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August 9

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Gold IRA Pros and Cons

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When you begin your investment journey, it is relatively easy to get overwhelmed by all the options at your fingertips.

One option that is relatively easy to understand is god. It has been a valuable substance for nearly as long as humans have been around, and most people can at least understand the value of gold itself. It is how to invest in gold, for many, that is so difficult to understand.

If you invest in gold, you might want to consider using a Gold IRA. This type of account can be quite advantageous for many investors, especially those close to retirement.

Our goal is to guide you through the process of how a Gold IRA works and to let you know the real pros and cons of using this type of investment instrument to diversify your portfolio.


One of the great things about gold is that it is easy to understand. When you see gold in virtually any form, you can tell it has some value. What makes it a bit unique is that gold is so easily recognized as valuable that it rarely sees the kind of volatility that makes other types of investment untrustworthy.

Gold's pricing is actually more straightforward than you might think. Gold prices go up when more people want to buy gold and down when fewer people want to buy gold. For once, it's easy to see supply and demand in action.

What might be unique about gold is that there is always at least some level of demand. Whether it's because of jewelry or industrial need, there is always someone out there who is buying gold. This makes it a relatively safe investment for many.

Gold is also helpful because it stands firm against inflation. When other prices go up, gold tends to go up in value. As such, it's an investment that won't lose money simply because of natural inflationary tendencies.

What is a Gold IRA?


A Gold IRA is just what it sounds like - an IRA allowing individuals to invest in gold rather than traditional stocks and bonds.

A Gold IRA is also a self-directed IRA that allows users to choose which types of approved assets may be added to their accounts and when those items may be removed.

These accounts are pretty heavily regulated by the IRS and require that their owners purchase new gold for use in the account, that the gold is of specific levels of purity, and that all items in the account are kept in an IRS-approved depository for security purposes.

There are plenty of good reasons to invest in a Gold IRA. Some people choose to use an IRA to get great tax-advantaged benefits. Others simply choose this type of account to invest in gold without worrying about being overwhelmed by options.

Many, though, choose this type of account because it is a good way to add a bit of diversity to a retirement portfolio. Adding in precious metals gives them a backstop that can provide much-needed security in a time when markets have become less reliable than in years past.

Gold is excellent, but that doesn't mean it's a miracle investment. You must understand that gold has legitimate pros and cons before investing.

Now that you know how to invest in gold, it's vital that you decide if it is right for you. 

PROS

  • 1. A Hedge Against Inflation: The first benefit of investing in gold is that it works well as a stopper against rising inflation. When times feel uncertain, the markets react. When the market reacts, gold tends to stay the course or even increase in value.

    Gold's existence as a material that continues to hold value allows it to beat things like economic uncertainty. Of course, there's always going to be a degree of uncertainty with any investment, but it is nice to know that gold can be your bulwark.
  • 2. Diversifying Your Portfolio: Gold is also valuable because it gives investors a relatively easy way to diversify their portfolios. When you choose to invest in gold, you're really carving out a part of your wealth that is meant to persist even if other investments go wrong.

    It's always a good idea to diversify your investments, even if those investments aren't in gold. The goal is to ensure that all your eggs aren't in one basket just in case something goes wrong with that part of the market. When you choose gold, you're giving yourself freedom from worry and a place to keep your money.
  • 3. Liquidity: However, one thing you might not think of when it comes to gold's benefits is liquidity. Gold is straightforward to both buy and sell. You can even use gold as a great bartering tool in times of trouble.

    One thing you can say for gold that you can't say for many other investments is that you can always find a buyer for gold.
  • 4. Tax Benefits: One benefit unique to a Gold IRA is that you get real tax benefits from this investment. If you follow the rules of your IRA, you'll be able to defer some of the tax burdens from your investments, and you won't have to worry as much about capital gains taxation. It's not a tax-free investment, but it keeps more money in your pocket.
  • 5. Ease of Transfers: Finally, Gold IRAs are actually straightforward to transfer. If you don't like the provider you are working with, you can find someone else who can handle your account. It's relatively simple to roll over your account from one provider to another, and you won't have to deal with any tax penalties.

We like Gold IRAs and believe in them, but it would not be very intelligent to think they are the right fit for every investor. It is vital that you understand the downsides of investing in one of these accounts, even if the downsides do pale compared to all of the benefits.

CONS

  • 1. Setup and Maintenance Costs: Investing in a Gold IRA isn't free. When you start working with an IRA custodian, you'll have to pay several different fees. These fees relate to opening your account, maintaining your account, and sometimes even transferring items. Every custodian is different, so it's best to look at how each provider works to understand their fee structures.
  • 2. Taxes: Yes, you'll owe taxes on your capital gains with one of these accounts. Right now, you will get taxed at a rate of about 20%. This is a fairly high number for many, but it's variable depending on your financial circumstances. The good news, at least, is that these taxes are deferred.
  • 3. Early Withdrawal Penalties: A Gold IRA is still an IRA. As such, you will pay penalties if you withdraw money from your account before retirement age. You will pay a ten percent penalty if you withdraw before 59 and 1/2.

    This absolutely cuts down on the liquidity aspect that makes gold a beneficial investment, but it's not much of a problem for those who want to leave the account alone until retirement.

How to Invest in a Gold IRA?

Now you know how gold IRAs work and the benefits and drawbacks of choosing to open a Gold IRA, we can start to talk about the process of investing.

Before you can start adding gold to your account, you first have to find a Gold IRA custodian. As you can imagine, plenty of different companies offer this service, and finding the right one is a matter of doing your homework.

Next, you will work with that custodian to open up your account and add a funding source. You'll be able to use cash for most funding, but stocks and other assets are also potential funding sources. From here, you'll start to purchase gold.

Now that you have gold, it's time to send it away. Your custodian won't send it to you but an IRS-approved depository. These items will be kept secure from tampering and theft, but they're also fully insured.

For most people, what comes next is waiting. When you finally reach retirement age, you can start to take distributions. These items can be taken out in cash or in the form of the gold with which you filled your account.

Those who choose to take distributions in cash are done at this point; those who choose to take gold will have to find a buyer and negotiate a price on their own.

Final Thoughts


The biggest thing to take away about investing in a Gold IRA is that it can be helpful to add some diversity to your portfolio. Gold continues to be valued by many, and it can serve as a store of value that isn't as easily battered about by the changes that can happen in the global marketplace.

Gold IRAs benefit those who want to invest in precious metals but do not want to deal with the many difficulties that come with investing in precious metals on their own. This can be an excellent opportunity for new and old investors to dig into this marketplace.

As with any other investment, a Gold IRA requires some research. It's always a good idea to look into custodians so that you can feel safe with your investment and know that all of the costs of having this type of account are being fairly allocated.

Though a Gold IRA isn't some magical solution to your retirement needs, it can be a helpful tool. If you're looking to invest in a way that gives you some protection against volatile markets, this may be the best investment tool for your future.


We hope you enjoyed the read and found it valuable. If you want to take the next step and learn more details, we recommend to check out this list of the top 5 gold IRA firms this year.


You can simply click here to read the companies full reviews.



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