What is a Gold IRA?

And Why So Many Investors Are Setting One Up

A Gold IRA is much like it sounds, an individual retirement account that expressly allows individuals to hold approved precious metals like gold and simultaneously reap key benefits that the IRS has carved out for traditional retirement arrangements: “IRAs allow you to make tax-deferred investments to provide financial security when you retire.”1 The Gold IRA, however, is a special type of retirement account that permits a wider selection of assets, and for many this not only provides greater control — but the protection of a more diversified portfolio.

The Power of Choice

To put gold into an IRA, you must set up a Self-Directed Individual Retirement Account (SDIRA).
Investopedia defines this type of account as follows:

“A self-directed individual retirement account (SDIRA) is a type of individual retirement account (IRA) that can hold various alternative investments normally prohibited from regular IRAs. Although a custodian or trustee administers the account, it’s directly managed by the account holder, which is why it’s called self-directed.”2

SDIRA’s are available either in the form of traditional IRAs where your money grows tax deferred or as a Roth IRA where you contribute after tax dollars and your money grows tax free. This type of account permits account holders to invest in alternative assets like gold and other approved precious metals but also cryptocurrencies, private equity, real estate, and even promissory notes.

According to financial counseling group Ramsey Solutions, “the self directed IRA … gives investors the power of choice… whether it’s having a closet full of different wardrobes or dozens of flavors to choose from at your favorite ice cream shop, we like having options.”3

Gold is a Self-Directed IRA Favorite

Gold is one of the more popular alternative assets held in an SDIRA. A Gold IRA combines the powerful and timeless benefits of gold with the tax and savings advantages of an IRS approved retirement account.

Gold is widely considered to an effective inflation hedge. It also tends to have an inverse relationship with the dollar and dollar-dominated investments like stocks and bonds. This means when the markets or the dollar fall, gold tends to rise and/or maintain its value. This characteristic has given it a reputation as crisis insurance and the go-to asset during times of economic volatility.

The Economic Observatory, an academic research and policy institute, recently summed up gold’s safe haven benefits as follows:

“The value of gold is stable. It provides protection from inflation; it can diversify investors’ portfolios; and it is typically resilient to financial and economic crises. There has always been strong demand for gold. These characteristics make gold a safe asset. Indeed, fueled by geopolitical unrest and higher inflation around the world, gold prices have recently reached an all-time high.”4

The world central banks all hold gold and set gold buying records in 2023 as well as in the first quarter of 2024. The world’s leading monetary authorities buy gold for the same reason private investors do — to mitigate investment risk, to diversify their assets and as a hedge against global economic chaos.

How to Set-up a Gold IRA

There are essentially three main steps to setting up a Gold IRA.

  1. The first step is to choose a custodian for your metals. A precious metals custodian is an IRS-approved institution that specializes in safe guarding and securing alternative assets. According to Investopedia, custodians can manage customers’ accounts, the settlement of financial transactions, report on the status of assets, and ensure compliance with tax regulations. 5
  2. The next step is to fund your account. According to online education resource, LendEDU, there several ways of doing this. The first is with cash, payable by check or wire. The second is to rollover funds by withdrawing them from an existing traditional IRA or 401(k) and then depositing them (within 60 days) into your new self-directed IRA. The third option is to do a direct transfer (with no cash taken out) from your current IRA directly into your new gold IRA account. 6
  3. The last step is to select your portfolio of metals. In the case of gold, you must hold only IRS approved gold bars, rounds, and coins. According to custodian Strata Trust Company, the gold must be:
  • 99.5% pure.
  • Produced by a manufacturer certified by NYMEX, COMEX, NYSE/Liffe, LME, LBMA, LPPM, TOCOM, ISO 9000 or a national government mint.
  • Proof coins must be in excellent condition, in original mint packaging, and include a certificate of authenticity.
  • Small bullion bars must be manufactured to precise weight specification.
  • Non-proof coins must be in brilliant and in uncirculated condition.

Some examples of IRS approved coins that may be included in a Gold IRA are: American Eagle bullion and proof coins, Canadian Maple Leaf coins, Chinese Panda coins, and British Britannia coins (2013 and newer).7

A Gold Backed Retirement

Holding physical gold in a retirement account provides key benefits critical to preserving and protecting wealth. Gold’s time-tested attributes can help combat the mounting threats posed by inflation, federal debt, political polarization, fed policy, and the fallout of global wars. Above all, a gold backed retirement provides peace of mind by virtue of its design and its inherent benefits which include:

1) Portfolio Balance via Strategic Asset Diversification
2) The Tax Advantages of an IRS-approved Account
3) A Hedge Against Inflation and/or Economic Uncertainty
4) Chaos Insurance in the event of a Financial Downturn
5) The Peace of Mind of tangible Asset Ownership

Gold has long been heralded for preserving purchasing power and wealth and this is rooted in both history and long-term market data as outlined by State Street Advisors:

“Gold has demonstrated a low and negative historical correlation to many financial indices over time, potentially helping to smooth out volatility and preserve wealth. For example, gold has shown a 0.01 and 0.09 monthly correlation to the S&P 500 Index and Bloomberg US Aggregate Bond Index, respectively, since the 1970s. 1  This persistent and historically low correlation to many other financial assets is rooted in gold’s diverse sources of demand — both cyclical and countercyclical — which is illustrated during different phases of a full economic cycle.”8

  1. https://www.irs.gov/retirement-plans/individual-retirement-arrangements-iras ↩︎
  2. https://www.investopedia.com/terms/s/self-directed-ira.asp ↩︎
  3. https://www.ramseysolutions.com/retirement/self-directed-ira ↩︎
  4. https://www.economicsobservatory.com/is-gold-a-safe-haven-for-investors ↩︎
  5. https://www.investopedia.com/terms/c/custodian.asp ↩︎
  6. https://lendedu.com/blog/transfer-ira-to-gold/ ↩︎
  7. https://www.stratatrust.com/self-directed-iras/investment-options/gold-precious-metals/ira-allowable-precious-metals/ ↩︎
  8. https://www.ssga.com/us/en/intermediary/etfs/insights/gold-as-a-strategic-asset-class ↩︎