What is a Gold IRA? How Does It Work?

gold IRA

A Gold IRA is simply a type of Individual Retirement Account (IRA) which is backed by physical gold or another precious metal, such as silver or palladium. In other words, it’s an investment or savings vehicle for Americans to purchase and hold precious metals through.

It should be noted that, should you choose to set up a Gold IRA, you won’t have to actually hold the physical gold yourself, as it must instead be stored at a registered IRS-approved facility.

It’s also possible to purchase other precious metals, such as platinum or silver, via a Gold IRA, and they all work in the same way, with the only difference being the type of precious metal you invest in (and the specific investment benefits it offers.) 

How Does it Work?

To open a Gold IRA, you need to find a company to purchase and store the gold (or whatever precious metals you choose to invest in) on your behalf. Different companies have different requirements and different minimum investment amounts, but you’ll typically need at least $2,000 to open a Gold IRA. 

Once you transfer the funds, a precious metal brokerage of your choosing will buy the gold before the custodian you picked then sets up and manages the account for you. 

There are several different types of custodians (sometimes referred to as trustees) for you to choose from, including banks, trust companies, credit unions, loan associations and other firms with the required approval. 

You will then need to pay the setup and storage fees to complete the setup process. Once this has all been done, you’ll have an active Gold IRA and can later choose to sell off the gold (or the other precious metals you purchased) and invest the proceeds in something else or simply use it to cover your living expenses during retirement.  

Before we get to the nitty-gritty of Gold IRA, we’d like to introduce you to some excellent Gold IRA experts. If you want to skip down to the deep dive on the fees and things to consider when opening your Gold IRA, click here.

birch gold retina logo What is a Gold IRA? How Does It Work?
Birch Gold
Overall Rating 6 What is a Gold IRA? How Does It Work?

Birch Gold is considered one of the top Gold IRA companies because of their customer support. They streamline the entire investment process.

😀 PROS😡 CONS
5 specialized departmentsLimited selection
A+ BBB ratingNot the best for personal investments
Specialized Gold IRA servicesMinimum $50,000 investment

Pricing is competitive. You’ll pay to secure your precious metals, which includes an insurance policy and custodian maintenance fee.

  • Minimum investment of $10,000
  • Annual fees of $175
  • $1 billion insurance policy included

The company pairs you with a customer success agent. They walk you through the entire process. You can also purchase gold as a personal investment in addition to opening an IRA.

  • Streamlined Gold IRA process
  • Buy-back program when it’s time to pay dividends
  • Marketplace for non-IRA precious metals

logo v3 1 What is a Gold IRA? How Does It Work?
Augusta Precious Metals
3 1 What is a Gold IRA? How Does It Work?

Augusta Precious Metals is a company that sets itself apart through customer service. Their specialized teams and core values make them a competitive option for baby boomers seeking a Gold IRA.

Augusta sets itself apart from other precious metal companies by making the process very fast and offering exceptional customer support.

😀 PROS😡 CONS
Fast, easy order processLimited selection
A+ BBB ratingMinimum $50,000 investment
Specialized Gold IRA services

Augusta has a minimum investment level. With qualified purchases, you can get extra bonus silver.

  • Minimum $50,000 investment
  • $2,000 silver bonus on qualifying purchases
  • Price match guarantee

The company will help you invest in gold and silver for an IRA. They do not offer palladium or platinum.

  • 5 specialized teams
  • 7 core customer values
  • Two-week IRA setup

Monetary Gold Logo What is a Gold IRA? How Does It Work?
Monetary Gold
1 What is a Gold IRA? How Does It Work?

Monetary Gold is fast-growing company that allows people to secure their retirement in precious metals instead of liquid cash.

Monetary Gold was founded in July of 2000 and has helped over 47,000 clients secure physical gold and silver as additions to their investment portfolios.

😀 PROS😡 CONS
Large selection of precious metalsLimited depository options
Tax-deferred IRA status2 week order processing
Helpful online resources

You’ll purchase precious metals through the company’s brokerage. They will help you set up your IRA. An ongoing fee for account maintenance is required.

  • Gold and other precious metals available
  • Minimum investment of $5,000
  • Annual custodian and deposit fee

You can use the company to secure your retirement in a Gold IRA.

