Gold is having a moment again, with the precious metal priced at $4,100 per ounce in late November — up a whopping 21.8% in the last six months and 55.4% over the past calendar year.
Commodities experts cite persistent inflation, geopolitical instability, and investors’ growing unease about elevated stock market valuations, all of which are big reasons Goldman Sachs sees gold rising to $4,900 by 2026.
Now, with volatility creeping back into traditional retirement portfolios, more Americans are exploring a niche but increasingly popular vehicle: the gold IRA.
Gold IRAs, defined
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 the public markets, while self-directed IRAs are an alternative route that allows you to invest in alternative assets such as physical precious metals, such as gold,” said Aria Brish, a business professor at St. Edwards University.
Gold IRAs offer the same tax advantages 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 hedges against inflation very well as you will keep 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 purchase a nice suit. Today, it would pay for a nice custom suit. Gold has remained a constant through economic uncertainty.”
Historically, investors who wanted to buy gold as a hedge against inflation had to buy physical gold, gold stocks, or gold funds. Now, with interest soaring in high-flying gold, investors have a new alternative in gold IRAs.
Proponents say gold IRAs offer an easy entry point for long-term savers, while critics say a gold IRA is overkill and overpriced for Main Street investors.
The pros of a gold IRA
There are plenty of upsides to a gold IRA. Here’s a closer look at two of the major ones.
Two-for-one benefits
A gold IRA combines two features that any investor seeks: asset performance and tax mitigation. “Physical precious metals are a pillar of many diversified portfolios,” said Scott Maurer, vice president of IRA sales at Avanta IRA, in Odessa, Fla. “Plus, the IRA delivers the ability to better manage the taxes associated with the investment scenario.”
For long-term investors, a Gold IRA can be a substantial addition to a retirement portfolio. “It offers flexibility through different account types, allowing investors to align their holdings with specific financial goals,” said Peter Reagan, financial market strategist at Birch Gold Group.
In addition, the self-directed IRA approach provides greater control and ownership over the assets. “Unlike paper investments, it allows for tangible ownership of physical gold, adding a reliable layer of safety and assurance to a diversified, long-term approach,” Reagan added.
Physical assets can be a big advantage for long-term investors
A gold IRA owns a physical asset with a long record of wealth preservation and growth.
“Investing in gold within a self-directed IRA gives the investor a measure of control in managing the amount and timing of the tax due on a gold investment strategy,” Maurer said.
For example, a gold investment in a traditional self-directed IRA provides tax-deferred profits on the sale of the gold. “The cash received by the IRA from the sale, including the profit, is not taxed since it is still in the IRA,” Maurer noted. “Tax due on a traditional IRA is related to the account holder taking distributions.
Consequently, 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 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 desired. “That’s called an in-kind distribution, which can be very beneficial,” Maurer added.
The cons of a gold IRA
On the downside, gold IRAs involve risks and complexities that potential investors need to know about.
Expanded trading timelines
The process of buying and selling physical precious metals within the account is not instantaneous. “That means an investor who wants to perform a lot of transactions” — in other words, trading — “may get frustrated,” Maurer said.
No physical gold involved
An IRA holder can’t possess the gold while it is in the IRA. “In fact, all logistics related to the purchase, storage, and sale or distribution of the gold must be made through the self-directed IRA custodian,” Maurer noted.
Not worth it for small investment amounts
Gold IRAs are not always cost-effective for IRAs with small balances, where IRA fees can accumulate. Set-up fees (in the $50-to-$100 range); annual management fees (between $75-and-$300), and gold storage and insurance fees (up to $300 annually) are all in play with gold IRAs.
“The high fees will make sense only if your IRA portfolio is so large that even a small percentage invested in gold can justify the extremely high fees,” Brish said. “If you still want to invest a small amount in gold but not high enough to justify the IRA fees, invest directly, just not in an IRA account.”
3 tips to optimize your gold IRA experience
Since gold IRAs aren’t the garden variety type, get up to speed on what they offer and what risks they bring to the table — then leverage these tips when making any investment decisions.
Know who’s handling your money
People putting their money into 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 vendors are separate businesses from one another,” Maurer said. “They cooperate to achieve the end goal, but, generally, they are three distinct entities, and they each have fees.”
Even if a metals dealer promotes a “one-stop” gold IRA offering, be aware that the sales pitch is just a marketing strategy. “The IRS requires an IRA custodian to have a direct business relationship with their account holders,” Maurer noted. “The custodian 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 making a choice. “That’s why due diligence is critical,” Maurer said. “It’s important to perform 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 vendors 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’re not without caveats.
Most experts agree that modest exposure to gold can help diversify and protect savings, especially during periods of inflation. But they also warn that high fees, lower long-term returns, and potential for fraud make gold IRAs best suited for 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.”
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