Why Choose a Gold Backed IRA? How does it Work?

Investing in gold through an individual retirement account (IRA) has been a growing trend among individuals seeking ways to diversify their portfolios and secure their future through a gold-backed investment. 

These are the two primary reasons why people opt for gold IRAs, and it’s likely these are also why you’re considering opening a gold-backed IRA yourself. However, there’s much more to gold IRAs than just that. If you want your precious metals IRA to work its purpose, it’s best to first learn more about it. 

In this guide, we’ll go through gold IRA basics, explaining what they are and how they work. Finally, we’ll provide the top reasons why you should consider opening a gold-backed IRA account and how Gold IRA Blueprint can help. 

Key Highlights

• A gold IRA is a retirement account that allows individuals to invest in physical gold and precious metals.
• Gold-backed IRAs offer investors numerous advantages, including tax benefits, portfolio diversification, and the potential for long-term growth in one’s retirement savings.
• While they offer multiple potential benefits, gold IRAs are also associated with several drawbacks, including fees, limited liquidity, and no underlying cash flows. 

What Is a Gold IRA & How Does It Work?

Let’s start with the basics. A gold-backed IRA is a type of retirement account that allows you to buy and hold physical gold and other precious metals (such as silver or palladium) in your retirement investment portfolio. 

What makes these accounts different from traditional IRAs? At first glance, not much. The key difference is the fact that gold IRAs allow you to, well, invest in gold and precious metals while receiving the same tax benefits as traditional IRA investments, such as stocks, bonds, and mutual funds. 

Without a gold-backed IRA, you won’t be able to purchase and store physical gold through your retirement account. Once you open such an account, you will then be able to invest in IRA-approved gold and precious metals, allowing your IRA funds to grow tax-deferred. 

Why Choose a Gold Backed IRA?

The popularity of gold-backed IRAs has grown immensely over the past few years. But why should you consider opening a gold IRA account? Let’s look at some of the key reasons why so many individual investors choose gold-backed IRAs:

Appealing Tax Benefits

Like traditional IRAs, gold-backed IRAs offer individuals some appealing tax advantages. Their exact nature, however, will depend on the type of IRA account you open. This can be either traditional or Roth:

• Traditional IRAs offer tax-deferred growth until withdrawal. This means you only pay taxes on your contributions or earnings once you take the money out in retirement.
• Roth IRAs offer tax-free qualified withdrawals during retirement if you use them for qualified expenses. You do pay taxes on contributions upfront, but then your qualified withdrawals are tax-free.

Excellent for Portfolio Diversification

Gold has always been considered a ‘safe haven’ for investors, especially during times of uncertainty and economic downturns. It’s one of the most stable investments one can make, especially in the long term, and it usually provides steady returns over time. This makes gold, and as an extension, gold-backed IRA, an excellent investment for portfolio diversification, providing investors with a safety net helping balance potential losses on the stock market investments, which tend to be highly volatile. 

Inflation Hedging Capabilities

There have been numerous situations where gold prices seemed to rise along with inflation, which has led to many deeming gold as an inflation hedge. 

However, while it’s true that gold has shown a strong correlation with inflation in the past, it hasn’t always behaved as expected. That said, while a gold IRA might not 100% protect your retirement savings against inflation, it might mitigate its effects, helping preserve their purchasing power. 

Things to Consider Before Investing in Gold IRA

From what we’ve discussed, investing in gold through a gold-backed IRA does seem appealing. However, like any other investment, it’s not for everyone. Gold-backed IRAs come with several drawbacks that may impact your final decision. These disadvantages include:

• Higher Fees: Gold-backed IRAs usually come with higher fees compared to traditional retirement accounts. For example, IRA gold and precious metals must be stored in IRS-approved facilities, which requires investors to pay storage and shipping fees. Many gold IRA companies also charge a ‘spread,’ which means a company will sell you gold for a higher price than it will pay you when you decide to sell it. 
• No Underlying Cash Flows: Buying and holding physical gold doesn’t provide any cash flows or pay dividends. Once you purchase a set amount of gold, you will still have the same amount of gold in the future, with its value depending on the price at a given time. 
• Limited Liquidity: Selling gold within a gold IRA can be less flexible than selling stocks or bonds in a traditional IRA. You may have to go through the custodian to sell your assets, and it might take extra time to receive the proceeds. Additionally, you can only access your gold through Required Minimum Distributions (RMDs) in retirement unless you face certain exceptions like disability.

How to Open a Gold Backed IRA?

Once you decide whether you want to invest in gold and precious metals through a gold-backed IRA, the time comes to open your account. Doing that isn’t overly complicated, although it does include several steps that you should take with caution. Here’s what to consider when starting a gold IRA:

1. Find the Right Gold IRA Company: There are multiple IRA companies on the market. Look for one that has a stellar reputation and is known for providing top-tier service. Use our list of the best gold IRA companies as a starting point for your research. 
2. Open Your Gold IRA Account: Once you find your preferred gold IRA company, simply let them guide you through the process of setting up your account. You will then need to fund your account, either through a rollover from your retirement account, cash contribution (e.g., check or wire transfer), or a direct account-to-account transfer. 
3. Choose Precious Metals to Invest In: With your account funded, you can start buying gold and precious metals. IRA-approved bullion gold bars and coins are the most common options, but you should also be able to invest in silver, platinum, and palladium. 

Key Takeaways

Gold-backed IRAs have grown immensely in popularity, offering individual investors an exciting opportunity to invest in gold and precious metals through tax-advantaged retirement accounts. 

Remember, though, a gold-backed IRA may not be suitable for everyone. It’s important to consider your overall investment strategy and risk tolerance before investing in gold. 

For any more information regarding gold IRAs, feel free to refer to our knowledge base. And if you want to take the next step toward opening a gold-backed IRA, we highly recommend downloading this FREE GOLD IRA GUIDE. 

Article Sources

At Gold IRA Blueprint, we dive deep into the world of gold IRAs, using trusted sources to back up our insights. Our sources range from official documents to expert interviews, ensuring our content is both accurate and reliable. We also draw on research from reputable publishers to give you the most comprehensive understanding possible. Check out our editorial policy to see how we maintain our high standards for accuracy and fairness. Also make sure to check out our Financial Review Process to have a better understanding of our process.

1. https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras 
2. https://www.irs.gov/retirement-plans/traditional-and-roth-iras
3. https://www.forbes.com/sites/bobcarlson/2020/09/21/when-you-can-and-cant-own-gold-in-an-ira/?sh=1fbd60f6c656