What is a gold IRA? Is the alternative retirement account the solution to market volatility?

Although you can invest in gold by buying coins, bars, or jewelry on your own, another option is a gold individual retirement account (IRA). A gold IRA gives you the ability to invest in gold and other assets in a tax-advantaged account. However, they tend to have high fees and different risks than traditional IRAs, so they’re not a good solution for everyone. 

 

What is a gold IRA? 

Gold prices have increased significantly over the past few years, and the price has risen steadily in 2024. According to Alex Ebkarian, chief operating officer (COO) of Allegiance Gold, those price changes are due to current risks and challenges.  

“We’ve found that clients aren’t happy with the current inflation level, there is an increased amount of debt being printed, and the dollar is losing its value,” he said.  

Historically, investing in gold has been viewed as a relatively safe haven in times of market volatility or turmoil.

“Gold is popular when inflation is a bit more prominent or there are fears about the economy,” said Ian Weiner, a certified financial planner (CFP) and lead planner with Bespoke Wealth Solutions. “People tend to look for alternative assets that feel somewhat stable.”  

However, traditional IRAs don’t allow you to invest in physical assets; you can only invest in securities, such as stocks and bonds.  

To invest in gold in an IRA, you’ll have to open a self-directed IRA, a special kind of IRA that is held by a custodian that allows you to invest in a broader range of assets, such as cryptocurrency, precious metals, and artwork. Gold IRAs are a specific form of self-directed IRA for gold investors.  

Gold IRAs follow the same basic rules for contribution limits, required minimum distribution, and tax advantages as traditional IRAs. However, there are strict rules concerning what types of gold you can invest in with a gold IRA. Only coins and gold bars that contain a purity grade of 99.5% or better are eligible.

How to set up a gold IRA 

Opening a gold IRA is quite different than opening a traditional IRA.  

“The main difference [between gold IRAs and traditional IRAs] is that you have to use a specialty broker to open an IRA that can hold precious metals,” said Alan Bazaar, chief executive officer (CEO) of Hollow Brook Wealth Management. “There are typically higher fees due to the storage cost of owning the metal.”

If you decide to invest in a gold IRA, follow these steps to open an account:   

• Find a dealer and custodian: Buyers usually work with a gold IRA broker or dealer to facilitate the purchase of the gold. Broker and dealer fees and commissions can vary significantly by company, so it’s wise to shop around and compare fee schedules.  
• Fund your account: Once you’ve identified a dealer, you can fund your account. Gold IRAs have the same contribution limits as traditional IRAs, so the maximum you can contribute is $7,000. That maximum applies to all of your combined IRA contributions, so if you have both a gold IRA and a traditional IRA, you can only contribute up to $7,000 per year. You can also roll over an existing IRA into a gold IRA.  
• Decide what types of metals to invest in: Next, decide what coins or bullions you’d like to purchase. Your dealer may have recommendations based on what items qualify for gold IRAs.  
• Store your gold: Gold purchased through an IRA cannot be stored in your own home; instead, it must be stored with a qualifying custodian — a bank or a business approved by the IRS to serve as IRA custodians. You can view the list of approved custodians on the IRS website. Your dealer will usually recommend a reputable custodian.  

Risks of investing in gold IRAs  

With the high price of gold, gold IRAs can be appealing. However, there are some significant risks to keep in mind.

Gold IRAs can be expensive 

Gold IRAs involve fees that you don’t pay with a traditional IRA because you have to pay a dealer, a custodian, and storage fees. Besides the cost of the gold coins or bullions and any dealer commissions or premiums, typical fees include:

• Application fee: Approved custodians may charge an application fee to open a new account. In general, you should expect to pay about $50 for application fees.
• Account fee: With a gold IRA, you’ll have to pay an annual account fee to cover the cost of bookkeeping and administrative expenses. Fees vary based on how much money you have in the account, but it can range from $75 to hundreds of dollars per year.
• Transaction fee: Transaction fees apply to any new purchases or sales within the account. The transaction fee is often a flat cost, and you can expect to pay about $40 per transaction.
• Storage fee: Storage fees cover the cost of storing and safeguarding your fold. The fee varies based on the volume of gold you’re storing, and whether you’re storing your gold along with the property of other investors, or if you need a separate storage area. Generally, you can expect to pay about 0.5% to 1% of your account balance in storage fees per year.

The fees can be significant, and unscrupulous companies can charge excessive amounts. The Commodity Futures Trading Commission (CFTC) warned that a recent complaint found that a dealer and custodian charged a customer $150,000 in commissions and fees to roll over $300,000 from a traditional IRA.  

“Do yourself a favor: Find out about the custodial fees upfront and find out about the products and their associated costs upfront,” warned Ebkarian. “So that way, there’s no surprise.” 

Gold dealers are not financial advisors 

Major investment firms, such as Vanguard or Fidelity, don’t offer gold IRAs. Instead, you have to work with an independent gold IRA dealer and custodian. According to the CFTC, precious metal dealers aren’t required to be licensed or registered investment professionals nor do they need to have financial advisor credentials. Instead, they are salespeople who earn commissions for selling gold and encouraging customers to invest. 

“[Dealers] aren’t registered as actual investment advisors, and they don’t do any comprehensive planning,” Weiner cautioned.  

Plus, dealers are paid by commission, which can affect their recommendations. That’s very different from fiduciary advisors. 

“With a CFP, there’s a legal and ethical bar we have to meet,” he said. “We have to work in the best interest of the client at all times. That [standard] doesn’t exist with them [dealers.]” 

The takeaway  

Gold IRAs can be a useful alternative to traditional IRAs for those who want to own gold while taking advantage of an IRA’s tax benefits. These accounts allow you to diversify your portfolio with a tangible, physical asset and may play an important role in your overall investment strategy.  

However, the expense of gold IRAs can be high, and, if you’re looking to maximize your money’s growth, keeping your money in gold may cause you to miss out on the valuable returns and dividends you could earn from stocks. As a result, experts recommend investing no more than 5% to 15% of your portfolio in gold or precious metals.   

Diversifying your portfolio — and putting some money in relatively safe investment vehicles — are good ways to hedge against market fluctuations and inflation.