coin guide

Gold IRA Pros and Cons

A gold IRA gives physical gold the usual IRA tax treatment and adds an asset that doesn't react to the economy the way stocks and bonds do, which the CFTC cautions isn't the same as low risk. Against that, gold pays no income, the IRA carries fees plus the spread on the metal, the gold can't be kept at home, a traditional IRA requires withdrawals from age 73, and the custodian doesn't vet what you buy.

The Pros of a Gold IRA and What Limits Each One

Tax Treatment: Deferral in a Traditional IRA, Tax-Free Withdrawals in a Roth

No separate account type called a gold IRA exists in the tax rules. What you open is a traditional, Roth, SEP or SIMPLE IRA with a custodian willing to hold IRA-eligible gold, and it's taxed like any other IRA of its type. For a traditional IRA, IRS Publication 590-A says contributions may be deductible and amounts in the IRA, including earnings and gains, generally aren't taxed until distributed. Roth IRA contributions aren't deductible, and qualified distributions are tax free.

Deferral changes the kind of tax as well as its timing. Sell gold you've owned outright for more than a year and, under IRS Topic 409, the profit is a collectibles gain taxed at a maximum 28% rate. Take money out of a traditional IRA and IRS Publication 590-B says the taxable distribution is ordinary income, whatever the IRA held, with no 28% ceiling. So the benefit is the deduction going in and the untaxed years in between, not a lower rate on the gold's gain.

A loss shows the other side of deferral. Because IRA gains and losses stay off your tax return while the IRA is open, per the IRS, selling gold for less than the IRA paid produces no deduction. For the collectibles rate in more detail, see our post on the tax implications of buying and selling bullion.

Diversification, With the CFTC's Caution Attached

Diversification rests on one observation, and the CFTC confirms it: its Precious Metal Frauds page says metals don't react to economic conditions the same way stocks or bonds do. The same CFTC passage says "precious metals prices are just as volatile as those of other assets" and warns readers not to confuse the lack of correlation with low risk. Gold can make an IRA's holdings less alike. Owning it doesn't make the IRA safer, and the gold itself can fall in price.

Direct Ownership of Specific Eligible Metal

A gold IRA holds actual coins and bars bought for your IRA, not shares in a fund that tracks the gold price. IRS Publication 590-A names 1 oz, 1/2 oz, 1/4 oz and 1/10 oz U.S. gold coins, 1 oz U.S. silver coins, certain platinum coins and certain gold, silver, palladium and platinum bullion. Those gold coins are the four sizes of the American Gold Eagle, the only gold coins that 26 U.S.C. 408(m) names.

Custody is the limit on this benefit. The CFTC and FINRA state in an investor bulletin that metals in a self-directed IRA must be held by the IRA trustee or custodian. You choose the metal and the IRA owns it, but you don't hold it, and an IRA trustee can refuse products the tax code allows.

The Cons of a Gold IRA as Regulators State Them

Each of the five drawbacks is written into the tax rules or stated on a regulator's own page.

No Income and No Compounding

Gold held in an IRA produces no earnings of its own. The CFTC's Precious Metal Frauds page is blunt about it: "precious metals do not pay dividends, create earnings growth, or compound, like other assets." A higher price on the day of sale is the only return gold can give.

Transaction costs, storage and insurance, the CFTC adds, "may require you to earn well above the rate of inflation just to break even." A yearly fee charged to an IRA whose only asset pays no cash has to be covered with cash you add or metal you sell.

Fees, Premiums and the Spread

Running a gold IRA costs more than running an IRA that holds funds. In an Investor Alert dated February 7, 2023, the SEC warns that fees for self-directed IRAs "may be significantly higher than those for other types of investment accounts." It lists five kinds: transaction, account opening, annual account, administrative and asset-specific fees. Storage and insurance are charged as well, and schedules vary by custodian, so ask for each fee in writing before funding the IRA. The way a cost is paid matters as well: brokers' commissions paid in connection with a traditional IRA count against the contribution limit under IRS Publication 590-A, and trustees' administrative fees don't.

Gold itself carries two more costs. One is the premium, the amount a seller charges above spot. Spot is quoted per troy ounce (about 31.1 grams). On August 4, 2020, a CFTC customer advisory gave 5% to 10% over spot as the markup on bullion and 40% to 200% as the range often charged on numismatic (collectible) coins. Our post on understanding the gold premium breaks down what goes into one.

Your first IRA statement will show the premium as a gap. The CFTC and FINRA explain that the custodian's statement shows melt value, the total bullion weight times the spot price. Buy at a 5% premium and the statement dated the day of purchase shows 100 ÷ 105 = 95.2% of the purchase amount. At 10% it shows 100 ÷ 110 = 90.9%. That's arithmetic, not a loss in the metal. Selling brings the second cost, the spread: the gap between a seller's price and what it pays to buy the metal back. Each seller sets its own, the same bulletin notes.

