A Gold IRA is an Individual Retirement Account (IRA) where the account owner invests in physical gold as an asset. If you invest in a Gold IRA, you are allowing gold to be used in lieu of normal paper assets – such as stocks, bonds or mutual funds – which standard IRAs are backed by. The gold is typically held by a third-party custodian.
Gold IRAs have continued to gain in popularity over the past 15 years, a trend that has spiked significantly given the recent turbulence in the US and global market. There are a number of advantages to using a precious metal backed IRA, but there are also a number of do’s and don’ts that you should be aware of.
GOLD IRA’s HAVE BEEN LEGAL IN THE US SINCE 1997
A Gold IRA Is a self-directed IRA, a type of investment that has been allowed since the Taxpayer Relief Act of 1997 broadened the types of investments that can be made using an IRA account – including the ability to invest in bullion and other forms of precious metals (gold, silver, platinum and palladium). However, concerns about how to protect investors have arisen from time to time, which in turn prompted the SEC to issue a public notice to make Gold IRA account holders aware of the possibility of fraud.
What is a Self-Directed IRA?
In general, a self-directed IRA gives the account owner Checkbook Control, which means that the funds can be directed to be invested in a range of investments outside the normal stocks which a normal IRA is allowed to invest in. A specific process needs to be followed.
How Much Can You Invest in a Gold IRA?
As of 2019, individuals can invest up to $6,000 per year in self-directed IRAs or self-directed Roth IRAs every year. The amount increases to $7,000 per annum if the investor is more than 50 years of age.
NORMAL PROCESS TO ENABLE THE GOLD BACKED ASSET
The investment in a Gold IRA requires a two-step process. First, a business LLC is to be established and a checking account opened for the same. A designated custodian is then directed to invest specified amounts from your IRA into the newly formed LLC, thus purchasing the LLC as an alternative asset investment vehicle. The custodian then turns around and sends a capitalization check to the checking account of the LLC. Now that you have the funds in your investment vehicle and Checkbook Control of the same, you can invest in assets not normally allowed under a regular brokerage account – including gold bullion, bars and some other permitted types of coins. The custodian mentioned above performs a one-time transaction and will therefore not usually receive an ongoing fee from the IRA Account Owner.
Who Holdes the Actual Gold Assets?
The gold assets have to be held in the account of an approved third-party trustee or custodian – typically a bank, credit union, a savings and loan association or an entity approved by the IRS to act in such a capacity. Such trustees/custodians have a host of safety nets built in to protect the assets, including secure storage depositories with alarm systems, 24/7 monitoring, motion detectors and insurance policies. These requirements are specified as guidelines listed in IRS Publication 590. Such stringent requirements will normally rule out the average individual investor being able to hold the assets backing up a Gold IRA, unless they can demonstrate to the IRS that they are able to meet the host of standards specified under Treasury guidelines.
What Kind of Gold Can be Held under a Gold IRA?
The IRS Code does not normally direct what types of assets can be purchased – rather, it prohibits investments in certain specific asset types. So, you have to use your judgement. While you can invest in gold bullion directly, that strategy may backfire due to higher price, weight, transportation difficulties (in case of liquidation of assets) and the possibility of impurities and/or counterfeiting. Instead, certain approved types of coins, such as the American Gold Eagle Bullion Coins, the American Gold Eagle proof coins, Canadian Gold Maple Leaf coins and the British Gold Britannica coins may be bought with your Gold IRA. A list of approved coins can be found with some research. Plus, your broker can direct you to specific options.
How can you Invest in a Gold IRA?
There are several licensed broker dealers that will help you invest in a Gold IRA. Be careful to check out their track records, including any hint of SEC or IRS violations and the validity of their licenses. Double check the advice they give you regarding the type of gold assets that you are to buy (especially whether any of them are on a proscribed list). High transaction prices or broker fees are also warning signs. If you are buying a type of gold coin to have more flexibility than buying bullion, you cannot lose that advantage due to high purchase or transaction costs.
At the time of writing this Guardian Gold and Silver does not offer Gold IRA’s! A good place to start your research into gold IRA companies would be guide provided by Raremetalblog.com*. According to Raremetalblog.com the top Gold IRA companies in 2020 are:
- Advantage Gold (read review)
- American Hartford Gold Group (read review)
- Goldco Precious Metals (read review)
- Regal Assets (read review)
- Noble Gold (read review)
- Patriot Gold Group (read review)
- Rosland Capital (read review)
- Lear Capital (read review)
- Birch Gold Group (read review)
- Oxford Gold Group (read review)
* Guardian Gold and Silver is not affiliated with Raremetalblog.com and cannot be held responsible for the accuracy of the info found on their website.
Why Invest in a Gold IRA?
It’s very simple. The value of gold has never gone down to zero, unlike other assets such as oil which have occasionally shown remarkably low or even negative values at times – as has happened in 2020. Secondly, the current price of gold is approximately $1,936 per ounce, which is significantly higher than what it was in 2015 ($1,158.86 per ounce on the average), 2011 ($1,573.16 per ounce on the average), 2008 ($872.37 per ounce on the average), 2005 ($494.99 per ounce on the average) and 2001 ($271.19 per ounce on the average). So, gold has grown in value by over 700% in the past 20 years.
In addition to the steady growth in gold prices, it’s important to note that gold behaves counter-cyclically with the general economy. The most important characteristic of gold is its ability to hold value. This means that in times of economic turmoil and uncertainty, more people hold gold, leading to value appreciation. This trend was clearly visible from 2008 to 2011 (see how prices declined as economies stabilized over the four years past 2011). Right now, in 2020, we are again seeing an uptick of gold prices, given the uncertainties surrounding COVID-19 and economic and political turbulence within the US and other economies around the world.
So, if you are of a mind to invest in a Gold IRA, now may well be a good time.