All You Need to Know about Opening a Gold Roth IRA
Before diving into the nuances of the gold Roth IRA. There may be some benefits to understanding a standard Roth IRA. First, its precursor is the traditional IRA accounts but there are some differences to bear in mind.
What Is a Roth IRA?
For example, a traditional IRA allows for tax advantages in the form of tax-free contributions and tax-deferred growth. Instead, the Roth IRA takes advantage of tax-free distributions with contributions coming from after-tax dollars.
Additionally, while a traditional IRA has a withdrawal requirement, a Roth IRA doesn’t mandate any withdrawals unless the account owner has passed away.
On the flip side, traditional IRAs do bear some similarities to their Roth IRA counterparts. For example, unlike a 401(k), neither is sponsored via an employer, meaning they remain available regardless of where you happen to be working. Also see our article on comparing a roth IRA versus a crypto IRA. Also see our article on Conduit IRAs.
What Makes Gold a Solid Roth IRA Choice?
Now, you may be wondering, why gold? Well, consider that you’re living in a time where the national debt ceiling continues to appreciate. What does that mean for your personal finance and your retirement plan where the dollar is concerned?
Well, for one thing, it means the dollar devalues meaning your retirement savings become perpetually less valuable. So what happens when your money is a much less effective store of value than you require?
Other commodities become more appealing and even more feasible. Gold sits among these as the price of gold has an inverse relationship to the dollar. In other words, when the dollar falls, the price of gold rises. History can tell you that investing in gold has been used as a means of protecting wealth for ages.
This would explain why people who invest in gold often do so. When you do so, you don’t necessarily have the concerns of asset dilution that you would if you were to choose some other store of value.
The Gold Roth IRA
As you’d expect, the gold Roth IRA is a self-directed one that allows you to invest in gold, silver coins, as well as other precious metals and tangible assets. You find that real estate, antiques, collectibles, art, etc. also fall under the gold IRA umbrella.
There are tax benefits to enjoy here as well. For one thing, you are dealing with post-tax contributions when you go this route. In other words, before depositing money into these kinds of self-directed IRAs, you pay the tax at that point. Therefore, you enjoy tax-free withdrawals.
Typically in retirement planning, the idea is to opt for an account that follows this path (such as a Roth IRA) if you are expecting your tax bracket to be higher at retirement time. Your financial advisor may also advise you to do this as you want to pay taxes where convenient.
Thanks to IRS rules, those who wish to buy gold with an IRA account need to navigate a bit of complication. That’s because gold and silver, for example, would be considered collectibles in the eyes of the IRS. What does this mean for you?
Well, individually directed retirement accounts used to purchase collectibles see them created as a distribution in the purchase price amount. In other words, if you opted to buy gold for $1,000, that would be seen as a $1,000 distribution. Therefore, you would end up being taxed based on that classification.
Nevertheless, there are some exceptions to this rule for those interested in investing in precious metals. Specific gold, silver, platinum, or palladium bullion are excluded. The key factor is how possession is handled.
Provided that you have a non-bank trustee that’s approved, then you are free to go this route. Just to clarify, it means you can’t hold on to the gold, silver, platinum, and palladium yourself. Your trustee needs to do so o your behalf.
The Best Gold IRA Companies to Consider
Should you decide to open a Roth IRA for physical gold, several companies are more than willing to help you add this to your investment portfolio. Below is a look at some of the best ones that you may want to consider.
Oxford Gold Group
It’s hard for anyone to argue with a Better Business Bureau A+ rating, which is what the Oxford Gold Group boasts. It’s a well-rounded Gold IRA company that is highly suited to helping you to purchase gold, silver, platinum, and palladium coins or bars.
The process is as simple as opening your gold IRA account, funding it, and then having the purchases made from there. Secure shipping and storage are also provided.
Patriot Gold Group
This is another reputable gold IRA company, and its appeal is to those who are looking to limit fees as best as possible. Its annual fees are some of the lowest and even become zero if your account balance exceeds $100,000. In fact, if your account should be deemed eligible, your first and second annual fee payments are waived.
Orion Metal Exchange
This is yet another solid option for your gold retirement account and is best suited to those who may be maintaining a small balance. There’s also a respectable variety of precious metals and forms. You could use your account here for gold bullion, coins, or the actual metal.
What Percentage of Your Roth IRA Investing Should Be Rooted in Precious Metals?
Retirement funds and how they are invested are always hot topics. Even the idea of a gold and silver IRA is something that many don’t necessarily agree with. Still, if you do find a self-directed IRA custodian and decide that gold IRAs are the way to go, how much of your IRA should include precious metals?
Well, experts would tell you that you don’t want your individual retirement account to be made up of more than 5% to 10% precious metals. Now, you may say that figure is incredibly low, but here’s why.
It is true that if you were to purchase gold, for example, you would be playing it safe as commodities, such as gold and silver have managed to retain their value seemingly forever. Nevertheless, they don’t necessarily display the same performance as asset classes, such as stocks.
Additionally, the best portfolios out there are the diversified ones, meaning while you can invest in gold, your probably want your portfolio to include mutual funds, stocks, bonds, and the like.
How to Go about Opening a Gold IRA?
