Should you use a gold IRA for retirement planning?
Planning for retirement requires you to make a number of choices. You have to figure out how much money you'll need for when you're done working, and how to get there.
There are many options for saving for retirement, but one lesser-known option is a gold IRA. This vehicle combines the tax advantages of an individual retirement account with the investing power of precious metals.
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Should you use a gold IRA for retirement planning?
A gold IRA can be a great choice for retirement savers. Here are a few of the benefits of using a gold IRA as part of your retirement planning process.
Inflation protection
This is an important benefit right now because inflation is high, and gold provides an effective hedge against inflation. The price of gold tends to track along with inflation, so you won't be losing purchasing power.
This isn't to say that all of your money should be invested in gold; there are other investments that will give you more potential growth. Those options also come with a good deal of risk, though. Gold has less risk and still helps you protect your money.
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Tax advantages
Just like any other individual retirement account, a gold IRA has tax advantages. With a regular IRA, you put your money into your IRA before it is taxed. You choose investments that you think make sense and the money grows over time. Eventually, in retirement, you take dispersal, which is taxed as normal income.
With a gold IRA, the money is invested in physical gold rather than stocks and bonds, but other than that, it works the same way: Money is invested in gold pre-tax, and then you take dispersals when you reach retirement age.
This is an advantage for a few reasons. First, you only get taxed once, whereas normally you'd have to pay income tax when you earn money and then capital gains taxes when you take the money out of the investment. Secondly, you may be in a lower tax bracket when you retire, so you could end up paying a lower rate on the money.
Diversification
Gold provides good diversification for retirement investors. If the majority of your money will be invested in stocks and bonds, adding gold to your portfolio gives you another type of asset and protects at least some of your wealth if the market experiences a downturn.
Tangible assets
Unlike stocks and bonds, physical gold is a tangible asset. Other investment options are simply representations of shares in a company — a company that could, in theory, go bankrupt, causing you to lose your money.
Potential downsides of a gold IRA
While a gold IRA can be a great part of your retirement plan, there are a few things to remember. First, money invested in IRAs can't be taken out until you reach age 59.5. If you try to take money out before then, you'll have to pay a hefty fine.
It's also important to remember that while gold is more secure than some other assets, you likely won't be making huge gains with gold. So, if you have big plans for retirement, it may not make sense to park all of your money in a gold IRA.
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The bottom line
A gold IRA can be a good choice for retirement savers. It combines the advantages of an individual retirement account with all the benefits of investing in gold. Your money is invested tax-free because of IRA rules, while gold acts as a hedge against inflation and gives you a tangible asset to hold onto.
