Individual Retirement Accounts typically invest in standards such as stocks, bonds and mutual funds. You can invest your IRA in U.S. gold coins or in gold bullion, but it's more work to set this up than more conventional IRA investments.
To open an IRA, you sign up with a bank or investment firm that manages retirement account. Legally you can invest your IRA in almost anything. In practice, you have to choose from whatever the IRA management company offers; if it doesn't deal in gold, you're out of luck.
To invest in gold, you'll probably need a self-directed IRA. The managers for these IRAs give you a much wider array of choices, including real estate, gold, race horses and tax lien certificates. Unlike a regular IRA, the management company leaves you to make the investment decisions, without vetting or recommending anything. You can start searching for a self-directed IRA custodian through the Retirement Industry Trust Association's website. Before investing money with a custodian, research their fees. Self-directed IRAs typically cost investors more than a conventional account.
Self-directed IRAs do have limits. You can't invest in collectibles, such as gold jewelry. You also can't engage in self-dealing, directing your IRA do business with you or your family. For instance buying a house, then renting it to yourself or your children, is not acceptable.
You have to invest in gold that meets the IRS' standards. American Gold Eagle coins count. So do bars of gold bullion that are at least 99.9 percent pure. If you invest in Krugerrands — the South African gold coin — or lower quality bars, the IRS may treat your investments as collectibles. If that happens, everything you invested in gold will count as a withdrawal from the account. A $10,000 investment in gold, for instance, becomes a $10,000 withdrawal. You pay income tax on the money, and if you're under 59 1/2, you pay an added 10 percent penalty.
Another important requirement is that your IRA custodian has to have possession of the gold. If it's stored in the vaults of a bullion company somewhere, it doesn't meet the IRS requirements. You have to find a custodian equipped not only to buy gold for you, but to store it.
If you don't feel like going to that much work, a simpler solution is to invest in shares of either gold-mining stocks or exchange-traded funds. ETFS are funds that track the value of precious metals such as gold. Not all ETFs are acceptable in an IRA — you'll have to read the tax information in the fund's prospectus to find out. Mining stocks let you invest in the company that digs the gold out of the earth.
Like a regular IRA, you can start making withdrawals from a self-directed IRA when you turn 59 1/2. You have to take mandatory minimum withdrawals, based on an IRS formula, when you turn 70 1/2. To withdraw from a self-directed IRA, you'd have to arrange for the custodian to sell enough gold to meet your needs or the IRS minimums. If the price of gold hits a low, you may not realize the return on your investment that you expect. Contrary to the image of gold as a perfectly safe investment, the price can and does drop.
Gold is a hedge against inflation, but it doesn't typically build income. If you're approaching retirement, the American Association of Retired Persons says, investments that offer a better return often make more sense.
- IRS.gov: Traditional IRAs
- Securities and Exchange Commission: Investor Alert: Self-Directed IRAs and the Risk of Fraud
- Retirement Industry Trust Association
- MarketWatch: Self-Directed IRAS: Risky? Smart? Or Both?
- MarketWatch: Gold for Your IRA?
- Internal Revenue Service: Uniform Issue List
- FactCheck: IRAs, 401(k)s and You
- AARP Magazine: Should You Buy Gold?