Should You Open a Gold IRA? Here Are the Pros and Cons

scanrail / iStock.com

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

A gold IRA is a type of retirement account that allows you to invest in precious metals. In traditional individual retirement accounts, gold is not generally allowed because it is considered a collectible. If you buy a collectible in a traditional IRA, the IRS will consider that purchase an immediate distribution, subjecting you to income tax and a potential 10% early withdrawal penalty. But gold IRAs are a special type of IRA, known as “self-directed,” that have custodians approved by the IRS to manage gold investments, including gold bullion.

Check Out: 4 Genius Things All Wealthy People Do With Their Money

You should consider opening a gold IRA if you believe in gold as an investment and you want to benefit from the special tax advantages offered by this type of account. But before you do, you’ll want to make sure you fully understand both the benefits and the drawbacks of investing in a gold IRA.

What Is a Gold IRA and How Does It Work?

A gold IRA functions in a similar manner as any traditional IRA, except that it allows investment in select precious metals and it must be self-directed. The name “gold IRA” doesn’t mean that only gold is allowed in the account. Other precious metals, such as platinum and silver, may also be permitted, along with all of the investments that can go into a regular, traditional IRA. 

What Types of Precious Metals Can You Put Into a Gold IRA?

Although a gold IRA allows investors to buy precious metals, there are specific limitations. For example, you can’t buy gold jewelry and put it into a gold IRA. Rather, any precious metals you buy in a gold IRA must meet the following specifications:

• Gold must be 99.5% pure.
• Silver must be 99.9% pure.
• Platinum and palladium must be 99.95% pure.

Essentially, this means that you can only buy raw bullion for your gold IRA, in the form of either bars or qualifying coins. 

The IRS has additional requirements for precious metals placed into a gold IRA. Specifically, collectibles are not allowable in any type of IRA. This means you can’t put gold coins that have investment value — even those issued by the U.S. — into an IRA. However, you can put qualifying bullion coins in a gold IRA, such as Canadian Maple Leaf coins and American Eagle coins.

What Are the Advantages of a Gold IRA?

The main advantages of a gold IRA are similar to a traditional IRA, with one added feature — taxes. The money you contribute to a gold IRA may be tax-deductible, and it will grow tax-deferred until you withdraw it. However, a gold IRA also allows you the ability to invest in precious metals, something that is not allowable in traditional IRAs. If you were to invest in gold outside of an IRA, the money you use to purchase it would not benefit from the tax deduction.

What Is the Downside of a Gold IRA?

The main disadvantage of a gold IRA is that it will cost you more in fees. How much it will cost to start a gold IRA can vary, but you can expect to pay initial setup and annual fees set by your IRA. In addition, you’ll also have to pay a special custodian fee to handle your precious metals. As precious metals in an IRA must physically reside in an IRS-approved depository facility, you’ll also have to pay storage fees. All of these can add up to a significant amount. Some gold IRA custodians charge a one-time fee, but most charge annually. 

You should also be aware that the spread on gold — the difference between what you have to pay when you buy gold vs. what you receive when you sell gold — can be much higher than with a more liquid investment like a stock. This is because gold doesn’t trade on an exchange like a stock. Instead, the price is set by individual dealers. Thus, you’ll always pay a premium over the current spot price of gold when buying bullion or coins, as dealers mark up the price to generate their own profits. When buying gold, it pays to shop around, since dealers set their own profit margins and the price you pay for the same coin or bar might be different from shop to shop.

It’s also important to note that in terms of total allowable contributions, your gold IRA is the same as your traditional and/or Roth IRAs. For 2024, the contribution limit for IRAs is $7,000. This means that if you have socked away $7,000 into a traditional IRA, you can’t contribute anything to a gold IRA. If you’re planning on starting a gold IRA, you’ll have to factor in all of your cumulative IRA contributions.

What Are the Pros and Cons of Investing In Gold?

Gold is a real, tangible asset, and that is something that will always interest investors. Many investors buy gold when financial assets like stocks and bonds are falling in value. These investors would prefer to own a “real” asset rather than one that exists only on paper.

Gold and other precious metals are also fairly scarce and inherently beautiful, factors that give them long-term appeal. Gold has also been touted as a hedge against inflation, although the correlation between the two is not clear-cut.

On the downside, gold has a number of drawbacks. First, it’s not the most liquid investment available, meaning you may have to wait to sell your gold — at least if you want to get it at a certain price. Stocks, on the other hand, generally trade thousands of shares every second, meaning it’s easy to get in and out of them rapidly. That can also make it hard to rebalance a portfolio with gold in it. If you have physical gold, you’ll also have to bring it to a dealer to make your transaction, which takes time and effort. It also involves a level of risk that it could be lost or stolen.

Gold also doesn’t pay any dividends, so the only profit you can potentially make is if you sell it at a higher price than you bought it. Gold also doesn’t have any earnings or revenues behind it to give it value. Its value is solely what people will pay for it based on macroeconomic factors and plain old supply and demand. While gold can rise dramatically in price, there’s no guarantee that it will have a profitable long-term future. This makes investing in gold a bit of a speculation.

Gold can also be a bit of a “hard-sell” industry. Less reputable gold dealers often use fear as a tactic to scare investors into buying gold, overinflating its value and suggesting that a world economic collapse is imminent and that gold will be the only currency of value remaining. It’s best to steer clear of these types of high-pressure sales tactics that tend to afflict the industry. For example, you’re likely best served avoiding the gold companies that advertise on late-night television.

What Is the Best Gold IRA?

There is no single best gold IRA. First, you’ll have to find a company that offers self-directed IRAs that are allowed to invest in gold and other precious metals. Then, you’ll want to look for a company with the lowest fees possible while still providing a high level of customer support. You may also want to investigate where your gold investments will be physically held.

Good IRA custodians will offer to buy your gold from you at any time at a fair market price, and these are the types of companies you’ll want to deal with. A good gold IRA custodian will service your needs, not try to coerce you into making trades, investing in products you don’t want or putting all of your money into precious metals. Rather, they will offer educational products and be willing to speak with you at length before you even open an account or make your first purchase. 

Is a Gold IRA a Good Idea?

Gold can be a good investment, and you can enjoy tax benefits by investing in it via a gold IRA. It’s perennially in demand by consumers and the jewelry industry, and it is also used in many industries.

However, most professionals recommend that gold only occupy a small percentage of a diversified portfolio, typically something in the 5% to 10% range. As gold doesn’t pay dividends, can be illiquid and doesn’t have any financial earnings or revenue to help determine its fair value, it can be an investment that can go in and out of favor quickly. For this reason, most advisors suggest using gold as a defensive, noncorrelated investment rather than as the core of your portfolio.

Share This Article: