Should You Supercharge Your Retirement Savings With a Gold IRA?

A gold IRA is a type of self-directed individual retirement account. Shutterstock

Historically, gold has shined during times of economic and geopolitical uncertainty. This is one of many reasons investors see it as a “safe haven” investment.

So, why not harden your retirement nest egg with gold?

One way to do so is by opening a gold individual retirement account (IRA). But a gold IRA comes with some risk, so it’s important to understand how it works before deciding if gold belongs in your retirement portfolio.

What Is a Gold IRA, and How Does It Work?

A gold IRA is a type of self-directed individual retirement account (SDIRA) that holds physical gold such as bars or coins.

So, how do you get a gold IRA?

In most cases, you’d start by purchasing physical gold through a broker or vendor. The gold itself, however, must meet certain fineness requirements and other standards set by the IRS.

You’d then open a gold IRA account through a self-directed IRA custodian who’s qualified to administer gold and other precious metals. The custodian would help you store your physical gold in an IRS-approved depository that’s insured up to set limits.

But it’s important to remember that gold IRAs have the same framework as the more common IRAs that invest in stocks, bonds, and cash.

This means gold IRAs have the same tax, contribution, and withdrawal rules as all other types of IRAs.

The IRA contribution limit for 2024 and 2025 is $7,000. Those aged 50 and older can make additional “catch-up” contributions of $1,000, for a total of $8,000.

Moreover, gold IRAs come in two forms: traditional gold IRAs and Roth gold IRAs.

Traditional gold IRAs are funded with pretax dollars, so contributions are tax deductible. Qualified withdrawals, however, would be taxed as ordinary income once you reach age 59 1/2.

Gold Roth IRAs are funded with after-tax dollars, so your contributions aren’t tax deductible; but qualified withdrawals are tax-free as long as you’re at least 59 1/2 years old and the account has been open for at least five years.

A 10 percent early withdrawal penalty would apply to traditional and Roth gold IRA distributions if taken before reaching age 59 1/2.

Hedge Against Economic Uncertainty With Gold

Because gold historically has moved in the opposite direction of stocks, many analysts have viewed gold as a hedge against market downturns and recessions.

During the recession of 1980–82, the S&P 500 Index lost 27 percent while gold rose by 46 percent, according to research by RJOFutures, a futures brokerage. And during the dot.com crash of 2000–02, gold spiked 12 percent as the S&P 500 nosedived 49 percent.

Gold, for the most part, has also held strong in times of heightened inflation because gold tends to pump up when the U.S. dollar weakens.

But, recently, many economists are viewing gold as a general hedge against all types of economic uncertainty.

As of this writing, the price of gold reached an all-time high when it closed around $2,790 per troy ounce in late October. It reached this peak amid a strengthening of the U.S. dollar and rising real interest rates.

Yet despite gold slumps in November amid a stronger dollar and interest-rates speculation, Goldman Sachs expects gold to reach around $3,000 per troy ounce by December 2025. The projection is partly driven by higher demand for gold from central banks around the globe.

The Drawbacks of a Gold IRA

High Fees

When managing a gold IRA, you may encounter some costs that may not be associated with ordinary IRAs.

For starters, you’d need to look out for seller’s fees or markup fees. When you buy physical gold for your self-directed IRA, you’d generally buy it for more than its market value. That’s because the broker or vendor you’re getting it from may charge a one-time fee to make a profit.

When you open your gold IRA, you may need to pay the custodian a one-time account set-up fee. In addition, the custodian may charge annual maintenance fees, transaction fees, and account closing fees.

And because you need to store your gold in an IRS-approved depository, you may also face storage and maintenance fees.

Here’s how average gold IRA fees breakdown, according to an analysis by Gold IRA Companies Bulletin, an informational website about precious metals:

• Set-up fee: $50–100.
• Annual maintenance fees: $75–250.
• Annual gold storage fees: $100–300
• Transaction fees: 1–2 percent of the transaction amount.

Liquidity Challenges

Turning your gold IRA into cash may not be as quick and easy as it would be to withdraw funds from an IRA invested in stocks and bonds. Your gold IRA custodian would need to sell your physical gold and then send you the proceeds via check or digital transfer. This could take some time, and market volatility could impact the price of your gold assets.

The custodian can also send you the physical gold. But then it’s entirely up to you to safely secure it and sell it.

Plus, illiquidity can become a major issue if you have a traditional gold IRA. That’s because once you reach age 73, you need to take required minimum distributions (RMDs) from your traditional IRAs. The amount is based on account balance and a life-expectancy factor determined by the IRS.

But you can mitigate this by taking the full RMD amount from any other IRAs you may have. The total RMD amount can be broken down across all your IRAs. So, it may be a good idea to satisfy the RMD requirement using IRAs invested in more liquid assets like stocks, cash, mutual funds, and exchange-traded funds (ETFs).

Due Diligence

Investing in gold can be a risky business. That’s why many established brokerages don’t offer gold IRAs. You can hold gold only in a self-directed IRA.

And self-directed IRA custodians aren’t required to evaluate the quality or legitimacy of the investments that go into these IRAs. They also aren’t held to the same legal and regulatory standards as registered investment advisers (RIA) or registered broker-dealers. Such entities typically deal with IRAs that invest in firm-approved stocks, bonds, ETFs, and other common securities.

So you really need to do your homework when looking for a custodian that offers gold IRAs.

It can help to check if the custodian has a good reputation with third parties such as the Better Business Bureau (BBB) or the Business Consumer Alliance. You should also check up on user reviews to see what existing customers are saying.

The Securities and Exchange Commission has issued guidance on working with self-directed IRA custodians and avoiding fraud.

Alternatives to Gold IRAs

You don’t need to open a gold IRA to give your retirement savings exposure to gold. You can also invest in ETFs that track the price of gold. Shares of gold ETFs can be purchased through a regular brokerage account much like you’d buy shares of a common stock. And it won’t require you to hold and maintain physical gold.

Here are some examples of gold ETFs along with their ticker symbols:

• SPDR Gold Shares (GLD)
• iShares Gold Trust (IAU)
• abrdn Physical Gold Shares ETF (SGOL)
• VanEck Merk Gold ETF (OUNZ)
• Goldman Sachs Physical Gold ETF (AAAU)

In addition, you can invest in gold stocks. These are the stocks of companies involved in the production, mining, or trading of gold. They can perform well when the gold market is up. Here are examples of some companies active in the business of gold:

• Coeur Mining Inc (CDE)
• New Gold Inc (NGD)
• Kinross Gold Corp (KGC)
• Endeavour Silver Corp (EXK)
• Agnico Eagle Mines Ltd (AEM)

Does Gold Belong in My Retirement Savings?

Gold can diversify your retirement portfolio and provide a hedge against market uncertainty, but it also comes with many risks. A gold IRA may carry high fees and liquidity risks. And due to a lack of regulatory oversight, you’d need to take a very close look into the structure of gold IRA custodians to make sure you’re making the right decision.

But if you can find a qualified custodian with reasonable fees and you have an adequate risk tolerance, a gold IRA can add value to your retirement nest egg when other parts of the market face downturns. With that said, it’s always important to make sure you don’t put all your eggs in one basket—no matter how bright it shines.

Most advisers recommend you have no more than 10–15 percent invested in gold or other alternative investments.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.