A gold IRA is a specific type of individual retirement account called a self-directed IRA. It is similar to a traditional IRA that might hold stocks, bonds or mutual funds. A self-directed IRA confers the same tax benefits as a traditional IRA but allows you to hold precious metals and other alternative assets in compliance with IRS regulations.
Learn everything you need to know about what is a gold IRA in this guide, including how to open one, how to fund it and why you might want to invest some of your nest egg in precious metals using this method.
Gold IRA: What It Is and How Does It Work
Surprisingly, a gold IRA doesn’t have to just hold gold — in fact, you don’t need to hold any gold at all in one. Given that you can also hold silver coins or bullion, platinum and palladium in a gold IRA, a more correct term is technically “precious metals IRA.”
But the phrase “gold IRA” is more commonly used as a kind of shorthand to refer to this kind of self-directed IRA. As with a traditional IRA, your gold investments are purchased with pre-tax dollars. The alternative to the tax deferral a traditional or self-directed IRA affords is a Roth IRA, which is funded with money on which you have already paid taxes. For more detail, check out Money's best Roth IRA accounts guide.
What is IRA gold?
The IRS rules that govern gold IRAs are extremely detailed. Your IRA gold coins and bars need to conform to regulations on size, weight, design and metal purity.
By putting strict parameters around what defines IRA gold, the IRS can ensure that people are holding investment-grade assets in their self-directed gold IRA, as opposed to collectibles, which are not eligible for any kind of preferred tax treatment.
Types of gold IRAs
A traditional gold IRA is the most common type of gold IRA (and the kind discussed throughout this guide unless otherwise specified). It is funded with pre-tax dollars, and you pay income tax on withdrawals in retirement.
A Roth gold IRA is funded with after-tax dollars. The money grows tax-free and you do not pay taxes when you take distributions in retirement.
A SEP gold IRA is a type of IRA intended for people who are self-employed or small business owners. It is also funded with pre-tax dollars, but the contribution limits are different and business owners can contribute on behalf of their employees.
How does a gold IRA work
To establish a gold IRA, you have to work with a gold IRA company to set up an account and purchase the precious metals of your choice to fund it. Many people who open gold IRAs use funds from another IRA to do so — but it’s not a good idea to roll over your entire nest egg into a gold IRA.
How to set up a gold IRA
A gold IRA company will guide you through opening your self-directed IRA account. Some, but not all, will let you open the account online.
The gold IRA company also sells you the gold bars and coins (or other precious metals) you choose to put in your gold IRA.
They also will coordinate the selection of an IRS-approved custodian, which is a requirement for all self-directed IRAs, in order to prevent illegal self-dealing. The custodian is a financial services provider that executes investment activities on your behalf. They also carry out the necessary administrative functions that ensure your gold IRA is in compliance with all IRS regulations.
In addition to the account custodian, the gold IRA company will coordinate the functions performed by the depository, the facility where the precious metals in your IRA are physically held.
Most gold IRA companies either recommend or require that you work with a particular custodian and depository, although some give you a choice of two or more. Considerations when choosing a custodian and depository include what fees they charge for their respective services — including administration, storage fees and insurance for your gold — and how much they cost.
Gold IRA rollover
A common way to fund a new gold IRA account is to use funds that are already held in another retirement account, such as another IRA, 401(k), 403(b), 457(b) or Thrift Savings Plan, in accordance with IRS rules. The gold IRA company you choose will help you initiate that by contacting your plan administrator with a request to roll over funds into your new gold IRA.
You can choose to initiate the rollover yourself, but be aware: If you are younger than 59½ years old, you have just 60 days to complete the process, or you will be required to pay income tax on the withdrawn funds and incur a 10% early withdrawal penalty.
Many people seeking to avoid this risk instead let their gold IRA company facilitate this as an institution-to-institution transfer instead rather than taking it on themselves. The advantage in letting them handle your transfer is that the money is never in your hands, legally speaking, which removes the prospect of having to pay an early withdrawal penalty as well as income taxes (you’ll still pay taxes, of course, but only when you take distributions).
