A gold IRA is a self-directed Individual Retirement Account that gives you the ability to invest in gold and other precious metals as an alternative to purchasing typical retirement account assets like stocks, bonds, and mutual funds. A gold IRA provides the same tax benefits as traditional IRAs while giving you a way to diversify your portfolio with metals that are not typically available through most standard brokerage IRAs.
Gold IRAs require special custodian accounts that most brokers don’t offer. But there are a few specialist companies who can help you open a gold IRA and also provide you with access to gold and other precious metal investments that qualify as qualified retirement plan assets under IRS rules. For example, some of these companies will provide you with access to Gold Trading Accounts so that you can buy physical gold bullion ( or bars) from them directly using your IRA funds.
And if you have a 401k, you can move a 401k to gold if you choose to do so.
Who Can Open A Gold IRA?
In order to open a gold IRA, you must first have a Traditional IRA, Roth IRA, SEP IRA, or a 401(k) plan that allows you to make non-traditional assets like precious metals part of your retirement plan assets. You can open a gold IRA regardless of age, but you must be under 70 1/2 to make tax-deductible contributions to an IRA. If you want to make non-deductible contributions to a gold IRA, there is no age limit on when you can open an account. You can also open a gold IRA if you work for a company that offers a self-directed 401(k) plan and allows you to make investments in precious metals through your account.
How Does A Gold IRA Work?
The basic concept behind a gold IRA is that you make regular contributions to your IRA account throughout your working years. Your money builds up inside the account tax-deferred until you retire and start taking distributions (RMDs) in retirement.
However, a few differences exist when you invest in gold or other precious metals with a gold IRA. You will likely have to pay taxes on your initial contributions. While most traditional IRAs allow you to deduct contributions from your current taxable income, gold IRAs will likely require you to pay taxes on your initial contribution immediately.
This is because the IRS only allows individuals to claim a tax deduction when they contribute to a standard IRA account. Where gold IRAs are concerned, there is no current tax deduction because the account is not a standard IRA.
You must pay taxes on any gains when you take distributions. Any money you make from selling the gold you’ve invested in your gold IRA account must be included in your taxable income when you start taking distributions in retirement. But the good news is that the government treats precious metals as collectibles and are taxed at a lower rate than stocks or bonds.
Tax Advantages Of A Gold IRA
- Large initial contribution – Since there is no initial tax deduction for making contributions to a gold IRA account, you are able to contribute more money to your gold IRA than you would to a standard IRA. The maximum annual contribution to an IRA account is $6,000 for people under 50 and $7,000 for those 50 or over.
- Higher annual contribution limits – Because gold IRAs are not part of a standard IRA, you are allowed to contribute a higher annual amount per account. The annual contribution limit for a gold IRA is $5,000, which is $1,000 higher than the standard IRA annual contribution limit.
- Early access to retirement funds – Most retirement plans require you to start taking distributions once you reach a certain age, typically 70 1/2. However, no rules say you must wait until retirement age to access any money you’ve invested in a gold IRA account.
Pros And Cons Of A Gold IRA
- Tax-deferred investment – The best aspect of investing in a gold IRA account is that all the money you put into the account will grow tax-deferred until the time comes when you start making withdrawals in retirement. Where standard IRAs are concerned, you will be taxed on your contributions as soon as they are made, and you will pay taxes on any gains made when you sell the assets inside the account.
- Higher potential return – A gold IRA has a higher potential return than investing in traditional retirement account assets like stocks and bonds. This is because gold and other precious metals are less susceptible to market volatility than stocks and bonds.
Conclusion
The idea behind a gold IRA is to diversify your retirement assets by investing in precious metals. While a gold IRA does not provide a current tax deduction, the investment will grow tax-deferred until the time comes when you start making withdrawals in retirement. In addition, gold IRAs offer larger contribution limits than standard IRAs, and there are no rules that say you must wait until retirement age to access the money in your account.