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There are pros and cons to every investment. Nothing is a sure thing, and you must take many factors into account when you are deciding where your money should be invested.
The Gold IRA is no exception.
Our goal is to educate you on how to invest in the Gold IRA and to help you decide if investing in a Gold IRA is right for you.
What is a Gold IRA?
A Gold IRA is a type of individual retirement account that allows you to own physical gold and certain other precious metals as assets.
It is much like the traditional IRA, Self Employed Pension (SEP) IRA, or Roth IRA that you may already be familiar with. Except, a Gold IRA is self-directed—meaning you pick and choose exactly what you want to invest in and how much.
When determining how to invest in a Gold IRA, consult your tax adviser or CPA and decide which plan is right for you.
The Current State of Gold
The price of gold is constantly changing. Some factors that affect gold prices are:
- Geopolitical risk
- Inflation
- Interest rates
- Stock market concerns
- World news
In August 1999, the price of gold was $251 per ounce. Since then, it has appreciated 769% to its June 2023 price of $1,961 per ounce.
The price of gold peaked during the pandemic. In August, 2020 it reached an all-time high of $2,075 per ounce.
Still hovering near its all-time high during these inflationary times, many feel that gold is being sought as a safe haven asset. Some see $1,900 to $2,000 as a new floor for the price of gold.
Many investors also feel that there is a looming stock market correction and an economic recession in the near future. Events like those have typically bode well for the price of gold.
There have been eight recessions between 1973 and 2020. Gold has outperformed the S&P 500 in all of them, with the exceptions of 1981 and 1990.
Inflationary periods seem to be another time when gold shines.
While we have felt the sting of inflation over the past several years, 1973 to 1979 was the last time the US suffered a major bout. Prices rose, on average, an astonishing 8.8% per year. Gold prices, during the same period, rose 35% annually.
With countries at war, rising interest rates, inflation, and a possible recession on the horizon, gold may be perfectly placed for a strong move to the upside.
The Pros and Cons of Gold IRAs
So, is a Gold IRA a good idea right now? It may seem that the timing is perfect. But timing is only one factor. Let’s look at the pros and cons of investing in a Gold IRA.
Gold IRA Benefits
There are many reasons that investors feel that they need to own gold and are moving into the Gold IRA.
Hedge against inflation. There are multiple reasons that can explain why gold tends to perform well during periods of high inflation.
Gold is priced in dollars. As inflation edges product prices up, gold is usually included in that increase. As with most products, the price of an ounce of gold today will most likely be more than it cost to buy that ounce of gold yesterday. By owning gold, you will help preserve the purchasing power of your invested dollars.
Safe Haven Asset. Linked to that same ideology of wealth preservation, investors often turn to gold as a safe-haven investment.
During recessions, stock market corrections, and inflation-heavy periods, investors often seek a safe shelter to park their funds. Gold, and more increasingly, the Gold IRA, has been found by many to be a perfect place to not only weather the storm, but be well positioned for future gains.
By securing your already invested funds by converting them into gold within your individual retirement account, you can not only protect them from a falling stock market and dollar, but potentially see appreciation as those other products fall in value.
Tax advantages. No matter the type, an IRA is designed to give you tax advantages. Investing in a Gold IRA offers those same advantages.
Traditional and SEP IRAs allow contributions on a pre-tax basis. Those contributions may be tax-deductible in the year made, and contribute positively to your tax consequence.
Withdrawals are allowed after age 59 ½, when it is assumed that earned income will be less, and the impending taxes owed on the IRA funds will also be lower.
You’ll make Gold Roth IRA contributions with after-tax funds, and after age 59 ½, the withdrawals are tax-free.
Diversified portfolio. A Gold IRA can give you true diversification in your portfolio.
Gold is a separate asset class from stocks, and can balance your asset allocation. It”s not correlated to the stock market.
Gold does not move up or down because other stocks are moving up or down. In fact, it tends to move up when stocks move down, and tends to move down when stocks move up.
Tangible. The gold that you own in your Gold IRA is physical gold. You can, without much difficulty, arrange a visit to the depository and hold it in your hands.
Gold has had value for thousands of years, and is unlikely to go to zero.
Gold IRA Disadvantages
Before Investing in a Gold IRA, you should understand some of its disadvantages. While you may agree that these can be easily addressed, it is important to have a full understanding of all the elements.
A reputable Gold IRA company should be able to guide you through the processes and rectify any issues that arise.
Fees. The Gold IRA has several fees attached. While most investors find that the fees and that you get great services for a small price.
There is typically a setup fee of less than $100 dollars. It is a one-time fee that you pay to establish the account.
Yearly fees can range from around $100 to almost $300. The price depends on whether you simply want to own precious metals in your portfolio, or if you want to own precious metals, stocks, bonds, and other allowable assets in the same account.
