What is a Gold IRA?

Published on 3/19/2021 by APMEX

Gold bars and coins

You may have seen some of the ads or information going around about Gold IRAs. What exactly is a Gold IRA, and how does it work?

Gold vs. Regular IRAs

IRA is usually an abbreviation for “individual retirement account,” though the IRS also calls this an “individual retirement arrangement.” It’s a broad term for the various holdings used for tax-advantaged retirement savings.

IRAs have to be opened with an organization that has IRS approval. They cannot be individually held but must be in the hands of a trusted custodian. An IRA usually only involves stocks, mutual funds, ETFs and other financial instruments managed by the custodian. Still, a self-directed IRA allows for investment in other assets like Gold and real estate. A Gold IRA must be self-directed.

A self-directed IRA, or SDIRA, is still held in trust by a custodian, but the person who owns the IRA makes the investment decisions instead of letting the custodian do it for them. These IRAs allow for more flexibility but also require more legwork on the part of the account holder.

Gold IRAs are available through many self-directed IRA custodians, but not all. Different custodians allow for different assets and may specialize in particular asset classes.

Advantages and Disadvantages of Gold IRAs

Gold IRAs have the advantage of allowing you to invest in Precious Metals, which are time-honored stores of value and hedge assets. Gold tends to go up when the market is down and when inflation is increasing. It holds its value well over the long term, though it can fluctuate significantly in the shorter term.

A Gold IRA has some of the same shortcomings that physical Gold can have. Storage is required, and you can’t hold it yourself. That means you’ll have to pay storage fees to have your Precious Metals stored somewhere safe. They are also less liquid than stocks or bonds, which may come into play when taking required minimum distributions if you’re over 72.

You’ll also want to be aware of premiums on the metal, both when you buy and sell. A dealer who buys Gold will want to pay less than what it’s worth so they can make a profit on the transaction. A dealer selling to you will have a premium so they can make a profit as well. That means that if Gold has not gone up in the interim, you may take a hit on your investment. Historically this has been less likely over the long term than it has been over the short term.

Precious Metals Products Eligible for IRAs

Gold, Silver, Platinum and Palladium can be used in a self-directed IRA, but specific rules established by the IRS limit the types of products that can be used.

Gold must be above .995 purity, except U.S. Gold Eagles. Silver must be at least .999 purity. Platinum and Palladium must be at least .9995 purity. This limits some of the more common types of Silver available — for example, pre-1964 U.S. Silver coins could not be part of a Precious Metals IRA because they are only .900 purity. Similarly, foreign coins like the old British sovereign would not be eligible, as their crown Gold alloy does not quite meet IRA requirements. One of the most common bullion coins, the Krugerrand, also does not meet the criteria. But modern high-purity coins like the Chinese Panda, the Australian Kangaroo and the Canadian Maple Leaf meet IRA requirements and can be used.

Gold IRAs are a unique class of retirement account that offer advantages and disadvantages separate from what you’d see in a standard IRA. But it would help if you did your homework first. Make sure you know what you’re getting into.

Our IRA specialists are available to guide you through our wide selection of IRA-eligible products. APMEX recommends discussing the details of your personal investment strategy with your IRA Custodian or financial adviser.

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