Gold IRA vs. Physical Gold: Which Is the Better Investment for You?
If you’re looking to diversify your portfolio, you may want to consider gold. This precious metal is a hedge against inflation and has been used as a medium of exchange for thousands of years.
You have several options for investing in gold, including gold IRAs and physical gold. This guide will explore the pros and cons of both options so you can decide whether a gold IRA or physical gold makes more sense for you.
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What to know about investing in gold IRAs
A gold IRA allows you to accumulate gold while enjoying tax advantages. Depending on the type of account you choose, you can defer taxes now and pay them later, or you can pay taxes now but then not pay any taxes on your capital gains when you withdraw from your account.
The IRS sets annual limits for how much you can contribute to an IRA. Right now, you can contribute $7,000 per year to an IRA. The IRS also stipulates that anyone who is 50 years or older can make an additional $1,000 catch-up contribution each year.
Maxing out your annual IRA contribution shields more of your money from taxation. However, the annual limit applies to all your IRAs. For instance, if you contribute $7,000 to a gold IRA, you can’t then proceed to contribute $7,000 to a different IRA that has stocks and mutual funds.
Note that 401(k) plans have higher annual limits, which the IRS adjusts periodically. The 2024 annual contribution limit is $23,000, plus a $7,500 annual catch-up contribution if you qualify.
What to know about investing in physical gold
If you invest in a gold IRA, the custodian handles gold storage for you. However, if you buy physical gold, you are responsible for storage and keeping it safe. It’s also common for gold investors to buy an insurance policy to protect their investment.
Buying physical gold gives you more control over the asset. You can sell it at any time without a penalty, even if you withdraw prior to turning 59 ½ years old. Although extra expenses will apply, those costs are similar to the administrative fees gold IRA providers charge.
Furthermore, there is no limit to how much gold you can buy. Investors aren’t required to adhere to the IRS’s limitations. If you want to buy more than $7,000 worth of gold each year, no one will stop you.
Gold IRA vs. physical gold: Which is right for you?
Gold can rally during global uncertainty and inflation, two catalysts that drag down most assets. Some people invest in both gold IRAs and physical gold, but others prefer to choose only one method.
I have some clients who want to hold physical gold within their investment account and others who have a gold IRA—some may have both.
For accuracy and ease of reporting (to the IRS), I recommend holding physical gold outside an IRA and a gold ETF or similar security within their IRA held at a financial institution. This ultimately depends on the client’s experience and preferences.
Erin Kinkade, CFP®
While opinions vary, the common consensus is that gold should make up 5% to 10% of a portfolio. For some investors, it only makes sense to use a gold IRA or buy physical gold, but which one is right for you?
These are some of the scenarios that highlight the strengths and weaknesses of each choice.
| If… | Choose… |
| You want more control over your gold | Physical gold |
| You want lower taxes | Gold IRA |
| You don’t want to worry about storage | Gold IRA |
| You want to buy a high amount of gold | Physical gold |
You want more control over your gold
Buying physical gold is the right choice if you want more control over your gold. This option is suitable for people who want to take on the responsibility of storing and insuring gold.
Some gold investors can also end up with lower costs if they store and insure gold compared to an IRA’s administrative fees. Having control over your gold also makes it more liquid. You can more easily buy and sell gold without worrying about an IRA’s penalty fees.
You want lower taxes
Gold IRAs are the better choice if you want to reduce your tax bill while buying gold. You can either defer your taxes right away or pay taxes now and end up with no capital gains taxes when you receive distributions.
It’s important to note that you can enjoy the benefits of an IRA even if it’s not a gold IRA. Some people buy physical gold and then use an IRA for stocks and mutual funds. However, if you are committed to gold and want the tax benefits, a gold IRA is the better choice.
You don’t want to worry about storage
Finding a good place to store your gold takes time, and then you have to insure it and ensure its safety. Not everyone wants that type of work or responsibility.
If you want someone else to handle storage for you, a gold IRA is the right choice. The custodian stores gold for you, and IRA providers have more resources and contacts than someone who is getting started with gold investing.
A gold IRA is more friendly for beginners who want exposure to the precious metal. They can enjoy the returns without worrying about administrative complexities.
You want to buy a significant amount of gold
The IRS sets a $7,000 limit for annual gold IRA contributions that goes up to $8,000 per year if you’re 50 years or older. For some people, that’s a sufficient amount, but other people want to buy more gold.
If you want to invest at least $10,000 worth of gold every year, a gold IRA will be restricting. Investors who want to rack up gold should prioritize buying physical gold instead of resorting to a gold IRA. It’s possible to do both, but you must buy physical gold on your own if you believe the IRS’s limits are too restrictive.
I do not recommend that my clients focus on timing the market when investing. I do educate them on the impact of investing and then experiencing a down or upmarket, which is also captured during the discussion about risk tolerance.
Overall, gold can be an appropriate piece of a well-diversified portfolio (ideally no more than 10% of liquid or investable assets); keeping this in mind, the price change and stability of gold is part of choosing to invest in any asset.
Erin Kinkade, CFP®
How to get started investing in gold
Getting started with gold can help you outperform the market during uncertainty and periods of high inflation. Gold can also get a boost if interest rates continue to fall, making now a good time to consider the precious metal.
There are many ways to get started with gold. You can open a precious metals IRA to accumulate gold, silver, and other precious metals while enjoying many tax benefits. If you haven’t chosen an IRA provider yet, check out the best gold IRA companies.
You aren’t required to use a gold IRA. Investors can also accumulate gold, and if you’re looking for options, these are some of the top gold dealers to consider. Once you buy gold for the first time, it will get easier. You’ll start to feel more comfortable with the process and build wealth gradually.
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