What is a Gold IRA?
A Gold IRA is part of a category of Individual Retirement Accounts referred to as Precious Metals IRAs. These are special accounts that are “self-directed” or SDIRAs which permit investors to hold a range of assets in their retirement accounts that go beyond the scope of traditional stocks, bonds, and mutual funds. According to The Entrust Group, which provides administrative services for self-directed retirement accounts:
“One of the great advantages of a self-directed IRA (SDIRA) is the freedom to invest in assets that align with your interests, values, and unique expertise. An SDIRA gives you the opportunity to build a truly diversified portfolio and take advantage of alternative investments.”
The Entrust Group lists self-directed IRA alternative investment options that include cryptocurrencies, mortgage notes, art, undeveloped land, green energy, vineyards, restaurants, venture capital as well as precious metals.
Precious metals are considered one of the more popular self-directed IRA assets because of their ability to:
- Provide critical portfolio diversification
- Offset inflation risk
- Hedge against geopolitical uncertainty
- Reap retirement tax benefits
- Provide a monetary safe-haven
Gold has been one of the best performing assets of 2024. It has defied all forecasts and projections on its record-breaking run to bring investors, retirees, and everyday savers — the power of real money.
Gold Provides Portfolio Balance
Traditional IRAs are limited to traditional assets. These are generally considered to be “paper assets” like stocks, bonds, mutual funds, unit investment trusts (UITs), and exchange-traded funds (ETFs).
Paper assets are not tangible, instead they “represent” financial ownership or a claim on a company or entity’s earnings or assets. Because they are not physical assets, they have built-in risk according to the Herold Financial Dictionary:
“Paper assets in investments are literally pieces of paper that define ownership of an asset. Classic examples of investing paper assets … [are] stocks, currencies, bonds, money market accounts, and similar types of investments. For paper assets to have a tangible value, there must be a working financial system in order to back them up and exchange them. In the cases where a financial system collapses, paper assets commonly sharply decline along with it. The majority of Americans have placed an overwhelming percentage of their money in paper assets, and as the Financial Crisis of 2007-2010 showed, this makes them extremely vulnerable to economic calamities.”
Gold has a very low correlation to paper assets, meaning when the financial markets are in a slump or a correction — the price of gold is typically not impacted. As a matter of fact, gold will often rally in response. This makes gold an ideal portfolio diversifier, providing retirement protection, risk mitigation, and critical portfolio balance.
Gold is an Inflation Hedge
Ronald Reagan famously said that inflation is “as violent as a mugger, as frightening as an armed robber, and a deadly as a hit man.” Indeed, inflation is all about rising prices that impact everyday goods like food, gasoline, and clothing — and services like insurance, utilities, and housing.
Rising inflation is painful because our money simply doesn’t go as far or buy as much as it used to. It’s also insidious because it tends to impact those most vulnerable who are living paycheck to paycheck or surviving crisis to crisis. In poll after poll Americans have deemed inflation to be too high, a significant burden, and their top financial concern.
Inflation can also damage the overall economy since consumers tend to spend less, go without, or delay big purchases which can reduce economic growth. The International Monetary Fund captures the longstanding threat that inflation poses for those of us who remember how bad it has been and how much worse it can become:
“It may be one of the most familiar words in economics. Inflation has plunged countries into long periods of instability. Central bankers often aspire to be known as ‘inflation hawks.’ Politicians have won elections with promises to combat inflation, only to lose power after failing to do so. Inflation was even declared Public Enemy No. 1 in the United States—by President Gerald Ford in 1974.”
Inflation typically has an inverse relationship with the price of gold. In order words, when inflation rises and the dollar weakens, gold gains value. When inflation started to spike back in 2020, gold prices started their historic climb and never looked back.
And as inflation-weary investors diversify away from a weaker dollar and into gold, it increases demand which further pushes up the price of the precious metal. Suffice to say that there is a credible correlation between rising inflation and rising gold prices as gold has historically been able to preserve and increase its value in debilitating inflationary environments.
Gold Offers Global Chaos Protection
Gold thrives on global risk and right now the world is confronting multiple military conflicts, widening regional tensions, and a new era of instability that threatens the established world order.
