businessfinancenews.com receives compensation from some of the companies listed on the website. Advertisement Disclosure. You can contact us, to learn about our company. and our strict editorial guidelines.
business finance logo

Benefits Of Gold IRA

Benefits Of Gold IRA

We describe here the benefits of gold IRA as in our guide about what is gold IRA, we did not go into much detail.

Gold is IRA eligible because the IRS allows it to be held as an asset within a self-directed IRA.

What is the benefit of a gold IRA?

Gold IRAs provide a hedge against inflation in times of market volatility. Gold can be a better store of value than currencies and stocks, and its value can never reach zero.

Benefits of a Gold IRA (or Other Self-Directed Precious Metals IRA)

#1: Diversification

By investing in a Gold IRA, you will diversify your retirement portfolio on a tax-deferred basis and maintain the tax preferential treatment. This means that transferring or rolling over a portion of your existing IRA account into a Gold IRA will not trigger any tax implications. Also, by opening a Gold IRA you can take advantage of an annual contribution of $6,000 if you are below 50 years old and $7,000 if you are above 50 years old.

Investing a portion of your retirement in physical gold and precious metals diversifies your portfolio in an alternative uncorrelated asset that has a proven record of protecting your funds especially when markets, governments, and currencies falter. Wall Street’s investment vehicles are all paper-based, from stocks to bonds. Physical gold and precious metals provide an added layer of diversification.

Diversification is rule number one when it comes to protecting and growing your wealth. It’s also the most compelling reason to include precious metals in your retirement strategy. Physical gold and silver can help offer protection against financial shocks by contributing to a strategically balanced portfolio.
“With any [portfolio] strategy, it’s important that you not only think carefully about your asset allocation and make sure to diversify your holdings when you establish your portfolio, but you also must stay actively attuned to the results of your choices,” notes FINRA, a nonprofit organization that oversees broker-dealers.

“Gold tends not to move in the same direction as U.S. stock prices, which means it provides a cushion…during times of stock market corrections,” says Henry To, partner at CB Capital Partners in Newport Beach, California. And according to former Federal Reserve Chairman Ben Bernanke, “The reason people hold gold is as a protection against what we call tail risk—really, really bad outcomes. And to the extent that [the Great Recession has] made people more worried about the potential of a major crisis, then they have gold as a protection.”

By holding physical gold and silver in a self-directed precious metals IRA to diversify your retirement portfolio away from more traditional assets, like stocks, you can increase your odds of being able to weather volatile markets and turbulent times.

diversification helps smooth out the volatility within investment holdings, with the goal being more stable, reliable returns over time. Simply hedging among different stock investments over time isn’t enough, as millions of Americans learned when their retirement investments evaporated due to the financial and economic crises beginning in 2008. Precious metals IRAs are based on tangible assets with intrinsic value, making them much more resilient.

Though we all hope for a swift and sustained recovery, a prudent investor must keep in mind the remaining threats to paper assets: massive government debt at home and abroad, inflation, quantitative easing, the weakening U.S. dollar, and geopolitical tensions, among others.

Distribution across three investment sectors is advised to diversify within the tangible assets category. This distribution is the most profitable in the long-term as each asset class comes with its own financial benefits. Different coin types can serve short, medium, and long-term holding strategies to maximize security.

#2: Insurance

For some people, holding a portion of their savings in physical gold and silver is like taking out an insurance policy on their retirement. Since gold and silver were first discovered, they’ve held various types of significance. The same cannot be said for many traditional paper assets, like stocks and mutual funds.

Consider this scenario: If a company goes out of business, its stock could potentially be worth zero. If you held a large portion of this stock, you could be left with nothing. Physical gold and silver, on the other hand, have never been “zero” and can never “go out of business.”

What’s more, traditional IRAs made up of stocks or mutual funds can be vulnerable to inflation. “Because gold prices generally move in the opposite direction of paper assets, adding a gold IRA to a retirement portfolio provides an insurance policy against inflation. This balanced approach smooths out risk,” suggests Edmund C. Moy, 38th Director of the U.S. Mint and U.S. Money Reserve’s Senior IRA Strategist.

“When people look for a store of [wealth], a currency hedge, a way to protect their wealth, they go to gold,” CNBC has written. Physical gold and silver are the ultimate assets for portfolio holders looking for an additional layer of security.

