going down.
- Control of Your Investment Choices – Considering the IRS rules on self-directed IRA accounts, you can attain a great deal of control over what you can invest in when you use a self-directed IRA. Plus, if you purchase gold during a price dip, you stand to attain a nice positive return.
- Diversification – When you include gold and/or other types of precious metals in your IRA, you can achieve much broader diversification than if you only buy different types of mutual funds or stocks.
- Protection – Gold has served as a store of value and a unit of exchange since the dawn of civilization. Because of that, its ability to withstand the test of time can make gold a proven safe haven for investors. Also, gold’s negative correlation to stocks, bonds, and the U.S. dollar make it a good option for reducing the risk of inflation, as well as the risks that come along with financial, political, or economic crises.64
- Growth – Investors have turned to gold for many years. Gold has also worked as a method of currency. Its growth over the past 20 years indicates that physical gold can make a great addition to your portfolio as a long-term asset.
The only way for you to determine if investing in a gold IRA or retirement account is the right move for you is to balance its advantages with its potential drawbacks. So, before you commit to opening and funding a self-directed gold account, it is important to also be mindful of the following:
- No interest, dividends, or yields – Gold does not pay interest, dividends, or yields. But those same perks that come with investing in stocks and mutual funds can also require investors to take on a great deal of risk. In fact, in a downward moving stock market, you can lose a lot of value within a short period of time. This could have a big impact on when you’re able to retire – if ever. During the great recession of 2008, though, the value of gold skyrocketed. So, investors who had a mix of both stocks and gold generally fared better than those who didn’t.
- Charges and fees – You can incur various charges and fees when you invest in a gold IRA. But this, too, is also the case when you invest in stocks, mutual funds, and other assets. For example, you will usually have to pay a sales commission when you buy and/or sell these types of assets. In addition, depending on the type of account you have, you could incur other charges as well, like management fees, and annual account administration charges.
- Potential for theft and/or fraud – Theft and fraud can increase risk when you are investing in physical assets like gold and precious metals. This is why the depositories that qualify to hold metals for gold IRA accounts must be insured.
Before you commit to any type of investment, it is essential to be aware of – and to decide – it the advantages and profit potential outweigh the drawbacks. If so, it can make sense for you to move forward.
Pros and Cons of a Gold IRA
|Gold IRA Advantages||Gold IRA Drawbacks|
|Tax-deferred (traditional IRA) or tax-free (Roth IRA) growth||No interest, dividends, or yields|
|Full control over investment vehicles in the account||Charges and fees|
|Diversification||Can only use approved vaults / storage facilities|
|Inflation hedge / protection of the portfolio||Potential for fraud|
What are the Next Steps for Getting a Gold IRA Account Opened and Funded?
If you have considered the pros and cons, and you think that investing in a gold IRA account makes sense, it may be time for you to take the next steps. These include:
- Determining which gold IRA company is right for you, based on their gold and other precious metals offerings, as well as their customer service, experience, investment philosophy, and reputation.
- Opening a gold IRA account by completing an application and other required paperwork.
- Naming one or more beneficiaries to inherit the account if the unexpected should occur.
- Making a cash deposit, transferring funds from an existing IRA, and/or rolling over money from a retirement plan.
- Deciding which gold or precious metals investments are best for accomplishing your short- and long-term investment objectives.
- Purchasing the investment(s).
- Regularly reviewing your account to determine whether it is on track for accomplishing your goals – and if it isn’t, reallocating your gold and/or other precious metals investments.
Where to Go from Here
Investing in a gold IRA account is like investing in most any other type of asset class. For instance, you need to determine if it can help you reach your retirement goals, and if so, where it belongs in your portfolio.
When you add gold to your retirement portfolio, you can attain many benefits, especially during uncertain times and periods of stock market volatility. These benefits can include diversification and a stable hedge against inflation.
It’s Not Too Early or Too Late to Get Started
It is never too early or too late for you to invest in gold and other precious metals. You can increase the benefits when you combine precious metals investing with the tax-related perks of an Individual Retirement Account.
But don’t test these waters on your own. Self-directed IRAs have many “moving parts,” so it is essential that you follow the rules pertaining to gold IRA accounts.
These rules include only investing in the IRS-allowed metals and staying away from prohibited transactions. Otherwise, your account could end up losing its tax-advantaged status.
When you discuss your goals, time frame, and tolerance to risk with a precious metals’ expert, you can map out a plan of action that matches your specific needs and goals for retirement.