What is a Gold IRA?

You may have seen the glut of advertising online, on television, radio, and in print about Precious Metal IRAs, more commonly called Gold IRAs. What exactly is a Gold IRA, and how does it work?

Gold vs. Regular IRAs

“IRA” is typically an abbreviation for an “individual retirement account,” though it is also called an “individual retirement arrangement.” It’s a broad term for the various holdings used for tax-advantaged retirement savings. In the simplest case, the investment is not taxed until it is withdrawn at retirement when the individual’s tax rate is likely lower than when they are working. 

Typical IRAs are invested in individual stocks, bonds, or mutual funds. Gold IRAs are only invested in products that are included on the list of IRA-eligible products. The government only allows certain products to be purchased and held in your Gold IRA. Whether the products are Gold, Silver, Platinum, or Palladium, if they are IRA-eligible you can place any mix of products in your Gold IRA.

The main advantage of IRAs is the ability to earn tax-deferred growth on the value of your holdings. IRAs are superior to other types of funds in that they grow, and you do not have to pay taxes on that growth until you begin to withdraw your funds. Because of this deferred taxation, your balance should grow more quickly.

So, who are the participants in setting up a Gold IRA? The Account Holder is YOU or whomever you designate as the owner of the IRA assets. The Trustee is the organization that is approved to administer IRAs. The Trustee can be a bank, financial institution, or a company that solely sets up IRA accounts. Then there is the Custodian. The Custodian is usually the company that securely stores the physical precious metals for you. The Dealer or Broker is the Precious Metals dealer that sells the physical assets to the Account Holder. The Dealer generally delivers the physical assets purchased directly to the custodian to the depository. These four parties – Account Holder – Dealer – Trustee – Custodian – all work together to purchase and store the Gold IRA account for the Account Holder’s benefit.

IRAs are governed by a series of rules that the Internal Revenue Service monitors carefully. Some of these rules are:

• IRA retirement accounts must be opened with an organization that has IRS approval.
• The assets cannot be individually held; they must be controlled and stored with an approved custodian.
• Traditional IRAs usually invest in stocks, mutual funds, Exchange Traded Funds (ETFs), and other traditional financial instruments.
• But Self-directed IRAs allow for investment in other assets such as Gold and real estate. A Gold IRA must be self-directed.

The assets of a Self-Directed IRA (SDIRA) are still held in trust by an approved custodian. Still, the Account Holder makes the investment decisions instead of letting the custodian do it for them. They generally do that in consultation with their Dealer. These IRAs allow for more flexibility but require additional effort by the account holder.

The Primary Benefit of a Gold IRA vs a Traditional IRA

The primary benefit of a Gold IRA is that the Gold coins or bars, or other Precious Metals that you choose, have an ‘inverse correlation’ to the stock, bond, and mutual fund markets. That means that if the stock market goes down, your investment in your Gold IRA historically has gone up in value. For that reason, a Gold IRA acts like portfolio insurance for you. It protects your retirement funds during periods of volatility in the traditional investment markets. As you certainly know diversification is the key to financial security and stability.

Let’s illustrate that with a chart displaying the prices of Gold, the Dow Jones Industrial Average (DJIA) and the Standard & Poors’ 500 Index (S&P 500) over a long-term period of 30 years (1992-2022).

At approximately March of 2009, during the height of the Housing Crisis and the Recession, the DJIA was DOWN 26.80%, the S&P 500 was DOWN 36.40%, but the price of Gold was UP 161.23%. This clearly illustrates that inverse correlation that is important during volatile times in our economy.

But even in relatively ‘good times’ the Gold IRA can outperform the traditional markets. In September 2022, the DJIA was up 1875.47%, the S&P 500 was up 196.66%, and Gold was up 377.20.

Again, diversification is the key to financial stability and success, and Precious Metals generally run opposite the Stock Market.

The Simple Steps to Opening a Gold IRA

1. Contact a reputable Precious Metals dealer, such as APMEX. Discuss the types of IRA-eligible products and the premiums on the products that are attractive to you.
2. Determine whether you are creating a new Gold IRA, rolling over the value of a traditional IRA, or simply adding assets to an existing Gold IRA.
3. Determine the amount that can be added to any IRA for that year – there are IRS rules regarding how much is allowable. You also need to determine, with your dealer, the best mix of IRA-eligible Precious Metal products.
4. Select an IRA Trustee/Custodian who will file the paperwork to create your Gold IRA.
5. After purchasing your metals, have the dealer send them directly to the Depository that you and the IRA Trustee/Custodian have selected.

Determining how popular these Gold IRA accounts are is difficult but here are some statistics from the Investment Company Institute on America’s Gold Buying and Investing Habits:

• Only 3-5% of total IRA accounts are self-directed.
• Only 12% of the American population owns Gold.
• 14.3% of males 45-54 years old own gold and silver.
• 5.1% of males 35-54 own only gold–no silver.
• 7.8% of females 35-44 own silver only.

Visit our website for more information about Gold IRAs or your investment in Precious Metals with your retirement funds. You can also request additional information by contacting us at (800) 375-9006 ext. 805 or IRA@apmex.com.