How to Invest in Gold with a Roth IRA

How to Invest in Gold with a Roth IRA

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Investing a portion of your Roth IRA funds into physical gold can be a wise decision for several reasons. First and foremost, physical gold serves as a hedge against inflation and economic uncertainties, providing a reliable store of value.

As a Roth IRA is a long-term retirement account, protecting your purchasing power over time becomes crucial, and gold has historically demonstrated its ability to preserve wealth during periods of economic turbulence. Additionally, physical gold offers diversification benefits to your Roth IRA portfolio.

By including an alternative asset like gold, which has a low correlation with traditional investments like stocks and bonds, you can reduce the overall risk exposure and potentially enhance your portfolio's resilience.

Lastly, physical gold is highly liquid and easily tradable, allowing you to convert your gold holdings into cash when needed.

Before we get started:

Inflation and rising interest rates has destroyed many people's savings.  Many investors feel defeated and helpless, but you can fight back.

Gold and other precious metals have been used to protect against inflation for thousands of years.  And when you hold physical in a tax-protected savings account, it gets even better.

Opening a gold IRA can sound complicated, but it's really not.  

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Table of Contents

Gold Roth IRA 101: How to Invest in Precious Metals With a Roth IRA

The tax advantages of a Roth IRA make it a highly appealing investment. You pay taxes on contributions to your Roth IRA, but you enjoy post-retirement distributions that are tax-free. A Roth IRA also affords investment flexibility, allowing you to hold assets like gold and other precious metals.

However, the IRS imposes specifications about the types of gold assets you may hold within your Roth IRA. Additionally, not all brokerages even offer the option. Question: How do you invest in gold with a Roth IRA?     

In this article, we'll cover the basic info you need to know before acquiring gold assets to hold in your Roth IRA. We'll also discuss ways to set up and fund your gold Roth IRA, the advantages of holding gold assets in your portfolio, and other avenues to consider when investing in gold.

Lastly, we'll touch on outstanding companies that can help you roll your 401(k) into a gold Roth IRA.

Key Takeaways

The IRS prohibits investing in collectibles like physical gold with an IRA, but there are certain types of bullion, gold, and silver that are exceptions.

Although you can hold some physical gold in your Roth IRA, an approved custodian must be in charge of holding the actual physical gold in a special repository.

Viable alternatives for investing in gold with a Roth IRA include gold exchange-traded funds (ETFs), and commodities funds that trade like stocks in gold futures or gold industry companies.

A self-directed IRA (SDIRA) allows you to buy gold directly, investing in gold and a variety of other paper and physical assets with your Roth IRA.

Brief Note on Traditional, Roth, and Gold Roth IRAs

To appreciate the nuances of a gold Roth IRA, it's helpful to touch briefly on key differences between the most common types of IRAs. When you have a traditional IRA, you make pre-tax contributions, paying taxes on distributions later.

The opposite is true of a Roth IRA. You make post-tax contributions, enjoying tax-free distributions later.

A gold IRA is similar to a SDIRA, another type of Roth IRA: post-tax contributions now, tax-free distributions later. The maximum annual contribution remains the same regardless of IRA type. The IRS adjusts and sets these maximum annual contributions according to inflation.

Per the IRS, all of the contributions you make into multiple IRAs cannot exceed the maximum annual contribution for an IRA. Bear this in mind before investing in gold with a Roth IRA.

Direct Purchase of Gold With a Roth IRA

There are specific IRS rules for investing in gold with an IRA. The IRS considers gold a collectible. The IRS treats the purchase of collectibles with an IRA as taxable distributions. If you purchase a $2,000 collectible with an IRA, the IRS treats this as a $2,000 taxable distribution.

Under IRC Section 408(m)(2), the IRS defines the following as collectibles you are prohibited from using an IRA to purchase:

  • Works of art
  • Rugs or antiques
  • Metals or gems (with exceptions)
  • Stamps or coins (with exceptions)
  • Alcoholic beverages (wine)

The longer list of collectibles includes a host of tangible property identified under IRC Section 408(m).

Exceptions to the IRS Rules on Collectibles Purchased With an IRA

If you used an IRA to purchase collectibles before 1982, those collectibles possess grandfathered status. They aren't subject to IRC Section 408(m). Presently, you must observe several important criteria when considering what physical gold you can purchase with an IRA.

These criteria apply to several types of precious metals, gems, stamps, and coins. You can use your IRA to purchase such physical metals without incurring IRS penalties.

The metal and coin exceptions include gold, silver, platinum, and palladium bullion of a certain fineness, coins issued under state law, and certain gold, silver, or platinum coins. Gold bars must be at least 99.5% purity, for example.

