What Is A Gold IRA And How Do They Work?

A Gold IRA is a type of individual retirement account (IRA) that you can use to invest in gold and other precious metals without having to take physical possession of them. 

You can have a Gold IRA alongside a traditional IRA, and there are several benefits to setting up one, though it isn’t necessarily a good investment for everyone. 

What Are the Main Pros and Cons of a Gold IRA?

Setting up a Gold IRA can be a particularly shrewd investment for Baby Boomers and other Americans who are concerned about funding their retirement. This is because gold (and some of the other precious metals which can be purchased via this type of IRA) can serve as a hedge against inflation and tend to negatively correlate with the equity and debt markets.

In other words, investing in such metals can protect your savings against the effect of inflation – which can be substantial over the course of a few decades – while hedging your bets against knocks to other financial assets that you may have already invested in.

There are other ways to invest in gold, but using an IRA means you don’t have to take physical possession of it and therefore don’t have to worry about securely storing it at home.

While a Gold IRA does offer a number of distinct benefits to investors, it should be noted that it isn’t necessarily the most cost-effective way to invest in the precious metals market, as there are several fees.

Specifically, you will be charged a setup fee (usually of around $50 to $100), plus annual storage and maintenance fees. You may also incur some miscellaneous fees depending on the Gold IRA company you use and their specific fee structure. 

Which Precious Metals Can I Purchase?

Gold is by far the most popular precious metal held in a Gold IRA, but there are a few others that may also be worth consideration depending on your existing investment portfolio, your risk profile, and your individual financial objectives.

Silver is the second-most popular metal purchased through this type of IRA, while platinum and palladium are also sometimes held.

It’s important to remember that not any type or standard of the aforementioned precious metals can be held in a Gold IRA; they must be IRS eligible.

For example, when it comes to gold, it is only considered IRS eligible if it is of at least 99.5 percent purity, isn’t highly collectible or rare, and wasn’t produced by a mint (either in the US or from abroad.)

How to Get Started

The first step to opening a Gold IRA is to find a dedicated Gold IRA company that will buy the gold (or other precious metal) on your behalf and arrange for it to be stored in a secured and approved depository. 

The firm you choose to manage your investments can also help you make sure that the precious metal you purchase meets the required standards, as outlined by the IRS, so you can avoid being hit with a penalty for breaching its rules. 

If you want advice on which precious metal to purchase, you will typically need to hire an investment advisor who will look at your existing holdings and savings, and discuss your financial goals so they can tailor their advice to your circumstances.