Is a gold IRA worth it?

Frustrated by stock market and banking sector uncertainty, many Americans are reassessing their investments. For many, protecting their assets from inflation and a potential recession is top of mind. In times like these, investors have historically redirected their attention to gold to help protect against inflation and diversify their portfolios.

One way to spread risk through gold is to invest in a gold individual retirement account (IRA). Gold can help you preserve your wealth since the precious metal has been used as a store of value for thousands of years. By and large, gold retains its purchasing power over time.

But as with any investment, there are benefits and risks to consider before putting your money in a gold IRA. Learn more about this unique investment opportunity by requesting a free information kit.

What is a gold IRA?

A gold IRA is an individual retirement account (IRA) in which you hold physical gold bullion, coins and other precious metals instead of traditional stocks and bonds. You can also hold stocks in gold mining companies or gold ETFs in your gold IRA.

Gold IRAs are similar to traditional IRAs in that they provide tax benefits and have the same contribution limits— $6,500 for 2023 or $7,500 for those over 50. Here are three types of gold IRAs:

• Traditional gold IRA: This is the most common type of gold IRA and you contribute to it with pre-tax dollars up to the annual limit. Your account can accumulate interest that grows tax-free until you begin to make withdrawals in retirement. However, you'll pay an additional 10% tax if you withdraw funds before age 59 ½.
• Roth gold IRA: Unlike traditional gold IRAs, you fund a Roth with after-tax dollars and can withdraw money tax-free in retirement. If you believe your tax rate will be higher when you retire, you may prefer a Roth gold IRA.
• SEP gold IRA: Simplified Employee Pension (SEP) gold IRAs are available for business owners and the self-employed. SEP gold IRAs are funded with pre-tax dollars, and you can also contribute to your employee's retirement plans. SEP IRAs are an excellent option to take advantage of higher contribution limits. According to the IRS, the limit for 2023 is the lesser of 25% of compensation, or $66,000.

Explore your gold IRA options here now to see if it makes sense for you.

When a gold IRA is worth opening

Deciding whether to open a gold IRA may come down to its ability to meet your financial and lifestyle goals. Opening a gold IRA may be worth it in the following scenarios:

• When you're concerned about inflation cutting into the value of your retirement: Gold is often viewed as a hedge against inflation because it typically has an inverse relationship with the dollar value. In other words, gold prices tend to rise when the purchasing power of currency declines, and vice-versa.
• When you're looking for a safe haven for your retirement savings: Given the uncertainty in the market, you might look to gold as a store of value that retains its value better than other assets. Remember, the price of gold won't drop to zero, as it can with an individual stock or bond.
• When retirement is approaching: The closer you get to retirement, the more you may want to consider shifting your portfolio to more conservative investments. Although gold is not risk-free, it tends to be less volatile than stocks and other higher-risk investments.

How to open a gold IRA

If you understand how a gold IRA works and you determine this retirement tool fits within your overall retirement strategy, here's how to open a gold IRA account.

Choose a gold IRA company

One unique requirement of gold IRAs is that you must open one through an IRS-approved custodian. A reputable gold IRA company can help you open your account and link you to an IRA custodian. In some cases, the gold IRA company you work with conveniently serves as your custodian. The custodian can assist you with the required paperwork and storage to help ensure your account complies with IRS regulations. Explore your gold IRA company options here now or in the below table.

Open an account

A gold IRA company can also help you establish and fund your account, typically achieved by transferring or rolling over funds from another retirement account you own. Follow the custodian's instructions on rolling over retirement funds to avoid a 10% IRS penalty. You can also contribute to your account using cash, checks or wire transfers but be aware you'll likely incur fees.

Select precious metals for your account

You can fill your gold IRA account with gold bullion, gold stocks, gold funds and gold ETFs. Understand the physical gold you purchase must be IRA-eligible, meaning they must maintain a standard of purity. For example, gold and silver must be 99.5% pure and 99.9% pure, respectively. Similarly, platinum and palladium must be 99.95% pure.

When a gold IRA may not be worth opening

While gold IRAs offer portfolio diversity and a hedge against inflation, they're not for everyone. The following scenarios illustrate when a gold IRA may not be worth it.

• When you're seeking dividends: As a tangible asset, gold's value results from supply and demand, and it doesn't produce income on its own. Consequently, gold investors don't earn dividends like stock investors do.
• When your investing time frame is short: Like most investments, gold's value fluctuates. The yellow metal is generally believed to be best suited as a long-term investment in which you see returns over the long haul. As a short-term investment, however, gold can lose value quickly.
• When your portfolio isn't diversified: Gold can be a valuable addition to a diversified retirement portfolio. However, having a retirement plan consisting of only gold may not be wise. It's essential to consider different investment options to help you manage risk within a well-diversified portfolio.

The bottom line

Gold IRAs can help you battle inflation and diversity your portfolio. However, the price of gold fluctuates and may not provide the same return as other investments. Still, investing in a gold IRA may make sense if you're looking to spread out risk while enjoying some of the same benefits as traditional IRAs.

Before investing in a gold IRA, do your due diligence and consult your financial advisor or tax accountant to ensure the investment fits your overall retirement strategy. If you do opt for a gold IRA, opening an account is a relatively straightforward process when you get assistance from a gold IRA company. Get started with a gold IRA here now!