A gold IRA is a special type of IRA account that allows you to keep physical precious metals within the actual account instead of the usual paper types of assets like bonds, stocks, mutual funds, paper gold ETFs, and cash instruments. Congress created this unique type of IRA in 1997 with a view to giving Americans better control over and choice of the types of investments that they could use in their quest to save for retirement. These types of account are similar to regular IRAs with regards to the rules on contributions that you can make, disbursements you are allowed to take, and tax rules that apply.
These accounts are different in three principal ways. First they are self-directed IRAs that allow you to control a wider range of investments such as businesses, real estate, franchises, and and especially precious metals like gold. Second and most importantly, they allow you to acquire tangible forms of gold in your retirement account which you actually own. Finally, they have special rules that apply to the ways that you are able to acquire and hold the gold.
Rules for Gold IRAs
There are several rules particular to Gold IRAs that you need to understand before you open them. The first surrounds the type of gold which you can have inside your IRA. The IRS makes the rules, and this is one about which they are very strict. Gold must have a certain minimum purity to be considered legal for the account. This standard for coins is that they must be 24 Karat gold (except for American Eagle Gold coins, which are allowed to be 22 Karat), while gold bars must have a minimum level of purity of .995. Besides this, only certain coins from IRS approved mints are allowed, such as from the U.S. Mint, the Royal Canadian Mint, the Austrian Mint, and the Perth Mint. They narrow down the gold bullion coin choices further by restricting any coins that they consider to be collectible, which turns out to be many gold coins. Gold bars also must come from accredited bar makers like the LME, the LMBA, the Nymex, and ISE-9000. This sounds like it might not leave you with much variety, but you can still pick from such beautiful coins as American Gold Eagles, American Gold Buffaloes, Canadian Gold Maple Leafs, and Austrian Gold Philharmonics, to name a few.
The IRS also requires that you have a custodian and offsite storage for your Gold IRAs. While there are many different IRA custodians out there, it needs to be a company that deals with these special Gold IRAs and is able and willing to purchase gold bullion coins or bars on your behalf. The company should be one that you feel comfortable with and trust, so doing some research to find a reliable custodian is a good idea. Regarding the storage, these custodians will generally recommend a well-regarded offsite vault and storage company like Brinks or Delaware Depository. Some companies will tell you that you can be your own depository and store your gold at home through forming a company to act as depository, but this is a grey area that the IRS may clamp down on with a future ruling.
There are also rules on time limits and funding your gold IRA. For example, if you are rolling over funds and assets from another IRA, the government gives you 60 days to complete your funds transfer. This means that if you do not have your money and assets transferred over to the new IRA by the end of this time, then the IRS will consider this to be a withdrawal from your old IRA and you will incur taxes and early withdrawal penalties. Because of this time limit, it is a good idea to have your administrator and custodian picked out before you request your old IRA to send you a check. Also, once you transfer the money over to the new Gold IRA administrator, you will not be allowed to touch these funds for a calendar year.
How the Process for Opening Up A Gold IRA Works
With the tough rules for a Gold IRA, you may be concerned that it is a difficult thing to get one started. Opening up a gold IRA is not as difficult as you might fear. The process starts with first finding a custodian or administrator who handles Gold IRAs. If you have an existing IRA custodian, ask them if they can do this for you. If not, they can point you in the right direction with a recommendation or a short list of good custodians who do handle these special types of account.
The Gold IRA custodian will ask you to fill out some paperwork and to select either the depository with which they work or in some cases to recommend another one that you prefer. A good depository is important as they will actually hold the precious metals on your behalf. Some of them also offer the option of storing metals out of the country and overseas, which is a plus if you want to keep your gold in a secure offshore location.
The last steps involve transferring in your money or other assets and buying your gold. Once your funds have been received and cleared, you finally get to the exciting part of picking out your gold bullions coins or bars. You do not have to worry about going out and purchasing the metal yourself. The IRS prohibits you from buying your own gold personally in these accounts, so the administrator and custodian will advise you on which bullion they recommend and then allow you to tell them what to buy. They will handle the transaction entirely on your behalf and put the metals for storage in the depository on which you agreed.
Pros of Gold IRAs
• They are Assets that are Independent of Currencies and Central Banks – One of the great advantages of gold is that no one can print or make any more of it. Governments can not hold it hostage or manipulate it like they can with paper currencies. Gold also can not be inflated away or bid down by central banks as they easily do with your U.S dollars when it suits them. If the dollar goes down, your retirement account is protected by the gold in it that would simply sell for more dollars.
• They Provide Diversification of your Retirement Portfolio – Gold in its best moments is the ultimate diversification tool for your retirement account. It has long been valued as a hedge against inflation. It also tends to correlate well against stock market declines. This is why a greater number of investors turn to gold to protect themselves against stock market crashes and volatility, as well as risks of U.S. government debt levels blowing up and hurting the values of assets like government bonds.
• They Allow You to Take Physical Gold As Distributions – Many investors like the fact that Gold IRAs allow you to treat your physical gold as a tangible investment when it is time to take distributions. At that time, you have the choice to either sell your gold at fair market prices and have the custodian send you a check, or to request that they send you the gold coins or bars themselves to your home. That makes these types of accounts the only retirement vehicles that permit you to take home real precious metals that you held to protect the value of your retirement.
Cons of Gold IRAs
• There Are Time Delays with Physical Transfers – Paper held gold in the form of ETF’s and other vehicles can simply be transferred electronically, and this happens almost instantly. Gold bullion that is physically held needs time to be transferred from one custodian to another, or to your home if you decide to receive it as a distribution.
• The Commissions Are Higher With Physical Gold Transactions – The cost to buy and sell paper gold ETF’s is cheaper than the commision you will pay to buy or sell physical gold in most every case.
• There is More Work Involved With Selling – Selling physical precious metals involves contacting your custodian and putting in orders to do so. It requires time to get confirmation and transfer the funds into other investments most of the time. With paper gold holdings, you can sell the positions with usually a mouse click these days.