A Gold IRA is an Individual Retirement Account that allows investors to hold hard, physical assets in their retirement portfolios. Typically, both traditional and Roth IRAs can hold only cash, bonds, and stock.
The Taxpayer Relief Act of 1997 broadened the types of investments allowed in individual retirement accounts to include certain types of precious metals. These IRAs are called “self-directed” or “alternative-asset” IRAs.
Not all precious metals are allowed. Usually, they are limited to gold, silver, platinum, and palladium. Tax law also specifies the purity standards for each metal. For example, the American Gold Eagle coin is an
Best Way to Invest in Gold
Investors became more interested in gold IRAs After the financial crisis in 2008, which brought about a recession.
In October of 2007, the stock market hit its pre-recession high. Then by March of 2009, the market lost 50 percent of its value, and investors’ retirement portfolios reflected this significant drop in value. Gold prices move in the opposite direction of stock prices, so gold IRAs became a reasonable hedge against inflation.
These IRAs are useful for portfolio diversification and for anyone who is concerned with economic and world news that might cause another stock market drop.
All the Ways to Invest in Gold
1) Buy Gold Coins, Bars or Bullion in a Gold IRA
You can buy physical gold from a variety of gold and precious metals brokers who sell the gold in the form of coins, bars and bullion.
While owning actual gold sounds thrilling, storing it in your home can be a safety issue if anyone learns you have the gold in your possession. A relative or friend may mention to others that you have gold in your home, which can lead to theft.
Gold IRA companies securely store your gold for a fee or a small annual fee. Look for a dealer in our List of Top 10 Gold IRA Companies offering free delivery and compare offers from multiple brokers to see if you can reduce costs and increase your profits when you sell the gold.
2) Buy Gold Exchange Traded Receipts (ETR)
Another way to own physical gold is by investing in Gold ETRs from the Canadian Gold Reserves Program. You can trade Gold ETRs on the Toronto Stock Exchange (TSX) through several U.S. brokerages in Canadian (MNT) and U.S. (MNT.U) dollars.
The gold receipts are proof you own physical gold bullion held at the Royal Canadian Mint. You pay a monthly fee equal to an annual rate of 0.35 percent. The purity of the gold an ETR represents is guaranteed to be at least 99.9%.
You can redeem your ETRs for gold bullion or cash once a month, and the minimum redemption is 100,000 ETRs.
However, there’s no need to take possession of the gold with ETRs. When you’re ready, you can sell your certificates on the Toronto Stock Exchange.
3) Invest in Gold Stocks
When you buy stock in a gold company, you’re buying into a gold mining or processing operation rather than gold itself. The company is profitable when it sells extracted gold for a higher value than the cost of the mining operations.
Gold stocks can be a great way to indirectly take advantage of rising gold demand and prices. But you must practice due diligence when selecting gold stocks. Two things to consider when picking gold stocks are:
- When considering gold stocks, buy into financially stable, quality companies with contracts for future mining projects. You can also look into stock sold by companies involved in processing gold, which may have somewhat less potential for volatility.
- Gold stocks usually follow gold prices but can regress while gold prices climb when the economy falters.
4) Buy Gold ETFs
An exchange-traded fund, commonly known as a ETF, is a basket of stocks sold on the stock exchange throughout the day. A Gold ETF may be backed by physical gold assets or could track the price of gold using futures.
Many Gold ETFs hold derivatives and options, with gains taxable at the collectibles 28 percent rate. The ETF is the one gold investment you may not want for the long term. The fees eat usually away at profits, depending on the ETF.
Given the range of investments a Gold ETF may hold, take the time to understand the ETFs you’re interested in, and consider taxes and past performance.
5) Gold Fund Investing
Gold mutual funds may invest in any mixture of physical gold assets, precious metals processing stocks, other precious metals or gems, and domestic and foreign gold mining company stocks.
Determining which gold fund to invest in takes a bit of research so you can choose a fund that meets your financial objectives.
Some gold funds hold almost all physical gold and effectively track gold prices. Some focus on emerging gold markets and can be lucrative over time. Others hold a percentage of investments in diamonds, silver and other precious metals and minerals.
