Retirement planning is essential to long-term financial security, and it’s not only about saving money. The planning part involves protecting the wealth that you accumulate, and that’s where gold may help.
Adding a gold individual retirement account (gold IRA) to your retirement savings can provide diversification, and have several other benefits. Here’s a look at the top 4 reasons to consider a gold IRA for your retirement.
What is a Gold IRA?
A gold IRA comes with all the tax benefits of an IRA, and allows you to invest in gold bullion. Most IRAs aren’t set up for physical precious metal investing, because of the additional security and storage considerations involved.
A financial institution that offers gold IRAs can purchase, secure and store physical gold coins and bars for your account. Most institutions overseeing gold IRAs can also assist with investing in other precious metals through an IRA.
Benefit 1: Diversification of Retirement Portfolio
Diversification is a cornerstone of sound investment strategy. By spreading investments out across multiple asset classes, you can usually mitigate potential losses in any one class.
For example, investing in gold might reduce your losses if there’s a downturn in the stock market. Investing in real estate and/or bonds could further spread your risk exposure across different classes.
Precious metals, most notably gold, have long been one of the most common ways to diversify investment portfolios. Gold isn’t connected to the stock market, and regularly moves differently from the market.
In particular, gold has repeatedly acted differently from the Dow Jones (and other stock indexes) during times of recession. The metal has increased in value while stocks were falling multiple times in the past.
Gold can be used to diversify any investment portfolio, but perhaps none is more important than your retirement portfolio. Adding a gold IRA to your account mixture may help you ride out rocky times, and potentially ensure more savings stability should other assets decrease near or during your retirement.
Of course, complementing gold with other precious metals can further diversify your holdings. Most gold IRAs allow investing in silver, platinum and palladium as well.
If diversification is one of your main reasons to put gold in an IRA, you don’t necessarily have to invest any current IRA holdings in gold. You can open a new gold-specific IRA, and keep your current one as-is. This would accomplish the same effect as putting new contributions in your current IRA into gold, which likely isn’t an option without transferring to a new IRA.
Benefit 2: Protection Against Inflation
Inflation erodes the purchasing power of money. As prices for goods and services increase, how much can be bought with the same amount of money decreases.
Gold has long been recognized as a hedge against inflation. During periods of high inflation, the value of paper currency tends to decline, while gold often retains or even increases its value. Just as gold moves differently from stocks, it also moves differently from cash.
For instance, gold was one of the best-performing assets during the 1970s. As gas prices soared and stock prices plummeted, gold surged from $35.96/oz. In 1970 to $614.75/oz. In 1980. In 2024, it’s closed around $2,271.20/oz. thus far. Cash lost more than 10% of its value because of inflation in multiple years. (Gold prices noted are the average closing price throughout the year.)
Inflation doesn’t just affect cash in a bank or savings account. The loss of purchasing power can decrease how useful fixed-income investments, such as annuities and bonds, are during your retirement. The value of what they pay decreases if costs go up. Having some gold might bolster your savings if inflation eats into fixed-income investments too much.
When using gold to protect against inflation, other precious metals may help too. Silver, platinum and palladium are all used as inflationary hedges.
Benefit 3: Preservation of Wealth
Gold has long been used as a means of preserving wealth across generations, and long isn’t just in the past century. This was one of the most common ways people of ancient civilizations kept their wealth, and has withstood the test of time throughout history and geographic regions.
More recently, gold has seen long-term price appreciation over the past century-plus. Price per ounce was just over $30 in 2910, and has reached $2,500+ in 2024. There certainly have been ups and downs over the years and decades, but the long-term trends of gold during the United States’s history and before it are strong. (Past performance isn’t indicative of future results.)
Opening a gold IRA isn’t just wise for your own retirement, but also often a smart tax strategy if you want to pass on an inheritance of precious metals. Roth IRAs, in particular, come with tax benefits for beneficiaries. In most cases, beneficiaries who inherit a Roth IRA don’t have to pay taxes on the account’s funds. (Traditional IRAs usually do require that heirs pay income tax when withdrawing from an inherited account.)
Benefit 4: Tax Advantages
A gold IRA isn’t the only way you can invest in gold, but it’s one of the most tax-smart methods. This type of IRA offers the same tax advantages as an IRA that’s invested in other assets.