Keep in mind that the yearly fee includes all custodial responsibilities such as:
- Sending account-owner statements
- Mandatory reporting to the IRS
- Ensuring only allowable activity happens inside the IRA
- Custodial safekeeping of all assets in the IRA
- Storing metals in the depository of your choice
- Insuring your stored metals
Potential Illiquidity. Because you will own actual physical gold inside of your Gold IRA, there will eventually come a time when you have to liquidate it.
Typically, a physical gold owner would have to find a buyer, transport the metals, and enact a safe transaction. This series of events can be frustrating to navigate.
Luckily, a trusted Gold IRA dealer can help alleviate these concerns.
Highly rated companies, such as Advantage Gold, have processes in place that eliminate the need for the account holder to do any of that.
Liquidations are normally handled in-house, and funds are deposited directly back into your IRA. This eliminates the worry of taking a withdrawal or handling large sums of cash.
Because of the strict guidelines enacted by the IRS, the IRA-eligible coins are some of the finest and most recognizable in the world. If you decide to take possession, you will generally be able to liquidate the coins or bars with relative ease.
Setup process. Individual retirement accounts take a small bit of time and effort to establish. You must complete the application process, fund your account, choose and purchase your gold.
Although it might sound daunting, choosing the right Gold IRA company will alleviate the stress.
A seasoned Gold IRA firm—such as Advantage Gold—has trained account executives that will walk you through every step of the process. With their guidance, you will usually complete the application in thirty minutes or less.
Their award-winning IRA department will liaise with the custodian to ensure that paperwork is properly submitted.
This teamwork helps eliminate any delays in processing and assures a smooth transition into the Gold IRA.
Is Gold a Good Idea for Your Portfolio?
As we’ve covered, a Gold IRA may be a good idea for your portfolio if you are looking for a:
- Hedge against inflation
- Safe-haven asset
- Tangible investment vehicle
- Portfolio diversifier
- Tax advantaged investment
While no two portfolios are the same, most investors are looking for time-tested safety and performance. Gold often offers both.
A Gold IRA may be the perfect way to fulfill your investment needs, and do it with funds that are already in your retirement account.
Consider Gold IRA Costs
Remember that you will incur fees with your Gold IRA. Though most consider them to be nominal for the extent of services provided, you still must consider the fee structure and be comfortable with it.
- Application fee—typically less than $100. This establishes your account with the custodian.
- Yearly account fee—may range from $100-$300, depending on your investment style and needs. It includes all custodian reporting to the IRS, all account statements sent to you, safe storage of your metals in the depository, and insurance of your metals while they’re stored.
Understand Gold IRA Rules
With few exceptions, IRA funds are eligible for penalty free withdrawal at age 59 ½. This rule covers traditional, Roth, and SEP IRAs.
Eligible withdrawals from traditional and SEP IRAs are taxed as ordinary income in the year of the withdrawal.
Starting at age 73, you must begin withdrawals from traditional and SEP plans. You must take these required minimum distributions (RMDs) yearly. They are designed to fulfill the unpaid tax liability of the IRA.
Eligible withdrawals from a Roth IRA are tax-free.
Because you contribute funds on an after-tax basis, a Roth IRA accumulates no unpaid tax liability. A Roth IRA has no period of RMDs and funds do not have to be withdrawn within a certain time frame.
Another important set of rules to keep in mind with the Gold IRA pertains to the precious metals.
The IRS mandates that only investment grade gold may be stored inside of an IRA. Gold coins and bars are only eligible if:
- Coins are new, uncirculated, and in perfect physical condition
- Coins must come from government mints
- Proof coins must come in their original packaging and include a certificate of authenticity
- Gold must be 99.5% pure
- Bars must meet purity standards of 99.5%
- Bars must come from approved manufacturers
These standards help eliminate speculative products and help ensure the long term success of your investment.
Find a Custodian
The IRA custodian is the keeper of your account.
Typically a bank, a credit union, or a non-depository bank, custodians must be approved by the IRS to maintain custody of assets in an IRA. State and federal agencies heavily regulate custodians and oversee their processes.
The custodian executes the investment decisions that you make for your IRA. It also makes sure that all investment decisions are allowable and eligible for the IRA.
Long-standing Gold IRA companies typically have an ongoing relationship with one custodian. This ensures smooth dealings and a familiarity with the systems of both companies.
Advantage Gold partners with Strata Trust as their custodian of choice. Strata is one of the industry leaders in the Gold IRA, and has years of service to IRA gold owners.
Ready to Learn More?
After reviewing the pros and cons of investing in a Gold IRA, we hope that you have a clear understanding of both.
While no investment is perfect or guaranteed, the drawbacks of gold inside of an individual retirement account seem to be dwarfed by the advantages of the Gold IRA.
Our trained account executives at Advantage Gold will walk you through the process and show you how easy it is to own physical gold in your portfolio.
Call today, or send us your contact information via the link here, and we’ll get in touch.
We look forward to speaking with you, and we’re happy to help.
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