Gold has historically been viewed as a relatively safe place to park money during times of economic or market uncertainty. But before investing your retirement savings in gold IRAs, it’s important to understand all of the ins and outs of these accounts – including rules about storage and eligible metals, fees, and tax treatment.
A gold IRA, or any IRA containing precious metals, isn’t right for everyone. But for some investors, especially those looking to diversify their holdings even further, gold can play an important role in a retirement investment portfolio.
Gold’s Portfolio Role
Before shopping for gold IRA custodians and dealers, it’s important to step back and think about why you’re interested in gold in the first place. For some investors, gold is viewed as an inflation or market-volatility hedge. For others, it’s an asset whose performance historically hasn’t tracked that of stocks and bonds.
There’s nothing wrong with any of these reasons for wanting to include gold in your overall investment mix. But it’s important to keep in mind that gold, unlike many other investments, doesn’t produce any income on its own. That means no dividends, no interest payments, and no rent checks coming your way. Rather, the value of gold fluctuates based on demand, and its performance over both the short- and long-term is hard to predict.
Because gold doesn’t generate any income, it’s important to be thoughtful about how much of your total investment portfolio you allocate to the precious metal. Ideally, your retirement portfolio will be invested in a manner that will allow you to generate enough income during retirement to last as long as you do while maintaining its purchasing power.
The amount of gold that makes sense in your portfolio will be driven by many factors, including, but certainly not limited to, your overall goals and time horizon for investing. It shouldn’t be based on anything you recently read in the news or heard from a salesperson.
Account Mechanics
Investors interested in holding gold or other precious metals in an IRA will likely use what’s called a self-directed IRA. In these accounts, investors choose their own investments, but they’re typically administered by a specialty custodian. And unlike traditional IRAs, precious metals IRAs must be stored at approved depositories, and investors can’t just take the metals home and stick them in a safe. (Doing so could result in negative tax implications and could jeopardize the tax-advantaged nature of the account.)
Depending on your situation, you may open a new IRA or transfer assets from an existing retirement account to the new gold IRA. Depending on the type of transaction, there are different forms you’ll need to complete and potentially different deadlines to be aware of.
For instance, if you roll over assets from one retirement account to another and receive a check payable to you (rather than having the assets transferred directly to your new account), you’ll typically have 60 days to complete the transaction. In most cases it’s probably in your best interest to have the assets transferred directly from one account to the next. But the best option will depend on the account you’re moving assets from and any requirements associated with that account. An adviser or tax professional can help ensure the transaction is carried out in a tax-efficient manner.
Tradeoffs and Fit
- Do you anticipate needing to access your money quickly?
- Are you comfortable owning an asset that doesn’t generate any income?
- Do you hold other investments that typically perform well during inflationary environments?
- Can you articulate why gold (or other precious metals) make sense for you apart from any anxiety you may have about the economy or markets?
- After factoring in all related costs, does it still make sense to hold gold (or other precious metals) given its potentially diversifying benefits?
Provider Due Diligence
When shopping for companies that offer gold and other precious metals IRAs, don’t be swayed by claims of security, scarcity, or investment potential. If you need to find the best company, the fee schedule and custody terms should drive the comparison. Rather, focus on the details of how the company would administer your account after making a purchase.
Costs and Final Checks
The sticker price of gold isn’t the only, or even necessarily the biggest, cost associated with owning this asset. Other potentially significant costs include a markup/spread when purchasing gold, account setup/administration fees, storage fees, potentially insurance costs, and a markup/spread when selling gold. These costs can potentially chip away at your returns even if gold prices rise during the time you hold the asset.
Once you start taking distributions from your IRA during retirement, you’ll typically have the option of selling gold (or other precious metals) for cash. Depending on the account and tax implications, you may have other options, such as receiving distributions of actual gold or other precious metals. Make sure you understand all of your options before retirement so there aren’t any surprises down the road.
Request, and keep, all paperwork associated with fees, storage, insurance, and so forth so you can compare it to future account statements to ensure you’re being charged appropriately.
As with any significant financial decision, carefully consider how a gold IRA would fit into your overall investment strategy, including with respect to diversification, liquidity, income, and taxes. If you’re planning on rolling assets from an existing account into a gold IRA, double-check all instructions with both your current and future account custodians before initiating the transaction. And consider meeting with a trusted, independent adviser or tax professional to discuss the potential benefits and drawbacks associated with rolling a significant amount of your retirement assets into gold IRAs.
Ultimately, your goal shouldn’t be to correctly predict the future price of gold. Rather, it should be to fully understand all of the costs and implications of opening, and potentially rolling assets into, a gold IRA.
Once you’ve made a decision about whether you want to open a gold IRA, write down your reasons for doing so, how much of your portfolio you plan on allocating to this strategy, your anticipated costs, and under what circumstances you’d consider selling. Review your notes after you’ve had some time to decompress from any potentially high-pressure sales tactics. Then compare all relevant account paperwork, including but not limited to any IRA transfer/rollover paperwork, account/custodial agreements, and fee disclosures, to ensure you understand and are comfortable with all associated costs before officially signing up for a gold IRA.
