Is it Possible to Add Gold to an IRA?

Financial markets can be unpredictable, prompting individuals to seek alternative ways of diversifying their retirement portfolios. One possible strategy that has generated buzz is funding an Individual Retirement Account (IRA) with gold; but is this possible? In this article we investigate its use to fund your IRA as well as any possible benefits and precautions you should be mindful of before taking this route.

What are IRAs?

Traditional and Roth IRAs typically allow investors to make investments in stocks, bonds, and mutual funds; however, the Taxpayer Relief Act of 1997 broadened this category and enabled IRAs to hold various precious metals including gold. Thus, the Precious Metals IRA, commonly referred to as Gold IRA was born.

Gold IRAs, in general, provide investors with an option for diversifying their retirement assets beyond paper assets by giving them access to physical gold or precious metal investments through self-directed IRAs.

Why Consider Gold for your IRA?

  • Shock Absorption: Gold has long been seen as a reliable hedge against inflation; in times of economic turmoil, it often retains or increases in value as other forms of currency slip away, providing an effective defense mechanism.

  • Diversification: Gold can add diversity to a retirement account portfolio by acting as a counterbalance against stocks and bonds, potentially decreasing risk in your portfolio.

  • Tangible Asset: Gold offers investors tangible security. A physical commodity provides comfort in knowing their investment has physical substance.

Step One of Funding an IRA with Gold

Initially, ascertain your eligibility. To establish a self-directed IRA, you must possess earned income and meet specific eligibility requirements.

  • Select an Approved Custodian: To open a Gold IRA, an approved custodian should be chosen by you - one who has experience managing precious metal accounts as authorized by the IRS and who meets minimum qualifications set out in section 5.3.1(g)3.

  • Transfer Funds or Roll Over: When funding your Gold IRA, funds may come from existing retirement accounts or directly from banks.

  • Purchase Gold: To protect yourself and the IRS' interests, purchase at least 99.5% pure (.995 fine) gold through your custodian and store it securely with an IRS-approved depository.

Considerations

  • Storage Fees: It is impossible to store gold from an IRA at home - instead it must be kept at an IRS-approved depository, usually incurring annual storage fees.

  • Limited Liquidity: Although gold may provide a safe investment option, its liquidity limitations make selling physical gold more challenging than selling stocks or bonds.

  • Avoid Scams: Be wary when purchasing gold from dealers who advertise themselves as trustworthy; unfortunately, there can also be many fraudulent operators out there selling fake products or promising instantaneous profits from selling counterfeit gold coins and bars.

  • Distribution Taxes: When withdrawing funds from a Gold IRA, taxes may need to be withheld according to both its type and age requirements.

Conclusion

Establishing an Individual Retirement Account with gold may provide an effective strategy for diversifying retirement investments and mitigating economic uncertainties, yet it's crucial that investors carefully weigh up all aspects of an IRA with gold before making their final decisions. As with any investment decision, there may be risks involved, however for some it outweighs them, and this could be considered the right investment solution for you.