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How Does a Gold IRA Work? | Gold IRA Investor's Guide

March 20, 2017833 view(s)

Do you know someone who spent years diligently saving for retirement, only to see most of their savings decimated by the recent recession?

With traditional retirement savings accounts, your best laid retirement plans are only as stable as the market. If you’ve turned to gold as a way to balance out your stock market investments, or to avoid the volatility of the stock market altogether, then you should know that you can invest in gold while taking advantage of the same benefits other types of retirement plans offer.

What is a Gold IRA?

A gold IRA works similarly to a traditional deductible IRA in many respects, except that it offers the option of putting your investment in commodities rather than just stocks. While they’re popularly called “gold IRAs,” this type of retirement account allows you to invest in several different precious metals, including silver, palladium, and platinum, as well as gold.

There are certain limitations placed on the investments allowed in a gold IRA. Namely, you can only invest in coins and bullion products that have been approved by the IRS for meeting their fineness standards.

As long as you go through the proper process to set up your gold IRA and stick with approved commodities products, you can enjoy the same tax benefits that accompany traditional IRAs.

The Self-Directed IRA

The most common type of gold IRA is the self-directed IRA. This gives you the ability to invest in your chosen commodities, but you have to work with a trustee who manages your purchases and facilitates the storage of your precious metals in one of the secure depositories that’s been approved for this use.

Self-directed IRAs provide the benefit of having a retirement account that’s safe from the volatility of the stock market, and investors can trust that their commodities are safely stored in insured facilities with a high level of security.

Types of Gold IRAs

As with stock market IRAs, you have a few types of gold IRAs to choose from that each provide distinct tax benefits.

1) Pre-Tax Gold IRA

Pre-tax gold IRAs work just like traditional IRAs when it comes to taxes. Your contributions and any gains won’t be taxed and, in most cases, contributions are tax deductible as well. You do face limits on how much you can invest in your gold IRA each year, and the limits can change year by year. For the 2017 tax year, the limit for people is either $5,500, or $6,500 if you’re over 50. Keep in mind, with a pre-tax IRA you will have to pay taxes on your gold when you sell it during retirement.

2) Roth Gold IRA

A Roth IRA moves the tax benefits to the end point of your investment. You will be taxed on the contributions you make (and you have the same contribution limits you do with a pre-tax IRA), but you won’t have to pay any taxes down the line when you start to cash in your gold IRA during retirement.

3) SEP Gold IRA

SEP gold IRAs are available to business owners and the self-employed, and business owners can choose to contribute to a SEP IRA for their employees as a benefit offered. They work similarly to a pre-tax IRA, in that your contributions aren’t taxed, but they offer higher contribution limits. Instead of the $5,500 limit, you can contribute up to 25% of your income or $53,000, whichever is less.

What Are the Benefits of a Gold IRA?

Now you know all the basics of how gold IRAs work and the different types you have to choose from, but if you’re still on the fence about whether or not a gold IRA is the best choice for you, here’s a rundown of the main benefits they offer.

You don’t have to worry about inflation.

Inflation can make your savings worthless in a moment. Throughout history, putting too much trust in paper currency has doomed countless people who watched the value of their savings go down when inflation skyrocketed. With a gold IRA, your investment will be immune to the affects of inflation.

You get the same tax benefits as with any IRA.

Most gold investments are taxed like collectable capital gains when you sell them, so while you can buy as much gold as you’d like outside of an IRA, you can expect to pay at least a 28% tax on your investment when you cash in on it down the line. With a gold IRA, you have the choice between either tax deductible contributions or tax free withdrawals after you retire, allowing you to avoid some of the taxes you face with other gold investments.

You have more control over your investments.

With traditional IRAs, you can choose which stocks you invest in, but you’re still limited to the stock market in your investments. Self-directed IRAs give you the power to invest in the commodities of your choice and offer a variety of convenient storage options.

Depositories that hold IRA gold must be insured.

If you choose to go with a self-directed IRA, then you can count on the storage facility for your gold to be both highly secured and fully insured. That brings your persona level of risk down considerably.

How to Get Started Investing in a Gold IRA

Whatever type of gold IRA sounds right for you, the first step is getting in touch with a representative who can start you on the process of finding a trustworthy custodian to help you through the rollover process.

The United States Gold Bureau has helped many investors through the process of setting up a gold IRA and knows the most reputable custodians and depositories in the business. Our representatives can get you set up with everything you need to get the process rolling, and ensure you get your retirement nest egg in place.

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