Storage Rules: No Home Possession

A home safe isn't an option for IRA gold. The IRS's IRA FAQs allow bullion only when it's "in the physical possession of a bank or an IRS-approved nonbank trustee," a rule the same FAQ extends to metal bought through an IRA-owned LLC. Storage, then, is a fee you can't opt out of.

Breaking the rule is taxed, not just corrected. McNulty v. Commissioner, a United States Tax Court opinion filed November 18, 2021, held that an owner who had her IRA's LLC buy American Eagle coins and kept them herself received taxable distributions equal to the coins' cost.

Required Minimum Distributions From Gold That Pays No Cash

A traditional gold IRA has to start paying out whether or not you want to sell. IRS Publication 590-B sets the start at age 73, with the first required minimum distribution (RMD) due by April 1 of the following year. Each year's RMD is the IRA's balance on December 31 of the prior year divided by an IRS life expectancy factor. Your custodian reports that December 31 value to the IRS on Form 5498 and must report the RMD amount to you or offer to calculate it.

An IRA that earns dividends or interest has cash coming in to meet the RMD. Gold produces none, so you sell metal at that year's price or take coins and bars out as the distribution. An SEC Investor Alert warns that alternative assets in a self-directed IRA can be hard to sell when RMDs come due.

Missing an RMD is expensive: Publication 590-B says you may have to pay a 25% excise tax on the amount not distributed. Forced sales have one way out. Someone with several traditional IRAs works out an RMD for each, then can withdraw the combined total from whichever of them they choose, so cash or funds in one IRA can pay the gold's share. Roth IRAs skip the problem, because the original owner never has to take distributions.

A Custodian That Doesn't Vet What You Buy

Your custodian holds the IRA and doesn't check your purchases. Self-directed IRA custodians, the SEC says, don't evaluate the quality or legitimacy of any investment in the IRA, and using a legitimate custodian to buy an investment doesn't make that investment legitimate.

Price is yours to check. In fraud cases described by the CFTC and FINRA, markups, fees and commissions drained one-third to one-half of what some gold or silver IRA customers had saved. Their bulletin also calls "semi-numismatic" a made-up industry term for coins that are likely harder to sell than bullion.

How to Judge Whether a Gold IRA Is a Good Investment

Whether a gold IRA is a good investment depends on numbers that are yours, not gold's. Five questions get you to them.

• Tax rate. What's your rate now, and what do you expect it to be when you withdraw?
• Total yearly cost. Add every custodian, storage and insurance fee and divide by the IRA's value. A flat fee takes a bigger share of a small balance.
• The price to sell. The CFTC and FINRA suggest asking how much you'd receive if you had to sell the metal back tomorrow.
• The premium. Multiply the metal's weight by the spot price and compare the result with the price you're quoted.
• Who contacted whom. An SEC Investor Alert advises extreme caution with unsolicited offers that promote a self-directed IRA.

No answer to those questions comes with a promise attached. "Risk-free," "zero risk," "absolutely safe" and "guaranteed profit" are, in the SEC's words, hallmarks of fraud. Before you make significant changes to a tax-advantaged retirement plan, the CFTC's advice is to talk to a qualified financial planner, investment advisor or accountant.

We're not a registered investment advisor and can't give individual investment or tax advice, so speak with a tax professional or financial advisor.

IRA-Eligible Gold on Our Marketplace

Many products we sell qualify for an IRA, provided they meet IRS requirements, and we can help you pick a custodian and a storage option. Our precious metals IRA page has the details. Ours is a two-way market, which means a bid sits next to the ask on a product page and the spread is visible before the IRA spends a dollar.

Frequently Asked Questions

Is it better to have physical gold or a gold IRA?

Neither is better across the board. Gold you own outright can be any product, kept where you choose and sold when you like, with a long-term gain taxed at a maximum 28% rate under IRS Topic 409. Gold in an IRA is limited to eligible products held by the IRA trustee, and a traditional IRA taxes withdrawals as ordinary income. Your tax rates and how much access you want decide it.

Can a gold IRA hold proof or collectible coins?

Collectible, numismatic and graded coins generally don't qualify, and a custodian can refuse a coin the tax code allows, so ask before the IRA pays. Cost is the other issue. The CFTC says numismatic coins typically carry higher markups than bullion and are much less liquid. In an IRA that counts twice: when the IRA buys, and again when metal has to be sold to meet a required distribution.

What happens if a gold IRA buys a coin that doesn't qualify?

The purchase is taxed as a withdrawal. Under 26 U.S.C. 408(m), an IRA that acquires a collectible is treated as having distributed the amount it paid. The IRS adds that the amount counts as distributed in the year invested and that a 10% additional tax on early distributions may apply. Confirm a coin's eligibility before the IRA pays for it.