Before you initiate the transfer, it’s important to calculate how much of the value of your existing retirement savings you want to place in your new gold IRA. As a rule of thumb, most financial planners recommend having a maximum of 5% to 10% of your portfolio allocated to precious metals for optimal diversification.
While traditional IRAs, 401(k)s and the like are set up to make it easy for you to build a diverse retirement portfolio in order to mitigate risk, a precious metals IRA is dedicated to a single asset class. The value of those metals can grow tax-free while in the account, but you won’t benefit from the balance-building power of dividends.
How to buy gold in an IRA
• Choose a gold IRA company. You want to choose a gold IRA company that is transparent, straightforward about fees and has a good reputation. Check out our guide to the best gold IRA companies to learn more and compare different options. A gold IRA company will help you set up your account and sell you the gold (or silver) coins or bars that fund it.
• Choose your metals. The two most widely offered options to put in a precious metals IRA are gold and silver, and a number of gold IRA companies also offer platinum and/or palladium that you can buy and add to your IRA.
• Go elsewhere for investment advice. Gold IRA companies do not operate in an advisory capacity. As precious metals dealers, their role is strictly to sell, not offer investment advice — and keep in mind that they are not fiduciaries, meaning that they are not bound by a legal requirement to act in your best financial interests the way some retirement advisors (such as certified financial planners) are. If you need advice, you should seek out a trusted advisor rather than rely on representatives from the gold IRA company.
How to hold physical gold in an IRA
There are IRS-approved gold and other precious metals manufactured by the U.S. Mint, certain other governments’ official mints, as well as some private mints that are designated by the IRS as approved manufacturers of IRA-compliant bars and coins.
Your precious metals must be held by an IRS-approved depository. To conform with the many regulations around gold IRAs, you can’t store your gold at home or in a safe deposit box at a bank. If you want to hold gold outside of a retirement account (which means you can keep it at home), here is more information about how to buy gold outside an IRA.
A main selling point — which gold IRA companies like to tout in their marketing — is that when you own a gold IRA, you hold the physical precious metals. If this is not a priority for you, there are other ways to add precious metals exposure to your portfolio besides a gold IRA. With a traditional IRA or other retirement account, you can invest in gold via the stock market by buying shares of mining companies or mutual funds that hold those stocks. Another alternative is a gold ETF, an exchange-traded fund that tracks the performance of gold as an asset. If you want to know more, check out this guide to learn how to buy a gold ETF.
If you feel more secure holding physical gold in a gold IRA, keep in mind that you do pay for that peace of mind: A gold IRA is more expensive than a comparable traditional retirement account. Be aware of the following costs:
• Account setup fees: Not all gold IRA companies charge this, but some do, so be sure to ask what they charge.
• Seller fees: Most gold IRA companies tack on markups to the price of the precious metal coins and bullion they sell. These markups can vary considerably depending on the type of asset — say, a bullion coin versus a proof coin — so make sure you know what kind of markup is being assessed on your purchases.
• Maintenance fees: This annual fee might be charged by the gold IRA company or by the custodian. It can be a flat fee or it can vary based on the size of your account.
• Storage fees: This is what you pay the depository to store your gold. Sometimes it includes the cost of insuring your gold. If not, insurance will be a separate expense you have to budget for.
• Shipping fees: If you elect to take your required minimum distributions (RMDs) in kind — meaning, you will get the actual coins or bars you purchased — expect to pay both for shipping and for insuring those shipments.
• Buyback fees: Some gold IRA companies charge buyback fees. Others say they don’t, but be aware that the price they pay you when they buy back gold is likely to be lower than the price they set for gold they sell.
Gold IRA tax rules
Before you open a gold IRA, make sure you know about the regulatory hoops you have to jump through to make sure that account doesn’t violate IRS rules. Making a mistake, even if inadvertent, can be very costly, so it pays to know what the IRS does and doesn’t let you do with your gold IRA.
Gold IRAs fall under IRA rules for self-directed IRAs, which allow for tax-preferred treatment of alternative assets, but the rules governing contributions are the same as for a traditional IRA: In 2022, you can contribute up to $6,000 if you are under the age of 50, and up to $7,000 if you are older.