Finding metals and coins that actually meet IRS standards is a bit trickier. Luckily, there are real-world examples of such coins: the Australian Gold Nugget/Kangaroo, the Canadian Maple Leaf, the American Buffalo, and the American Gold Eagle coins.

Reputable sellers go so far as to divide and label their inventory, identifying the gold and silver inventory that is IRA-eligible, so to speak.

  • Viable Alternatives to Physical Gold

If locating and investing in physical gold with your Roth IRA seems too daunting, explore other options. The IRS allows you to invest in something called paper gold with your Roth IRA. Paper gold refers to an ETF.

A gold ETF, or paper gold, is a unit corresponding to physical gold. Only physical gold of high purity corresponds to gold ETFs, one gold ETF being equal to 1 gram of nearly pure gold.

ETFs are an investment in stocks of companies deriving most of their revenue from precious metals mining. Trading of gold ETFs occurs on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

There are also other precious metals ETFs, such as palladium, platinum, and silver ETFs. There are metals and mining ETFs: gold, silver, iron, and coal. Other options for your gold IRA include investments in gold processing companies and gold retailers.

  • Physical Gold vs. ETFs

Nothing beats physical gold. As an asset, its value has never depreciated to $0. It offers a hedge of protection during downturns. Historically, gold prices tend to rise when the rest of the market goes down.

It's very high liquidity, recognized universally, makes gold a universally desirable product that's easy to sell at any time.

Although gold has downside stability, it isn't always as potentially lucrative as a business investment. Gold can't deliver quarterly earnings, expand into new markets, create/sell new products, or issue dividends.

On the other hand, ETFs allow you to invest in gold assets with a Roth IRA. These assets aren't collectibles, so the IRS won't penalize you for purchasing them with your IRA. As the price of gold goes up, so does the value of the stocks associated with gold ETFs.

The value of these stocks increases with the price of gold. At the same time, the value of these stocks may decrease during market downturns. This happens because gold ETFs are still subject to market volatility that impacts the price of stocks.

Remember: ETFs aren't gold; they're an investment in stocks related to gold.

  • Intro to the SDIRA

Investing in gold with a Roth IRA isn't a viable option offered through most traditional brokerage firms (as of this writing). The SDIRA is an alternative worth exploring. A SDIRA allows you to access securities you can't buy with a traditional Roth IRA.

With a SDIRA you can invest in real estate, mortgages, private equity, and even tax liens. Further investments can entail:

  • Livestock
  • Mineral rights, oil, gas
  • Water rights
  • LLC membership interest
  • Promissory notes
  • Raw or undeveloped land
  • Cryptocurrency

You can also invest in commodities, namely gold. Starting a SDIRA is easier than it sounds, and many reputable companies provide this service.

How to Fund Your Gold IRA

Before investing in gold with your Roth IRA or SDIRA, you have to fund your Roth IRA. Acceptable ways to fund your gold IRA or SDIRA vary between brokerages and custodians. Generally, you can do this with a check or a wire payment from a bank account.

Another option is to roll over your existing 401(k) retirement funds into a gold IRA.

Whether you have a Roth IRA or a SDIRA, the physical gold you invest in with your IRA must be held physically by a national repository, a bank, or an IRS-approved nonbank trustee or nonbank custodian.

You cannot store it at home or elsewhere. Consult the IRS website for a current list of IRS-approved nonbank trustees and nonbank custodians.

Differences Between a Trustee and a Custodian

If you go the route of the SDIRA, you'll work with a bank, possibly a brokerage firm, or an IRS-approved nonbank custodian. Custodians assist with managing paperwork and tax reporting that the IRS requires when you perform gold transactions as part of your retirement planning.

Trustees are investment managers trained to give investment advice. They base this advice upon your unique financial situation, the type of investor you are, what you intend to invest in, and a variety of other factors. A custodian merely holds your physical gold.

A trustee advises you on what, when, and how to diversify and maximize a portfolio containing gold. Since SDIRAs are self-directed, you are the trustee, but the law requires you to retain a custodian for your IRA's physical gold.

Thus, a custodian can help you set up and fund your gold IRA, but they won't necessarily make investment management decisions. Trustees may perform custodial services, but the reverse is seldom true.

However, large banks with brokerage arms, credit unions with brokerage arms, and large financial institutions often serve as both trustees and custodians. Most often the management of assets within your gold IRA or SDIRA is up to you.

As gold IRAs and SDIRAs become more popular, more SDIRA companies are beginning to provide all sorts of real-time educational resources to help you become a better investment manager of your portfolio's assets: what/when to buy, how long to keep it/exchange it, when to sell, etc.

How Much Gold Should You Invest in With Your Roth IRA?