Gain greater peace of mind about tomorrow—today. See how you can get closer to achieving your retirement goals and worry less about economic factors outside of your control with a precious metals IRA through U.S. Money Reserve. To learn more, sign up to receive your free Gold IRA Information Kit today!

#3: Hedge Against Inflation

During times of inflation, paper and paper-based assets can slip in price or relative worth. Cash, for example, can see a drop in its overall purchasing power, and stocks may drop in price. Inflation can also weaken the health of IRAs that only hold paper or paper-based assets. However, gold has historically performed well during periods of inflation, which may provide a unique opportunity for diversification. Diversification, many experts agree, is an essential part of protecting a retirement portfolio against inflation and other shifts in the marketplace.

Inflation is a normal part of the economic cycle and a factor that every retirement portfolio will have to weather from time to time. But because gold and other precious metals have historically performed well during periods of inflation and recession, having a precious metals IRA may be a good way to help enhance your diversification and support long-term portfolio growth.

#4: Control

Precious metals IRAs are self-directed, which means you’re in control of the asset mix. You’re not restricted to only holding traditional retirement account assets such as publicly traded stocks and bonds, mutual funds, or Treasury notes.

You’re also not locked into a predetermined asset group chosen by your account’s custodian. While precious metals IRAs do require custodians, as self-directed accounts, they offer you more flexibility to diversify away from traditional assets, as well as the opportunity to take full command of what’s in your retirement account. You have more control over your level of risk exposure and thus more control over your financial future. Buying precious metals is best done through a reputable precious metals dealer or distributor. Call U.S. Money Reserve at 1-844-307-1589 to speak with a dedicated Account Executive about purchasing precious metals for your portfolio or opening a precious metals IRA.

If playing an active role in protecting and growing your retirement portfolio is important to you, you’ll find that there’s no substitute for holding physical gold and silver in your IRA—especially if you consider precious metals to be an important part of a well-diversified, long-term growth strategy.

#5: Growth Potential

Conventional IRA accounts are largely dependent upon a select group of stocks, bonds, and mutual funds, which are inextricably tied to the economy, for better or worse. When the economy suffers, so can many IRA accounts.

The economic factors that weaken stocks, bonds, and cash may increase the profit potential of precious metals: Safe-haven demand for gold and silver has historically increased during turbulent economic times.

#6: Tax Advantages

Precious metals IRAs generally receive the same tax benefits as conventional IRAs. Depending on your tax bracket, contributions to your precious metals IRA may be claimed as tax-deductible.

Like with all Traditional IRA holdings, writes the Journal of Accountancy, distributions are taxed at the taxpayer’s marginal tax rate at the time of distribution. While highlighting the opportunities for gold owners to increase their after-tax returns via an IRA, the Journal also compared two hypothetical taxpayers, finding a “significantly higher after-tax rate of return for any form of gold” held in an IRA, rather than in a brokerage account.

While an issue could be paying a 10% fee if you withdraw early, when it comes to IRA investments in gold, you will not have to pay the 28% collectible tax rate.

There are many more benefits and also some nuances to discuss, and we do that in an article about the Gold IRA tax rules.

Pros And Cons Of Gold IRA

Why do some investors find gold to be a great alternative investment for their retirement planning? There are many benefits of doing so. Likewise, there are other issues that we can signal as “cons”, because of the strict Gold IRA rules, that if are violated, can lead to big problems, just as that couple that stored Gold IRA at home.

Pros of Gold IRAs

Hedge Against Inflation

As inflation continued to rock the global economy, Reuters once again emphasized the usefulness of gold as a hedge against inflation: “Our analysis shows gold can be a valuable component of an inflation-hedging basket.”

Though the debate about gold’s performance in inflationary periods remains, investors have continued to use it as an inflation-hedge and that is not stopping soon.

Store of Value

While 2008 showed that a company can so fail that its stock price goes to zero, the price of gold can never be zero. Also, while the central bank can unilaterally increase the supply of currencies to reduce their value, creating new gold (increasing its supply) is more difficult: mining new gold is harder than printing some pieces of paper.

Precious metals are a safe-haven asset for individuals, institutions, and governments. The attributes that make precious metals a safe investment embody the same benefits of gold IRA investing, in which real, physical metals are held in your account.

