Nowadays, thinking about the future, especially the retirement days is of vital importance. Having enough money saved in a retirement fund is absolutely necessary if you want to enjoy your retirement to the fullest.
That’s why different people plan for retirement in different ways. For example, some people transfer assets from a 401(k) or 403(b) into their Gold IRA in order to create a hedge against inflation and potentially turbulent economic times Speaking of which, Gold IRAs are similar to Traditional or Roth IRAs with an exception of allowing you to save money in form of bullions, bars and other forms of precious metals.
However, this type of account needs to be opened with a specialized custodian or broker/dealer agency as precious metals have to be stored in facilities authorized by the government. So with that in mind, let’s have a look at the advantages of opening a Gold IRA.
What exactly is a Gold IRA?
As mentioned before, Gold IRA is a specialized individual retirement account that is very similar to Traditional and Roth IRAs. In other words, you can set up a Gold IRA as pretax or after-tax dollars via your custodian or brokerage agency.
The only difference is that this account allows you to stash your money in form of precious metals, i.e., gold. Other metals like silver, palladium, platinum and so on are also eligible precious metals for your Gold IRA.
That said, Gold IRA accounts need to be held separately from other IRAs, provided you have those as well. Therefore, a specialized custodian is required to manage your account and store your precious metals, which can be handled by a bank, for example.
If you don’t want to bother with physical forms of precious metals, this account allows you to invest in parers related to gold, such as ETFs, mutual funds for precious metals, stocks for gold mining companies and so on.
Why is Gold IRA a good idea?
One of the main reasons why Gold IRA is a solid option for your retirement fund is that it helps diversify your portfolio. As mentioned before, investing in Gold IRA helps create a hedge against certain financial difficulties, like the increasingly high inflation, for instance. As you may already know, Traditional and Roth IRAs allow you to invest money in stocks, bonds and other traditional investments.
However, such investments tend to be quite volatile and economic uncertainty and political disagreements on a global scale can undermine the value of such investments and even result in their collapse.
That said, gold and other precious metals maintain their value even through economic difficulties and inflation as their use in various industries and other purposes makes them a valuable and stable asset to invest in, especially when it comes to retirement funds. Therefore, you can have a Traditional or Roth IRA with a 401(k) plan and have a Gold IRA on the side just in case something goes astray in the future.
How much can you contribute to your Gold IRA?
Just like Traditional and Roth IRAs, you can’t contribute more into your Gold IRA than annual contribution limit set by the IRS. That being said, as of 2023, the IRS has set contribution limit to Gold IRAs at $6,500. However, if you are at age of 50 or more, you can contribute an additional $1,000 totaling a $7,500 each year.
Moreover, you’re subjected to an additional 10% tax for withdrawals unless your of 59 and a half years of age or more. The main disadvantage of Gold IRA is that your investments must be kept in an IRS-approved facility and you’re not allowed to manage your account by yourself. The custodian does it for you so the managing of the account and storage for precious metals means higher fees for this type of IRA.
Are there any disadvantages to Gold IRAs?
The main problem with Gold IRAs is that they pay no dividends and there are no earnings you can benefit from. The aforementioned fees for storing and managing the account for precious metals investments, also make this type of IRA difficult to work with.
Not only that, but you have to follow the IRS regulations on distributions when making withdrawals from your account. Therefore, it’s recommended that you only keep a portion of your assets in a Gold IRA so you can protect them from various financial factors.
So even if gold and other precious metals perform exceptionally well during economic turmoil, it’s advisable not to place all of your assets into a Gold IRA. After all, traditional investments that other IRAs allow can enable additional growth for your assets in forms of dividend incomes and interest rates, meaning you can reinvest gains form
Traditional or Roth IRAs back into your retirement fund. But as people say that it’s better to be safe than sorry, having some of your assets stored in gold ensures that whatever happens in the future, you’ll have at least some of your assets protected.