  • Company sets up your Gold IRA
  • Materials stored and insured at Delaware Depository
  • Multiple retirement resources available

What Fees Will I Be Charged?

As mentioned, there are numerous fees to take into consideration and to compare when deciding which company to set up your Gold IRA with. 

Firstly, you will need to pay a one-time setup fee for your Gold IRA to cover the administrative costs associated with purchasing the precious metal and arranging for it to be stored. Setup fees vary quite a bit, but you’ll typically need to pay between $50 and $100.

There are two ongoing fees which you should expect to pay: an annual maintenance fee and a storage fee. 

You’ll typically be charged an annual maintenance fee of up to $300, though some firms waive this fee for the first year to attract new business. As for the storage fee, you’ll usually need to pay around $100 to $300 per year.

Although you make this payment to your Gold IRA administrator, it ends up going to the depository (the administrator simple passes on this fee to you so they’re not left out of pocket.)

Lastly, you may also be charged some miscellaneous fees when setting up and maintaining a Gold IRA. These fees include things like charges to cover wire transfers and other expenses which need to be covered as part of the setup process. 

Things to Consider

When deciding which administrator and depository to open your Gold IRA with, there are several important things to look out for and key points to compare. 

Minimum Investment 

Different administrators have different minimum investment requirements. Some just require a minimum investment of $100, while others will only allow you to open an account with them if you’re looking to invest over $10,000 in your Gold IRA. 

So, before spending time thoroughly researching a Gold IRA administrator, it’s a good idea to check that their minimum investment amount isn’t too high for you. 

Cost & Fee Structure

As discussed earlier in this guide, there are several costs which you need to take into account when opening and maintaining a Gold IRA. It’s important to shop around and calculate which provider will work out to be the most cost-effective for you in the long run.

As Gold IRAs are typically held for a few decades, even just a relatively small difference in annual fees can add up and amount to a substantial amount of money, so it’s well worth comparing different administrators and crunching some numbers to determine which is cheapest for you.

Security & Reputation

It’s important to research every Gold IRA administrator you consider using to check their reputation and to see how long they’ve been in business. This will help you gauge how trustworthy they are.

Also, you should make sure that they have the required license and are regulated at either the state or federal level. 

Storage Options

Depositories offer two types of storage options: allocated and unallocated.

In an allocated depository, your gold or other precious metal in stored an individual box specific to your Gold IRA. 

On the other hand, in an unallocated depository, your precious metal is stored along with other account holders’ valuables, with them being grouped together by things like type, refinery and weight. 

You should consider which storage option you’d prefer, though, in practice, it won’t impact you in any way and most Gold IRA firms will work with depositories which offer both options. 

Benefits of Gold IRAs

Perhaps the greatest benefit of setting up a Gold IRA is the diversification benefit that precious metals, particularly gold and silver, offer. 

So, provided you balance your investment with other assets, such as stocks and bonds, investing in a Gold IRA should make your investment portfolio more robust and better placed to generate consistent returns over the course of your retirement. 

Many precious metals can also serve as a hedge against inflation, which can be especially important over the course of several decades.

And, another good thing about Gold IRAs is the fact that they are quite liquid, so you can easily sell the precious metal you’re holding, withdraw your money and use it to fund your retirement as and when is required. 

Drawbacks of Gold IRAs

As with most things, Gold IRAs aren’t without their drawbacks – and they aren’t the best option for everyone. 

The first thing to note is setting up and maintaining a Gold IRA comes with considerable fees which can eat into your returns. These fees can sometimes be higher than the equivalent fees of other types of investing, such as purchasing blue-chip shares via a stockbroker. 

Secondly, some Gold IRA administrators have high minimum investment requirements, so you won’t be able to open an account with them unless you’re willing to invest a considerable amount of money from the get-go. 

However, some Gold IRA companies only require a minimum investment of $100, so it is possible to start small and invest more once you feel more comfortable. 

Finally, you should be wary of the fact that there are tax penalties for people who decide to withdraw their funds early from their Gold IRA. These penalties can be significant, so it’s always a good to think ahead and assess the likelihood of you having to withdraw your funds early and potentially being hit with such a penalty. 

Gold IRA Investment Tips

Be Sure to Get a Detailed Receipt 

A Detailed Receipt states the value of the precious metal you have purchased and stored at a particular depository, in addition to other important details, such as weight and grade. 

