Can I Buy Gold With My Self Directed IRA?

Learn how to purchase gold in a self-directed IRA

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Strategic planning is the key to happy and stress-free retirement years. Many individuals choose to become the masters of their investments by owning a self-directed IRA.

If you’re planning on investing in gold but aren’t sure whether your self-directed IRA can buy it or not, then this piece explores all you need to know.

A self-directed IRA can be used to invest in gold and other precious metals if they satisfy the criteria set by the IRS. Read on to find out all you need to know about buying gold with your self-directed IRA.

What Is A Self-Directed IRA (SDIRA)?

A self-directed IRA (SDIRA) is a self-funded retirement account that holds alternative assets like precious metals, real estate, cryptocurrency, and private equity placements.

These accounts give the owners full control over their investments but have the same limitations as other IRAs regarding the limit of annual deposits and withdrawal of funds.

Self-directed IRAs place the whole risk on the owner to pick and manage their investments. However, this gives investors the freedom to diversify their IRA without limitations.

What Is A Gold IRA?

A gold IRA is a form of a self-directed individual retirement plan that allows you to invest in several forms of assets that primarily consist of gold and other precious metals.

Individuals mainly open gold retirement accounts to diversify their portfolios since the IRA isn’t limited to gold and other precious metals but also allows investing in a wide range of other alternatives, including cryptocurrency and real estate.

Gold serves as a substantial and tangible investment if you know the investment rulings of IRA. Having gold and other precious metals in your portfolio enables you to diversify and gives you the chance to score tax-advantage gains when you decide to sell them.

What To Consider Before Buying Gold With Your Self-Directed IRA

Before you start a gold IRA, you need to understand how the accounts work, what to avoid, and what to expect. Here are 4 top factors to look into:

1. The Type Of Account

The first thing to consider is the type of IRA account you want to open. Self-directed IRAs are opened either as a Traditional self-directed IRA or a Roth self-directed IRA.

The main distinction between the two is how you’re taxed. In traditional IRAs, you’ll pay taxes when you withdraw the funds from your account, while in Roth IRAs, you’ll be taxed when contributing the funds to your account.

If you foresee your income bracket to be higher by the time you’ll be taking withdrawals, consider going for a Roth IRA.

However, if your income bracket is likely to be the same or more by the time you withdraw your funds, then a traditional IRA is a better option.

2. Limits Of Contribution

Gold IRAs differ from regular IRS, but the rules are generally the same – you can’t exceed your annual contribution limit.

In 2021, the IRS set an IRA annual contribution limit of $6000 for individuals under 50. Those over 50 are allowed to contribute $7000 annually. The amounts remain the same for 2022.

3. Storing Your Assets

Gold IRA assets bought via precious metals IRA are stored in an approved bank or depository.

Some companies support self-storage IRAs. While this might seem a good option, you should know that the IRS might charge you for keeping your gold IRA in your possession.

However, you can take your gold and precious metals as a distribution once you’re eligible. If you choose to take them earlier, you’ll be charged a penalty of 10%.

4. Charges

Unlike regular IRAs that charge low or no fees, gold IRAs come with charges.

Depending on your account custodian, you’ll be required to pay set-up, storage, and management fees. These fees range between $250 to $350 for the first year and between $150 to $250 afterward.

I highly recommend you watch this video below:

How Does A Gold IRA Work?

Find A Trustee/Custodian

You must follow certain requirements to hold physical gold within a self-directed gold IRA.

As an investor, you aren’t allowed to hold physical gold yourself. Rather, you’ll have to create a self-directed IRA account with a bank or an IRS-approved trustee to keep your assets on your behalf.

These accounts aren’t tied to gold IRA investment; they allow you to invest in any form of non-traditional investment.

However, not all companies that offer self-directed IRAs facilitate this service. Therefore, in most cases, you’ll need to find a custodian to keep the gold on your behalf at an approved depository.

Fund Your Gold IRA Within The Approved Limit

As explained earlier, you can choose either a Traditional IRA or a Roth IRA, depending on your preference and the changes you expect from your tax brackets.

Whichever form of self-directed IRA you choose, the yearly contribution limits are the same – $6000 for individuals aged 50 or less. Investors over 50 can deposit an additional $1000, making it $7000.

You can also roll your traditional IRA or 401(k) into a gold IRA. If you roll over your gold IRAs, they’ll follow the same rules that apply to rolling over into a Traditional or Roth IRA.

Buy IRS Approved Gold Or Precious Metal

A gold IRA can contain any physical gold, whether coins, billions, or bars. The IRA also supports valuable metals like palladium, silver, and platinum are also supported in physical form only.