Choose a gold fund with a level of foreign company exposure you’re comfortable with, and take a look at past performance of the mutual fund compared to the overall market.
Buying shares in a gold fund can expose your portfolio to the benefits of investing in gold at a low cost. Look for no-load funds or low-load funds with expense ratios under one percent.
6) Buy Gold ETNs
An ETN is an exchange-traded note, and this instrument combines some aspects of ETFs with bond securities.
Gold ETNs may track a gold index or may move opposite of the value of gold, which is useful for the contrarian investor.
Like buying non-interest bearing bonds, a bank issues Gold ETNs with a maturity date. When the ETN matures, the bank pays the investor back with a profit depending on gold futures.
With great risk comes great reward, and Gold ETNs can pay a handsome return. However, you also can lose your entire investment.
What is a Rollover?
If you have a retirement plan such as a 401(k) or 403(b) through your employer and you leave to take another job, you can roll the money you have in your current retirement account or IRA over into another IRA.
The same rules apply if another IRA offers better investment opportunities than the one you have. You must follow certain rules and regulations. The same is true for a gold IRA, but there are even stricter regulations to follow
Rollovers can occur under one of three conditions:
- The sponsoring company substantially changes its retirement plan
- The sponsoring company changes the custodian of its retirement plan
- The employee terminates employment with the sponsoring company
How Are Rollovers Done?
The IRS stipulates three ways to complete a rollover.
- Direct Rollover: You can ask your retirement plan administrator to issue a check directly to the retirement plan or IRA to which you wish your money rolled over. Using this method assures that there will be no taxes withheld from your rollover.
- Trustee-to-Trustee Rollover: If you are rolling over your IRA, the trustee of the IRA can facilitate the rollover to the trustee of the other IRA. There are no taxes withheld using this method.
- 60-Day Rollover: A check can be issued directly to you for the amount of your rollover. If you invest it in another IRA or retirement plan within 60 days, no taxes will be withheld.
Some investors choose to roll part of their retirement savings into a gold IRA rather than all their savings. In this case, a portion of the retirement savings will be subject to the special gold IRA rollover rules.
How Are Gold IRA Rollovers Different?
Gold IRAs can either be traditional or Roth IRAs. The first thing that a potential investor must decide is whether they want to invest in the actual physical gold or in gold company stock, a gold mutual fund, or an exchange-traded gold fund.
If the investor decides to invest in the actual gold, it must be gold coins or bullion that meets the standards of the IRS regarding purity. The gold must be held by a custodian that is IRS-approved and should not be held in any type of home storage.
Rolling over retirement funds to a gold IRA is simple. You have to first establish a self-directed IRA which allows you to invest in a wider range of assets.
Then, you need to choose a custodian to create and administer your self-directed account. The custodian you choose must have the facilities to store the physical gold for you. And it should have been approved by federal and state agencies to provide asset custody services.
Finding the Best Gold IRA Company
Choosing a gold IRA custodian is important since the broker is tasked with choosing gold that meets the standards of the federal government for inclusion in an IRA. You want your broker to have, at least, the following characteristics:
- Qualifications: The broker should have all the appropriate licenses, bonds, and insurance to protect your investment.
- Reputation: The broker should have an excellent reputation based on the word of previous clients and organizations like the Better Business Bureau. You might want to look at consumer reviews or number of complaints filed.
- Responsiveness: The broker should be responsive to your needs as an investor. They should be well-versed in the tax law regarding IRAs and Gold IRAs and be willing to work with you to be sure you are meeting the requirements.
Invest in Gold Wisely
There are ways to invest in gold whether you are looking for a hedge against the economy, growing your retirement portfolio, or possibly getting in on a short-term payoff.
Regardless of how you choose to invest in gold, be prepared to do a few hours of research or consult with a financial advisor to ensure your gold investment method compliments your financial goals.
Rolling over your investments into a Gold IRA is a popular option for people looking to avoid the uncertainty of the stock market. If you’re unsure about where to start, read our guide on the best Gold IRA companies to help you get started in your decision-making process.
Do you have any questions on how a gold IRA is the best way to shield your portfolio from inflation? Ask below!