Detailed Receipts are sometimes needed to prove or disprove the value of a precious metal that has been sold or is due to be sold, so it’s always a good idea to request one in advance. 

Buy Bars Instead of Coins

Gold dealers typically charge a considerably lower commission when selling bars than coins, so it’s advisable to stick to the former whenever possible. 

Be Wary of Shady Brokers & Traders

The precious metals are regulated to some extent in the US, and while most dealers and brokers are legitimate, there are some shady participants to be wary of. 

Always conduct due diligence before parting with your cash and make sure the product you’re buying matches the specification and claims of the trader or seller. 

Is Gold Still a Sound Investment?

Gold is generally considered to still be a sound investment by experts, especially when it comes to retirement planning, as this particular precious metal tends to appreciate when stocks and other financial assets aren’t performing well, and depreciate when there’s a stock market rally.

Therefore, gold can be a good diversifier and can make your overall investment portfolio more robust and better hedged against adverse economic developments. 

Can I Take Physical Possession of Gold Purchased Through an IRA?

No, it is not possible to take physical possession of the gold (or any precious metal for that matter) which you have purchased via an IRA. Any precious metal purchased via an IRA must remain stored in an IRS-approved depository or at a bank.

However, some Gold IRA companies allow account holders to take physical possession of their gold at the end of their IRA term. 

Is There Another Way to Invest in Gold?

It is also possible to invest in gold and other precious metals via an exchange traded fund (ETF) or a mutual fund, and this ultimately gives you the same diversification benefit as if you were to set up a Gold IRA.

Another option is to purchase physical gold and hold it yourself. This way, there aren’t any ongoing custodian and management fees to pay, but if you choose to sell the gold, it won’t always be a straightforward process. 

Furthermore, gold kept at home is much less secure than it being stored at a custodian facility, so there’s a higher risk of it being stolen.

How Can I Find a Trustworthy Gold IRA Firm?

You have two options when trying to find the best Gold IRA company for you: you can either research and compare different administrators by yourself, or you can enlist the help of a dedicated gold investment advisor.

If you decide to go it alone, you should be sure to conduct sufficient due diligence before choosing one Gold IRA firm over another. Aside from making sure you fully understand their terms and conditions, you should ensure that they are regulated and read reviews posted online to help you get a better idea of what your experience with them will be like.

Even if you decide to utilize the experience of dedicated gold investment advisor, you should still conduct some research of your own. 

Furthermore, it’s a good idea to also ask the investment advisor for their advice on which precious metal you should purchase. It’s important to be upfront with them (for example, tell them about all of your other investments) and to give them specific financial goals you’d like to achieve so they can give you accurate and bespoke advice. 

Final Thoughts

A Gold IRA can be a good addition to your investment portfolio, especially when it comes to retirement planning and hedging your bets against adverse economic events that may hurt the stock market. 

You should consider investing in more than one precious metal, but make sure you understand each one’s risk profile and investment benefits before going ahead with the purchase. 

When it comes to picking a Gold IRA company to work with, it’s a good idea to shop around and potentially enlist the help of a dedicated advisor to prevent you from making a costly mistake. 

A Quick Summary

  • A Gold IRA is simply a type of Individual Retirement Account (IRA) which is backed by physical gold or another precious metal.
  • You don’t actually take physical possession of the precious metal; it remains stored at a depository.
  • Gold and some other precious metals can be a good diversifying investment, as they tend to negatively correlate with the stock market. 
  • So, opening a Gold IRA can make your investment portfolio more robust and better hedged.
  • There are a number of fees, including a setup fee, a maintenance fee and a storage fee, which you incur. 
  • These fees can add up and become quite significant, so it’s a good idea to shop around to help you find a cost-effective Gold IRA company.
  • Setting up a Gold IRA is a relatively straightforward process, but you may want to enlist the help of a dedicated advisor to provide you with bespoke investment advice.
  • Some Gold IRA companies have pretty high minimum investment requirements, while others just require a minimum investment of $100.
  • It’s not possible to store the gold held via an IRA in your home, but some firms allow account holders to take physical possession of their gold at the end of the IRA term.
David Goldstein
David launched Boomer Buyer Guides with his wife Alice to provide Baby Boomers with trustworthy, well-researched information about products and services that Baby Boomers buy. Learn more about David Goldstein