According to Geopolitical Futures (GPF), a thinktank which analyzes the various forces impacting the global community, risks are approaching unprecedented levels. And since the world economy is so deeply interconnected, foreign conflicts have the potential to ripple across the globe. After citing notable hotspots like the South China Sea, the Middle East, and Eastern Europe — GPF concluded:
“These geopolitical risks and their preceding events can have a great influence on the private sector, that of the affected region, and the global market as a whole. Escalating conflicts and unrest can decimate both international and regional business ventures, leading to severe losses, including property destruction and even a complete shutdown of business operations.” Global conflicts can disrupt trade, fracture supply chains, drive up the price of goods and inject uncertainty into both global and domestic financial markets. Gold has always been considered a stable global asset with intrinsic and universal value. And as a reliable store of value with high liquidity, it is a magnet for the risk averse, particularly during unsettling times.
According to the Geopolitical Risk Index (GPR), the periods of global unrest involving the U.S. and Iran, Russia and Ukraine, Israel and Hamas have been challenging for investors.
Stocks took a hit after the January assassination of Iranian General Qasem Soleimani. The S&P 500 tumbled to a 9-month low when Russia invaded Ukraine. And when Hamas attacked Israel in October of last year, stock futures fell and investors were on edge.
Since Russia’s invasion of Ukraine on February 24, 2022 gold prices have risen more than $858 per ounce. And since Hamas attacked Israel on October 7, 2023, gold is up more than 50%.
A Gold IRA has Important Tax Benefits
According to the Congressional Research Service (CRS), the Individual Retirement Account was born in 1974 and was established with two objectives in mind:
- To encourage workers without access to employer-sponsored plans to save for retirement.
- To allow workers with employer plans to roll over their savings and retain tax advantages. Though eligibility was originally limited to workers without pension coverage, subsequent legislation expanded eligibility to nearly all workers.
The Taxpayer Relief Act of 1997 created the Roth IRA and broadened the types of investments allowed in IRAs to include gold and silver coins. Additional gold and silver assets were approved for inclusion in individual retirement accounts in 1998, along with palladium and platinum products.
A Gold IRA taps into this long history. It is a tax advantaged retirement account that functions much like a traditional IRA. According to Experian, a Self-Directed Gold IRA can be set up with pretax or after-tax dollars:
- Traditional IRA: With a traditional IRA, you can avoid paying taxes on contributions by investing on a pretax basis. Your investments grow tax-deferred and are taxed at your ordinary tax rate when you make a withdrawal at retirement.
- Roth IRA: A Roth IRA allows you to invest after-tax. Your investments grow tax-free, and you won’t be subject to taxes when you make a withdrawal at retirement.
When one holds a Gold IRA, your money will grow tax deferred until to make withdrawals in retirement. In most cases contributions to your Gold IRA are tax deductible. In addition, you can convert a regular IRA, Roth IRA or 401(k) to a Gold IRA to diversify your retirement assets.
According to SmartAsset, the process of rolling traditional funds into a self-directed Gold IRA account is relatively simple:
“Once you’ve opened your Gold IRA, you can contact the company managing your 401(k) account to begin the rollover process. You’ll first have to choose between a direct and indirect rollover. In an indirect rollover, you withdraw the funds from one account and then deposit them in another. With a direct IRA rollover, the funds move directly from one account to another. The direct option is usually much simpler, and it comes with less risk of IRS penalties.”
The benefits of a Gold IRA include the same tax pre-tax and after-tax perks of traditional IRA accounts along with the inflation protection, diversification, and safe haven attributes inherent in owning gold.
The Gold IRA is Powerful
There is nothing quite like a Gold IRA. Adding gold to your portfolio mix gives you the benefit of holding one of the most powerful stores of wealth that man has ever known. Imagine that, a commodity that dates back thousands of years, that has been the quintessential expression of wealth and opulence, as well as a prevailing monetary standard and the diversification choice of central banks around the world — being held in your personal retirement account. That is powerful.
A Gold IRA is also perhaps one of the best expressions of financial freedom available to everyday savers and retirees because it puts you in control of your financial destiny. According to financial services company Equity Trust, with a self-directed Gold IRA, you hold the reigns of your financial future:
“This is your retirement, and you are the best person to make decisions that align with your goals … Self-directed IRAs empower you to make all the choices regarding your investments. This level of control provides the freedom and flexibility to invest in assets that you understand and are comfortable with, allowing you to tailor your portfolio to your unique financial objectives.”
It’s a critical distinction. Traditional IRAs are controlled by brokers. A Gold IRA is controlled by you. Aside from gold’s role as an effective diversifier, inflation hedge, safe haven from global chaos, and delivering key tax benefits — its most compelling power lies in its ability to tap into the uniquely American spirit of self-reliance, self-sufficiency, and self-determination.
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