Unlike paper assets, which may become devalued in a future crisis, the value of precious metals (and precious metals IRAs) can never fall to zero. Nothing brings peace of mind like knowing your retirement assets are stored in a fortified bank vault. We offer full depository services through our affiliated partner.

For these reasons, gold can be a better store of value than currencies and stocks.

Diversification

Gold has near-zero correlation with stocks and bonds. For example, between 2012 and 2020, there was a 0.02 and 0.28 correlation between gold and stocks and bonds, respectively. Therefore, when added to stocks and bonds, it can reduce the risk of the overall portfolio.

Silver’s supply and demand drivers are unique because of its diverse applications as a key industrial metal. These applications make reclamation of the metal difficult and limit its availability. Consider adding silver to your precious metals IRAs, as some experts believe pressures on available supplies may fuel massive increases in silver prices in the coming years.

Platinum is considered the most precious of the precious metals. It’s nearly 15 times scarcer than gold and is in strong industrial demand, primarily in automobile catalytic converters and industrial pollution control systems. There are no known stockpiles of platinum. As a result, it’s subject to intensive upward volatility due to supply concerns. Also, platinum values may respond positively to healthy world economies.

Nevertheless, gold IRAs also have their disadvantages.

Cons of Gold IRAs

High Fees

The fees of opening and operating SDIRAs are high when compared to mainstream IRAs. But gold is even more expensive compared to cryptocurrency or real estate SDIRAs.

The fees involved includes one-time account setup fee (paid to the custodian), yearly account maintenance fees, seller’s fee (the markup on the spot market price of gold that an investor in an IRA pays), brokerage fees, storage fees (paid to the approved depository), insurance fees (insuring against the loss of the gold at the depository), cash-out costs (a fee for closing the account when you decide to do so). When these are added together, they can become significant.

You cannot save money by storing the IRA gold at home as a couple did, you have to address a Gold IRA custodian.

Illiquidity

For traditional gold IRAs, RMDs set in at age 72. However, selling off physical gold or silver or platinum or palladium can be very difficult.

The process of looking for buyers can be tedious and when in haste, investors may be forced to sell for a price lesser than the market price. And failure to make RMDs will be penalized.

Volatility

Stocks can also be as volatile as stocks and currencies. Due to this high volatility, there can be significant losses during certain periods.

Risk of Loss

There is always a possibility that a physical asset can be stolen or lost to some unforeseen circumstances. Insuring against such losses is an extra cost to the investor.

Gold IRA vs Physical Gold

Now that we have discussed the benefits of gold IRAs, let’s compare them to physical gold. Here are some pros and cons of each option:

GOLD IRA PROS:

  • Easy to set up and manage
  • Protects your retirement savings
  • It gives you the flexibility to choose how much gold you want to invest in
  • Can provide peace of mind during volatile market conditions

GOLD IRA CONS:

  • Gold IRAs come with fees, such as storage fees, that physical gold does not
  • You may have to pay taxes on your gold IRA when you withdraw money from it

PHYSICAL GOLD PROS:

  • You can hold and touch your gold
  • There are no storage fees or other ongoing costs associated with physical gold
  • You may be able to avoid paying taxes on your physical gold

PHYSICAL GOLD CONS:

  • You have to find a place to store your gold
  • You may need to insure your gold
  • There is the risk that your gold could be stolen or lost

As you can see, there are pros and cons to investing in gold IRAs and physical gold. It’s essential to weigh these factors carefully before making a decision. Ultimately, your best option will depend on your circumstances and investment goals.

What Is Gold IRA?

A Gold IRA is an IRS-approved retirement account that functions in the same way as any regular IRA. Unlike conventional retirement accounts such as IRA and 401(k) accounts that limit your options in standard paper-based assets such stocks, mutual funds and bonds, a Gold IRA allows you the added benefit of investing in physical Gold coins and bars and other IRS approved silver, platinum and palladium metals.

You work with Gold IRA custodians that will handle and report the Gold IRA on your behalf. These custodians will keep the precious metals, insured, in legal persons called depositaries, which will handle the actual metals on your name.

according to CNN Money. A conventional IRA is like a basket for holding onto assets like stocks, bonds, and mutual funds until you’re ready for retirement. A self-directed precious metals IRA, on the other hand, is a larger basket that can also hold non-paper-based assets such as physical precious metals. It can also offer unique benefits over traditional retirement accounts.

Leave a Comment