Buying Physical Gold Within Your IRA

  • Gold can be a valuable investment for your portfolio, but it may be best to buy it outside of a retirement account.
  • With an IRA, gold is treated as currency, which means you would owe income taxes on its value.
  • You would, however, be allowed to include other gold bullion in your IRA, such as coins, bars, and rounds.

Gold can be a valuable investment for your portfolio, but it may be best to buy it outside of a retirement account. With an IRA, gold is treated as currency, which means you would owe income taxes on its value. You would, however, be allowed to include other gold bullion in your IRA, such as coins, bars, and rounds.

What Is an IRA?

An Individual Retirement Account (IRA) is an account established by a financial institution that holds your retirement funds. There are several types of IRAs, but the most common is the pre-tax IRA, which allows you to contribute money to the account before paying taxes. The money is taxed upon withdrawal, but you will pay the taxes only on the earnings (i.e., gains), not on the amount originally contributed.
The Roth IRA is a variation of the pre-tax IRA. You contribute after-tax dollars to the account, but the money grows tax-free in the account, and your money is taxed upon withdrawal.

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The Advantages of Gold

Gold has been a store of value since before the beginning of recorded history. In 3000 B.C., the ancient Egyptians began using gold to make jewelry, coins, and statues. Gold’s value has lasted for thousands of years.

After paper currencies were introduced, gold became the currency of last resort. When paper currencies were devalued or devalued, people continued to pour their money into gold. Gold became an attractive alternative to paper currencies because it was valued for its rarity, beauty, and hardness.

Gold also has a history of being a good investment. Its value rose more than 400% between 1999 and 2012. It has outperformed the S&P 500 by 11.6% annually since 1970. Gold’s value is likely to continue to rise.

Gold’s value has been preserved throughout history. The coins and bars you buy today will still be valuable in 10, 20, or 30 years. Gold’s value isn’t affected by changes in the economy or political situation.

The Disadvantages of Gold

The allure of gold has rested in its seemingly inviolable and universal store of value. However, it has two disadvantages that merit consideration. First, unlike cash, gold is difficult to liquidate and, as such, subject to volatility. Second, it is more dilutive than cash; if an investor wishes to buy $10,000 of gold, $10,000 of cash must first be liquidated.

Setting Up Your IRA to Buy Gold

While you could open up an IRA simply to save money and buy gold with your annual tax-sheltered contribution, it should be made clear that gold isn’t a traditional investment vehicle. The Tax Cuts and Jobs Act of 2017, however, added a new chapter to the tax code that permits gold investments to be held in IRAs.
The new gold IRA provision officially took effect in January 2018, when the Tax Cuts and Jobs Act of 2017 was signed into law.

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Fees and Costs

If the funds in your IRA account are invested in stocks, ETFs, or mutual funds, it will be necessary to transfer these funds to a third-party custodian. The custodian will charge an annual fee for their services, and these fees vary from one custodian to the next.
In addition, you will pay a transaction fee each time you buy or sell gold. These fees also vary from one custodian to the next.

Physical Gold vs. Gold ETFs

The decision to buy physical gold or invest in gold ETFs all depends on your goals, risk tolerance, and timeline. Gold ETFs share many similarities with physical gold, such as both being a form of investment in precious metals. Gold ETFs are physical gold certificates that trade on a stock exchange, just like shares of any corporate stock. An ETF holds actual physical gold, just like a bank account holds actual cash. The main difference between buying physical gold or a gold ETF is the cost. Gold ETFs trade like a stock, so their cost per share is lower than buying physical gold. When you invest in an ETF, you are buying the ETF in pieces.

The Bottom Line

Gold and silver trading takes practice, a solid understanding of technical analysis, and the discipline to follow through on your trades. To succeed in this type of trading, you need to learn when to trade, when to hold, and when to raise your stop-losses.

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