As with other retirement accounts, if you take gold out of your IRA before turning 59½, you will have to pay income tax on the value of the gold, plus a 10% early-withdrawal penalty.
What is a Gold IRA FAQ
What is a gold IRA rollover?
A gold IRA rollover involves taking funds from another defined-contribution account such as an IRA, 401(k), 403(b) or thrift savings plan. You can roll over all or part of the balance to fund a gold IRA without incurring a tax liability, provided you complete the rollover within 60 days. To avoid the possibility of having to pay taxes and penalties, your gold IRA company can handle the transfer on your behalf.
Unless you have multiple retirement accounts, it would be very risky to roll over your entire balance into a gold IRA. Conventional retirement investment plans are structured to let you build a diverse portfolio including stocks, bonds and mutual funds that will grow in value over time and can generate income via dividends and bond yields. A gold IRA is comprised of a single asset class, and eliminating the diversity you get with a traditional investment portfolio leaves you more exposed to risk and takes away the opportunity to earn income. Be especially careful if you are nearing the age when you have to take RMDs. Volatility can be a problem with gold, and there is no guarantee that the price of gold will rise appreciably by the time you need to take distributions.
What is IRA-approved gold?
Although the term "gold IRA" is used most often, you can hold silver, platinum and palladium in a precious metals IRA, as well. You will hold the physical coins or gold bullion bars themselves, and you can elect to have the metal shipped to you when you take distributions.
The question of what "IRS-approved" gold is does not have a simple answer. There are minimum requirements for metal fineness or purity, as well as regulations governing the size, type and weight of your IRA gold. Some very common types of IRA-approved gold are American Eagle proof coins and bullion, and Canadian Maple Leaf coins.
To be IRS-approved, gold must be 99.5% pure. Silver must be 99.9% pure. Platinum and palladium must each be 99.95% pure.
Leading gold IRA custodian STRATA Trust Company stipulates that your gold (or other precious metals) must be certified or accredited by a government mint or at least one of the following authorities: NYMEX, COMEX, NYSE/Liffe, LME, LBMA, LPPM, TOCOM or ISO 9000.
Precious metals that fall outside these parameters are considered collectibles and are not eligible for preferential tax treatment.
What are gold IRA companies?
Gold IRA companies are primarily sellers of the gold bars and coins that go into a gold IRA. They also facilitate opening your gold IRA account, but they do not provide investment advice, and you should not use the marketing material they publish for guidance in this regard.
If you want to learn more about buying or selling assets, portfolio allocation and rebalancing, this guide to the best gold IRA companies will get you started if you're looking for a reputable brokerage firm. If you need more specialized assistance, seek out a certified financial planner or other independent professional who doesn't earn money if they sell you precious metals.
Why keep gold in an IRA?
There is a belief among some investors that holding physical precious metals is less risky than investing (either directly or via funds) in gold-industry stocks such as mining companies. Gold is considered a hedge against inflation, but there is an opportunity cost to holding gold, since you can't earn income in the form of dividends. Another downside is that the price of precious metals can be volatile. You may have to hold your assets for a long time in order for them to appreciate sufficiently, and there is no guarantee they actually will appreciate.
If you're considering a gold IRA, you should always do so in the context of your broader investment strategy, taking into account your time horizon to retirement, your expected income needs and your risk tolerance.
How is a RMD handled in a Gold IRA account?
Summary of What Is a Gold IRA?
• IRA-approved gold (and other precious metals) must meet exacting IRS standards for size, weight, metal purity and design to make sure they pass muster as investment-grade assets.
• A gold IRA company will help you open and fund a gold IRA, and will coordinate with the custodian and depository — both of which must be IRS-approved — to administer your account and store your gold.
• You can buy gold for your IRA with a rollover from another retirement account or by authorizing the gold IRA company to conduct an institution-to-institution transfer.
• When you have to take RMDs, you can choose to liquidate the gold or have the metal shipped to you — make sure you understand the costs of each, and factor those into your budget.
• Gold IRA companies are not financial advisors bound by a fiduciary duty to operate in your best financial interests. Seek out reputable outside sources or a fee-based financial planner for investment advice if you are unsure if a gold IRA is right for you.