Gold IRAs offer you something that no other type of retirement account can. They give you the ability to hold gold bullion coins and bars inside the actual account, and to buy it with tax deferred money. These features and so many other can make these accounts seem like they are the most perfect investment vehicle ever created. It is true that Gold IRAs offer many more advantages than downsides, but there are a few negative features that you should be aware of before you make the leap from your old IRA to a Gold-backed IRA. This will help you to avoid any mistakes along the way.
Pros of Gold IRAs
The list of advantages to a Gold IRA is distinctive and with a significant number of good points. In fact it is hard to gain so many advantages with other types of retirement vehicles. With direct gold investing, investors gain the time-tested safety and stability that gold has provided those who sought it for thousands of years. They also have the potential to see the value of their holdings increase even as it protects them from inflation and loss of purchasing power. The many benefits provided by a Gold IRA include:
- Possibility for the Gold to Increase in Value – Gold typically rises over a longer horizon, which gives those who invest in it the potential to attain capital gains in their holdings when they liquidate them.
- Diversification from Other Investments and Risk – Gold is almost unique in its ability to provide diversification to portfolios as well as to safeguard them from risks of volatile markets.
- Intrinsic Value Store – Gold derives its value from its scarcity and universal appeal, not from any other investment, person, or government. It does not need any entity to maintain its value.
- Preservation of Wealth – Gold is the ultimate protector of purchasing power. $20 of gold one hundred years ago bought the comparable beautiful suit that that the same $1,200 or so of it does now.
- Inflation Hedge and Protection – The ultimate protector against currency devaluation is gold. With the decline in the value of dollars and other currencies, the value of gold rises. By holding physical gold, you protect your retirement future from any accompanying decline as the dollar deteriorates. This is important as U.S. dollars have seen declines of more than 90% in value as measured against other physical assets like gold in under half a century.
- Portfolio Stability in Rocky Economic Days – Gold does well when there is instability, bad news, and inflation in the national and global economy.
- Tax Advantages – Gold held in the Gold IRA does not incur taxes on its gains so long as they remain within the account. This is true when it is kept in physical metal form or when it is sold, so long as it is not withdrawn or received as a distribution.
- Low Start Up Costs – The administration costs to start up a Gold IRA can be low, in particular if you go with a top-rated administrator like Regal Assets or Birch Gold.
- Own Physical Assets – The best feature of a Gold IRA is quite possibly that it allows you to own physical gold coins and bars that are IRA-approved rather than paper gold like Gold ETFs, gold mining company stocks, and gold futures contracts.
- Greater Amount of Control Over Your Retirement Accounts – Gold IRAs are also self-directed IRAs. This gives you the ability to choose other approved investments besides physical gold coins and bars. You can participate in businesses, real estate, franchises, and some other atypical investments to give your retirement portfolio diversity and depth.
Cons of Gold IRAs
• Fees and Storage Issues – As you can not hold the gold from your Gold IRA at home, you have to follow the strict rules laid out by the IRS regarding custodians and storage of the metals. This means that the custodian will handle all aspects of the acquisition from purchasing them, to shipping and transporting them, to storing them. On the plus side, you do not have to bother with these arrangements personally. The downside is that you will give up some personal control and have to pay yearly administration fees and storage fees that can easily run from $250 to $500 every year. You will have to overcome these fees through gold price appreciation so that your holdings can gain in value ar at least pass break even, so it helps if you have a larger Gold IRA account.
• Return Limitations – Physical gold holdings do not pay interest or dividends or collect rent. Their returns can only come from rising prices on gold. Gold holdings do not experience compound interest. Their short term price swings can be volatile too, so it is important not to get into a position where you need to sell your gold with little notice, which might result in you getting a lower value for your physical gold than you should realize. The long term results for gold have been truly staggering, but it is important to understand that it can undergo significant and painful corrections in the meanwhile.
• Restrictions in Funding Your Gold IRA – The rules prohibit you from sending in any precious metals you already own to fund your Gold IRA. You also must not buy them directly and send them to your IRA administrator. The custodian has to buy them on your behalf. You are also limited in the types of gold coins and bars that you can purchase by IRS rules. If you violate these funding and purchasing rules, then there will be penalties and taxes to pay.
• Potential for Fraud – It is quite unusual, but possibilities of fraud do trouble some investors when they can not keep a watchful eye on their gold holdings. In theory a vault or custodian could defraud you since it is difficult to go to the vault and physically inspect your holdings. This is all highly unlikely, but the United States Commodity Futures Trading Commission does lay out some scenarios and types of fraud that could happen if you did not go with a reputable Gold IRA custodian.