If you’re interested in gold IRAs. you may be wondering how to go about the process of setting things up. Here’s a look at what that would look like for you
Designate a Custodian
As indicated above, this kind of Roth IRA is characterized by self-directed IRA custodians. Your first step is to select the custodian. Just a reminder that you can’t choose a bank for your Roth gold IRAs based on the technicalities of how the IRS rules treat Roth IRA distributions for commodities.
Select Your Dealer
You also need to select the dealer you plan to purchase gold from. The custodian you selected in the previous step takes directives from you on executing the purchase on your behalf. Be sure you do your research before you commit to any purchases.
There are industry trade groups such as the Industry for Tangible Assets (ICTA), Professional Numismatists Guild (PNG), or the American Numismatic Association (ANA) that you can use as markers to help you ensure that gold IRA accounts are in good hands.
Typically, you want your custodian to belong to one of these groups. Additionally, even if you are told that the said custodian already has a partnership with a dealer, investigate the dealer on your own before making any purchases.
Settle on Your Desired Products
The dealer likely offers multiple products. While the focus here is on investing in gold, there are certainly other precious metals and commodities that Roth IRAs can be used to purchase. Feel free to select one or multiple. Also check out our article on if you can have more than one IRA account.
Select a Depository for Your Physical Gold
Like a Roth gold IRA requires an approved trustee, it also mandates that the depository used be an approved one. The Delaware Depository is an example of an approved one. The real deciding factor for approval is the requirements stipulated by the Internal Revenue Code.
You can always consider requirements from your custodian or you can look for one that appeals to you.
See the Transaction Through
Now, you’re ready to buy gold with your Roth IRA. All you needed was to put together the trustee, dealer, and depository pieces of the puzzle. Your custodian handles the payment, after which the dealer ships the commodity to the depository.
Note that depending on the custodian you chose, there may be a facility or service offering for secure shipping.
Withdrawals from a Precious Metals IRA
You may wish to take withdrawals from a gold IRA account. If so, then there are two options available to you for doing so. Regardless of which way you choose to go about it, you need to get your trustee involved to initiate the process.
Depositories are willing to purchase commodities from Roth IRA holders. In this instance, you are provided with the dollar value of the holdings you chose to turn over.
If you wish, you can have your commodity shipped to you after the distribution
Remember It’s Still a Roth IRA
While you may not be dealing with traditional IRAs here, remember that this arrangement is still subject to your IRA rules. In other words, whatever rules and regulations govern withdrawals from the IRA standpoint are still in effect.
What Makes a Gold Roth IRA Worth It?
There’s a lot to unpack should you choose to invest in gold with a Roth IRA. Therefore, people often ask if going this route is worth it. Certainly, the benefits of Roth IRAs stack up under normal account terms. However, can the same be said about the precious metal version?
If you want to see the value in a Roth gold IRA, you must begin to view it as a bolstering point in your portfolio instead of as an isolated piece.
That’s why you find that the diverse portfolios are often the best ones there are. So you may have stocks, bonds, and mutual funds, alongside other investments. Each serves a purpose that makes it viable.
As far as a Roth gold IRA goes, its purpose is to help you keep afloat during an economic downturn by mitigating your risk. Additionally, unavoidable inflation doesn’t reduce the real value of gold like it would the dollar.
So, its purpose is to help you keep your position of wealth somewhat consistent even amidst factors that would make doing so a challenge.
The Roth Gold IRA is a self-directed IRA that allows you to capitalize on the benefits and workflow of a Roth IRA while taking advantage of the economic advantage of investing in gold. Since there are rules the IRS has established based on how gold is treated as a commodity, you must appoint a trustee and use a depository to store the physical commodities associated with these kinds of Roth IRAs.
Reputable trustees such as the Oxford Gold Group and the Patriot Gold Group are highly regarded Roth gold IRA trustees that offer different advantages. Be sure to do your research so you can select the one that best meets your specific needs.
Frequently Asked Questions (FAQ)
Below you can see some of the questions we get asked regular.
Can I Opt for a Home Storage Gold IRA?
One of the most important notes for those hoping to use a Roth IRA to buy gold is that the commodity cannot be stored at your home. Regulations established by the Internal Revenue Code indicate where you can store your gold if you’re interested in selecting a proper depository.
Are There Special Costs Associated with Owning Gold in a Gold IRA?
If you own gold in your Roth IRA, there are a few costs that you want to bear in mind.
First, dealers don’t tend to sell the gold at market value. The markup on the commodity’s price often depends on if your preference is the metal itself, coins, bullions, etc.
Next, there are the fees associated with these kinds of Roth IRA accounts. Trustees, while they could charge a one-time fee, tend to require annual payments. Note, however, that some waive fees for balances that reach a certain threshold.
The depository used to store the commodity also charges you for the service.
What Is One of the Biggest Risks Specific to Gold Purchases with a Roth IRA?
Remember that gold is a physical commodity and is stored at a depository. Therefore, it’s only as secure as where it’s being held. While unlikely, if the storage location were to become compromised, then your holdings are subject to theft.
Nevertheless, insurance is a requirement to be an accepted depository, so it’s unlikely that a theft incident would be a problem for holdings below the custodian’s stated value on accounts.
This is also a good time to reinforce the importance of choosing reputable custodians that insure transactions as custodian fraud is not unheard of. Err on the side of caution with entities such as these.
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