Should you invest in a gold IRA? Here’s what to know

Gold is having a moment of joy again, with the price of the precious metal at $4,100 per ounce at the end of November, a whopping 21.8% rise over the last six months and 55.4% over the past calendar year.

Commodity experts cite persistent inflation, geopolitical instability and growing investor unease with high stock valuations as a large part of why Goldman Sachs expects gold to rise in the near future. $4,900 by 2026.

Today, with volatility returning to traditional retirement portfolios, more Americans are exploring a niche but increasingly popular vehicle: the gold IRA.

Gold IRA, definition

A gold IRA is a self-directed individual retirement account that holds physical precious metals rather than stocks, bonds, or ETFs.

The difference between a self-directed IRA and a traditional IRA is worth noting.

“Normal IRAs are only allowed to invest in public markets, while self-directed IRAs are an alternative route that allows you to invest in alternative assets such as physical precious metals, like gold,” said Aria Brish, a business professor at St. Edwards University.

Gold IRAs offer the same tax benefits as a traditional or Roth IRA, but they carry very different risks, costs, and compliance rules. For some retirement savers, that’s part of the appeal.

“Gold protects against inflation very well because you will retain your purchasing power,” said Kevin Grebbien, founder of Quick Quant, an automated stock analysis company based in San Diego. “In 1920, the price of an ounce of gold could buy a nice suit. Today, it would pay for a nice custom suit. Gold has remained a constant despite economic uncertainty.”

Historically, investors who wanted to buy gold to protect against inflation had to purchase physical gold, gold stocks, or gold funds. Now, with growing interest in high-end gold, investors have a new alternative: gold IRAs.

Supporters say gold IRAs provide an easy entry point for long-term savers, while critics say a gold IRA is excessive and too expensive for Main Street investors.

The Benefits of a Gold IRA

A gold IRA has many benefits. Here’s a closer look at two of the main ones.

Two-for-one benefits

A gold IRA combines two features every investor looks for: asset performance and tax mitigation. “Physical precious metals are a mainstay of many diversified portfolios,” said Scott Maurer, vice president of IRA sales at Avanta IRA, in Odessa, Florida. “Additionally, the IRA provides the ability to better manage taxes associated with the investment scenario.”

For long-term investors, a Gold IRA can be a substantial addition to a retirement portfolio. “It provides flexibility through different account types, allowing investors to align their holdings with specific financial goals,” said Peter Reagan, financial markets strategist at Birch Gold Group.

Additionally, the self-directed IRA approach provides greater control and ownership over assets. “Unlike paper investments, it allows for tangible ownership of physical gold, adding a reliable layer of security and assurance to a diversified, long-term approach,” Reagan added.

Physical assets can be a huge advantage for long-term investors

A gold IRA owns a physical asset with a long history of wealth preservation and growth.

“Investing in gold within a Self-Directed IRA gives the investor some measure of control in managing the amount and timing of tax owed on a gold investment strategy,” Maurer said.

For example, an investment in gold in a traditional self-directed IRA generates tax-deferred profits on the sale of the gold. “The money received by the IRA from the sale, including the profit, is not taxed since it is still in the IRA,” Maurer noted. “The tax due on a traditional IRA is tied to the distributions the account holder receives.

Therefore, the account holder, who is not yet taking regular minimum distributions, can control the amount and timing of taxes due. “Additionally, a gold investment in a Roth IRA also does not incur taxes when the gold is sold within the IRA,” Maurer said. “And qualified Roth distributions are tax-free.”

A Self-Directed IRA account holder can also distribute the physical gold to themselves if they choose. “This is called in-kind distribution, which can be very beneficial,” Maurer added.

The Disadvantages of a Gold IRA

On the other hand, gold IRAs involve risks and complexities that potential investors should be aware of.

Extended trading deadlines

The process of buying and selling physical precious metals within the account is not instantaneous. “This means that an investor who wants to do a lot of trading” — in other words, trading — “may get frustrated,” Maurer said.

No physical gold involved

An IRA holder cannot own the gold while it is in the IRA. “In fact, all logistics related to purchasing, storing, and selling or distributing the gold must be done through the IRA’s self-directed custodian,” Maurer noted.

It’s not worth it for small investments

Gold IRAs are not always cost-effective for IRAs with small balances, where IRA fees can add up. Installation costs (around $50 to $100); Annual management fees (between $75 and $300) and gold storage and insurance fees (up to $300 per year) are all in play with gold IRAs.

“High fees will only make sense if your IRA portfolio is so large that even a small percentage invested in gold can justify extremely high fees,” Brish said. “If you still want to invest a small amount in gold but not enough to justify the IRA fees, invest directly, but not in an IRA account.”

3 Tips to Maximize Your Gold IRA Experience

Since gold IRAs are not garden-variety, be aware of what they offer and the risks they bring, then take advantage of this advice when making investment decisions.

Know who manages your money

People who place their money in gold IRAs should understand that there are three parties involved in this type of investment: an IRA custodian, a precious metals dealer, and a precious metals storage facility. “In most cases, these three providers are separate companies from each other,” Maurer said. “They cooperate to achieve the end goal, but, in general, they are three separate entities and each collects a fee.”

Even if a metals dealer promotes a “one-stop shop” gold IRA offering, be aware that the sales pitch is just a marketing strategy. “The IRS requires that an IRA custodian have a direct business relationship with its account holders,” Maurer noted. “The depository does not sell precious metals.”

Not All Self-Directed IRA Custodians Are the Same

Customer service, fees, educational resources and online technology are key considerations when choosing. “That’s why due diligence is essential,” Maurer said. “It is important to do due diligence on each of the vendors involved in your gold IRA.”

Spread the risk

Diversify your precious metals portfolio by investing in silver, platinum and palladium, in addition to gold. “Most precious metals sellers sell all of these assets,” Maurer said.

Know what you’re getting into

Gold IRAs can play a role in a well-constructed retirement portfolio, but they are not without caveats.

Most experts agree that modest exposure to gold can help diversify and protect savings, especially during times of inflation. But they also warn that high fees, lower long-term returns and the potential for fraud make gold IRAs best suited to experienced, well-capitalized investors.

“A gold IRA could be a great investment as an additional vehicle to park your money,” Grebbien said, “but it shouldn’t be the only one.”