Most individual retirement accounts (IRAs) let you buy stocks, funds and bonds. But you will need a self-directed IRA if you want to buy precious metals as part of your retirement plan. While regular IRAs let you buy gold miner stocks and exchange-traded funds (ETFs) that track the price of gold, you will need a gold IRA if you want to accumulate physical precious metals.
Luckily, that doesn’t mean you have to start from scratch. It is possible to convert an existing IRA to a gold IRA. Even better, you can do a partial conversion to minimize the tax impact if you are converting to a Roth IRA or if you want some of your retirement funds in stocks.
Why should you open a gold IRA?
A gold IRA lets investors buy physical precious metals as part of their retirement plan while still enjoying the same tax advantages of an IRA that holds equities like stocks and ETFs. A custodian holds the gold for you, and when it’s time to withdraw, you can receive an in-kind distribution. That means you receive physical gold based on your withdrawal instead of only being able to receive its cash value.
Gold is an inflation hedge that can help minimize portfolio losses during times of uncertainty. It’s also a good way to diversify and reduce your exposure to the stock market. While you can’t put physical gold you already own in a gold IRA, you can buy IRS-approved gold via these accounts.
Most gold IRAs aren’t limited to just gold, either. Many of these accounts also let you buy other precious metals, including silver, platinum and palladium. You can open some gold IRAs without a rollover, but some providers have minimum investment requirements that are more easily met if you roll over funds from an existing IRA.
Start by comparing gold IRA options
Numerous companies offer gold IRAs, and you will have to compare each one to determine which one is the right fit for your needs. A fee schedule is the best place to start, since it lays out all of the expenses you will incur for setting up the IRA. There are one-time fees, but you may also have to pay transaction fees, storage costs and mark-up expenses that can add up if you end up with an expensive IRA plan.
Investors should also assess the various types of precious metals offered by the gold IRA provider. Some investors want to trade a wide range of precious metals in various forms — including ingots, bars, rounds and coins — while others are content with only buying gold.
Last, gauge gold IRA companies’ online reviews. Trustpilot and the Better Business Bureau are two of the top resources that let you see customers’ reviews, both positive and negative, about companies. If you see too many complaints, you may want to consider another gold IRA provider.
Rolling over an existing IRA to a gold IRA
Before conducting any rollover, you must convert the amount you want to roll over into cash. For instance, if you have a $100,000 portfolio and want to roll $40,000 of it into a gold IRA, you must sell enough equities in your current IRA so that you have $40,000 in cash.
Importantly, you also have to determine if you want the rollover to go into a traditional gold IRA or a Roth gold IRA. You won’t pay taxes on any rolled over amount if it goes into a traditional plan. However, if you move money from a traditional IRA to a Roth IRA, the amount moved over is treated as ordinary income for the current tax year.
With those introductory details established, when you are ready to move funds from an existing IRA to a gold IRA, you need to initiate a direct rollover between the accounts. While indirect rollovers are an option, they are far riskier and can come with penalties, fees and extra taxation if you aren’t careful.
According to gold IRA provider Goldco’s site, “if you fail to deposit that money within 60 days, not only will you owe taxes on that distribution, you will also be charged a 10% penalty if you’re under age 59 ½.” That’s why it is optimal to do a direct rollover, with the funds never touching your bank account.
You will have to complete a transfer request form that their new IRA custodian will provide. You must then provide this document to your current IRA provider, and they will handle the rest. If an electronic transfer takes place, there’s nothing else that you have to do. Then, you can start buying gold, silver or other IRS-eligible precious metals for your gold IRA.
Is a gold IRA the right fit for your retirement plan?
A gold IRA isn’t for everyone. If you prefer buying stocks or are satisfied with ETFs that track precious metal prices, there isn’t much of a need for a gold IRA. For these investors, a gold IRA can introduce unnecessary complexity.
However, a gold IRA can be extremely valuable for people who want to own physical gold, silver, platinum or palladium while enjoying the tax advantages of IRAs.
A gold IRA can also be a great resource for investors who are heavily exposed to the stock market and need some diversification. For example, a couple approaching retirement with a multi-million dollar stock portfolio should be focusing on portfolio diversification and lower volatility. As people age, the conversation shifts from maximizing gains to preserving nest eggs.
Gold hedges against some of the economic forces that can cause equities to crumble. That’s not to say that gold always goes up, but this asset can rally when the stock market fades. The difference in these performances becomes far more important when it is time to withdraw from your retirement plan.
Diversifying your portfolio makes you less exposed to sequence of returns risk. A gold IRA is one way to diversify your portfolio, and it allows you to accumulate a time-tested asset.
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