IRS has strict rulings regarding gold and other precious metals. Here are some of the eligibility criteria:

  • For gold to be IRS eligible, it has to be 99.5% pure; silver has to be 99.9% pure, while palladium and platinum must have a purity of 99.95%.
  • The producer of the gold must be a manufacturer or an assayer certified by LBMA, NYMEX, NYSE/Life, or an approved national government mint.
  • Bullion coins of smaller weights must be manufactured to the exact weight specification and be in good condition, free from damage.
  • Proof coins must be in brilliant condition, include a certificate of authenticity, and be in their original mint packaging.
  • Gold coins like the American Buffalo, American Gold Eagle, Credit Suisse Gold Bars, and the Australian Gold nuggets are allowed. However, British Sovereign Gold and South African Krugerrand coins and gold collectibles are not allowed.

Once you find an approved gold, you can complete your transaction through a broker. Your custodian will oversee the accounting aspect of the transaction, but they’re not responsible for the broker or gold seller you purchase from. Though some can recommend trusted sellers or brokers, the decision is all yours.

Store Your Gold In An Approved Depository

Gold and other precious metals aren’t stored just anywhere; there are IRS-approved depositories where these precious assets are stored.

The IRS doesn’t allow investors to store gold at home because they consider it a withdrawal and can cause taxes and penalties to the investor.

There are a lot of IRS-approved depositories around the U.S; some of the most popular ones include JP Morgan Chase, Delaware Depository Service Company, and HSBC.

Withdraw Your Assets

The last step is selling off your gold for cash. There are rules guiding this depending on the type of IRA used.

For Traditional Gold IRAs

  • Required Minimum Distributions (RMDs) begin at the age of 72.
  • All withdrawals, whether voluntary or required, will be taxed.
  • Funds withdrawn before the age of 59½ attract a 10% penalty.

For Roth Gold IRAs

  • There are no Required Minimum Distributions (RMDs).
  • Withdrawals aren’t taxed.
  • Funds withdrawn before the age of 59½ and before the Roth IRA is 5 years old attract a penalty of 10%.

Is Buying Gold With My Self-Directed IRA A Good Idea?

Whether investing in a gold IRA is a good or bad idea depends on your financial plans and goals.

One thing that makes gold IRAs unique is giving you the ability to hold physical gold in a tax-advantaged retirement account without keeping the gold in your possession.

Since you’ve limited control over the gold, you won’t be able to enjoy some advantages that come with owning physical gold. For example, if the economy collapses, you can barter your physical gold for some goods and services if it’s in your possession.

On the other hand, investing in a gold IRA helps you combat inflation and diversify your portfolio. If all your IRAs go to stocks, ETFs, and mutual funds, your portfolio is at risk whenever there’s a downturn in the stock market.

But when you invest some of your funds in gold and other precious metals, you’ve reduced risks and diversified your portfolio to withstand inflation.

What’s more? Gold is considered a blockade against economic crises as its value usually rises when the dollar decreases.

There’s also a high opportunity for profit. The value io of gold has been increasing significantly for over half a decade, rising from about $1000 per ounce in 2016 to about $1800 in 2022. Thus making it one of the most stable forms of investment.

Pros And Cons Of Buying Gold With A Self-Directed IRA

Like any form of investment, Gold IRAs have pros and cons. It’s recommended you weigh the two before concluding whether to buy gold with your self-directed IRA or not.

Pros:

  • Tax benefits: Like other forms of IRAs, gold IRAs also enjoy some tax benefits. The contributions of gold IRAs are tax-deductible, while the earnings are tax-deferred until they’re withdrawn if it’s a traditional IRA.
  • Diversification: Investing all your funds in the stock market can be risky. You’ve reduced risks and diversified your portfolio by investing some of your funds in a gold IRA.
  • Protection from economic crisis: Investing your funds in gold helps reduce losses in case of economic stagnation.
  • Gold is a hedge against inflation: The value of gold usually increases when the dollar’s value declines, thereby saving you from losses.
  • More control over your investment: Gold IRAs are a form of self-directed IRAs that gives you control to make all the investment decisions and allows you to hold other non-stock IRA investment options such as real estate IRA.

Cons:

  • Custodian fees: You can’t keep your physical gold at home or in a bank vault. Instead, you must get a trustee and pay them to store and insure your gold and other precious metals IRA. These custodians usually charge a high fee when compared to regular IRA fees.
  • Storage fees: Your custodian holds your gold and precious metals in an approved depository facility. You’ll also be charged for this service.
  • No earnings: Gold IRS doesn’t pay interest, returns, and dividends like individual stocks. Your only capital gain comes from selling your gold at a higher price.

Conclusion

Investing in a gold self-directed IRA diversifies your portfolio and reduces the risk of economic downfall, but this doesn’t mean gold doesn’t have dark days. It’s recommeded you talk to a financial professional to know whether investing in a gold IRA is good for your financial goals.