There are no hard and fast rules about how much gold you should have in your Roth IRA. The consensus view suggests you maintain a threshold of 5% to 10% gold or a mixture of precious metals in your Roth IRA, with the optimal amount being roughly 8% to 10%.

Considering all of your options with a SDIRA, you won't lack numerous, creative, innovative ways to keep your portfolio as diverse as possible.

You can still purchase physical gold bullion and coins. Their liquidity is undeniable, and the fast cash they can yield might come in handy. Unfortunately, you cannot roll gold you've already purchased into your Roth IRA or SDIRA.

Even if the gold meets IRS standards for inclusion in a Roth IRA, adding gold you've already purchased is a transaction the IRS prohibits.

Extra Costs of Gold IRAs

Gold IRAs are unique in that they contain physical gold held by a custodian at a specified brick-and-mortar location. These unique IRAs have numerous costs and greater costs than the costs of opening, funding, and maintaining a standard Roth IRA.

Many standard Roth IRAs have zero setup fees, although a minimum deposit might be required.

Gold IRA and SDIRA custodians typically impose a setup fee. There are no industry standards for such fees. It depends on the custodian, the size of your first deposit, and a variety of other factors.

Over the lifetime of your gold IRA or SDIRA, there may be:

  • An annual custodian maintenance fee
  • Seller fees
  • Storage fees (commensurate with the amount of physical gold you store)
  • Insurance fees
  • Wire transfer fees
  • Cash-out fees

Future Payments Into a Gold IRA, Selling

How much should you pay into your gold IRA? Regardless of IRA type, you cannot make contributions exceeding the maximum allowed by the IRS. In recent years, this amount fluctuated between $5,500 and $6,000 annually or roughly $450 to $500 monthly.

When you want to liquidate the physical gold holdings in your gold IRA or SDIRA, call your brokerage firm, IRA custodian, or the company that provides your SDIRA. They can advise you on the next steps.

You'll have to determine the dollar value of the amount of gold you want to sell. Naturally, you can't liquidate these assets before retirement without penalty.

401(k) to a Gold Roth IRA Rollover

Rolling over a 401(k) or another type of employer-sponsored retirement plan is one convenient way to fund a gold IRA or a SDIRA. There are a handful of renowned companies that specialize in helping you open a gold IRA and helping you rollover your 401(k) into a gold IRA.

The process is easy, and the company typically provides educational resources to help you better manage your gold IRA over its lifetime.

The following list showcases three companies that excel at helping customers with a 401(k) to gold IRA rollover.

  • 1. Goldco

A personal recommendation of Chuck Norris and Sean Hannity, Goldco is another A+ BBB-rated gold IRA company and among the top 10 in the world. Founded in 2011, the company calls Los Angeles its corporate home base.

They have a team of seasoned gold IRA experts who can help you roll nearly any tax-advantaged retirement account into a gold IRA.

Goldco is notable for having a very high price buyback guarantee. They provide you with up to 10% of your investment in precious metals. Their platform is virtual and easy to navigate, with a vast selection of gold, low fee structures, and reasonable, clear pricing.

They have an online chat option (available seven days a week) that connects you with industry specialists.

  • 2. Augusta Precious Metals

In business since 2012, Augusta Precious Metals has a straightforward rollover procedure boasting reduced charges, clear pricing, and no hidden fees. Their selection includes IRA gold and silver in the form of coins, bars, and bullion. The company insures its gold and silver, so there are no worries about loss during shipment.

They have an excellent return policy, an A+ rating with the BBB, and tons of positive customer reviews. They also offer lifetime service and support to existing and future customers.

Augusta precious metals homepage
  • 3. American Hartford Gold

With an A+ BBB rating and a glowing five-star reputation on Trustpilot, American Hartford Gold holds its own in the gold IRA market. A favorite of media personality Bill O'Reilly, American Hartford has successfully delivered more than $1 billion in precious metals without hassle, fine print, or customer complaints.

Their selection of gold and silver bullion is vast, teeming with solid gold IRA-eligible choices.

They assist you with every step in the process of rolling over your 401(k) into a gold IRA, offering round-the-clock website support over the lifetime of your retirement account. They have a trusted buyback commitment.

Their gold IRA rollover services are free: free storage, maintenance, and insurance for up to three years.

Remember to read our list of the Best Gold Investment Companies to work with, before investing your hard-earned savings!

>> CLICK HERE to read our list of the Top Gold IRA Companies. <<

Charles Turner

Hi, I'm Charles Turner, founder of Turner Investments.  I created Turner Investments to provide education and guidance to individuals interested in personal finance.

My goal is to make Turner Investments a valuable resource for anyone looking to learn more about personal finance and make smarter investment decisions.

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