Exactly what those tax advantages are depends on whether you choose a traditional gold IRA or a Roth gold IRA. Either option may provide tax benefits that help you accumulate much more for retirement:
- Traditional Gold IRA: A traditional IRA allows you to initially invest untaxed income, meaning that you have a larger initial amount to purchase gold or other precious metals with. Having more gold in your portfolio could lead to more gains if gold appreciates in value. Withdrawals during retirement usually are taxed.
- Roth Gold IRA: A Roth IRA requires that you invest taxed income, which gives you less to initially purchase gold with. Any gains are generally untaxed if they’re withdrawn during retirement, though. That could net you a major tax savings if gold appreciates like it did during the 1970s, or as it broadly has over the past century.
Whether a traditional gold IRA or Roth gold IRA is a better fit depends on your retirement time frame, financial situation, and other factors. A financial advisor who specializes in gold IRAs can help you select whichever better suits you.
There are some income restrictions for Roth IRAs. In 2024, contribution limits begin decreasing if you earn more than $161,000 and file taxes individually, or $240,000 if you file taxes jointly. These apply to gold and non-gold IRAs.
There aren’t such income restrictions for traditional IRAs, A financial advisor might be able to assist with a backdoor gold Roth IRA conversion, which is a strategy that initially uses a traditional IRA and then transfers to a Roth one.
Gold IRA vs Typical IRAs: Which is Better for You?
Similarly, the choice between a Gold IRA and a typical IRA depends largely on your investment goals, risk tolerance, and financial situation.
Typical IRAs offer a wider range of investment options, including stocks, bonds, and mutual funds. They may be suitable for investors seeking higher potential returns but willing to accept greater market volatility.
Gold IRAs are primarily focused on investing in physical gold and other precious metals. You might consider a gold IRA in order to diversify, mitigate inflation or preserve wealth through gold investments and other precious metals.
In many situations, both a non-specialized IRA and a gold IRA can have a role within someone’s portfolio. You can have both, and are able to set up a gold IRA even if you have a non-gold IRA already.
You’ll still be subject to maximum contribution limits if you have both a gold IRA and a non-gold IRA. You can split your contributions between the two, however, or contribute to them in different years. You might consider opening a gold IRA now and making the maximum contribution if you already have a well-funded IRA but haven’t contributed to it yet this year.
Traditional and Roth IRA contribution limits for 2024 are $7,000 for those under 50, and $8,000 for those 50 years and older.
Risks and Considerations of Gold IRAs
While Gold IRAs offer significant potential benefits, they carry certain risks just like almost every investment does. When evaluating whether a gold IRA is right for you, keep these considerations in mind:
- Market Volatility: Gold prices have increased dramatically over the past century-plus, but there are times of significant short-term downturns. Gold can be a volatile asset at times. Investing in some gold might reduce your overall portfolio’s volatility, though.
- Fees and Costs: Gold IRAs often come with higher fees than typical IRAs do. Be prepared to pay custodian fees, storage fees, and possibly other fees related to moving and storing the physical gold.
- Regulatory and Compliance Issues: Gold IRAs must comply with specific IRS regulations regarding the purity and storage of the gold. Gold must be at least 99.5% pure, and it needs to be stored in an IRS-approved depository. The financial institution that oversees your gold IRA will take care of these requirements.
- American Eagles, Canadian Maple Leafs, and gold bars at least 99.5% pure are some of the most common physical gold that meets IRS purity requirements.
How To Open a Gold IRA
The process of opening a gold IRA is fairly straightforward. Research which financial institution you’d like to open one with, confirming that they can hold physical gold. The account opening process will require some authorization forms, other documents, and details like contact information and Social Security number. You’ll also select whether you want a traditional or Roth version.
You can fund a gold IRA through contributions, which would be subject to the year’s annual limit. You can instead transfer funds from a non-gold IRA, or roll over funds from a non-IRA retirement account (usually a 401(k) or 403(b)).
Transferring or rolling over funds is usually handled by the financial institutions that your new gold IRA is through. You’ll need to complete some forms, and they’ll take care of transferring assets. Unless you’re holding cash, you’ll probably have to sell assets before moving them if they’ll be invested in gold instead.
Should You Get a Gold IRA?
A gold IRA can have a place in many people’s retirement savings plans, but no investment is right for absolutely everyone. Consider your investment goals, time frame, and risk tolerance as you evaluate whether a gold IRA is right for you.
If you’re looking for a way to diversify your retirement savings, hedge against inflation, and preserve your wealth, a gold IRA may indeed be a good choice for your retirement savings plan. It can have an important role alongside other account types and asset classes.
