Gold is considered by most to be an excellent hedge against inflation, offering a safe haven during recessions. This makes the precious metal an excellent vehicle for diversifying portfolios. The question is, how should people invest in gold? This article will offer insight into gold individual retirement accounts (IRAs), in particular, evaluating their benefits and drawbacks to help investors make informed decisions.
What Are Gold IRAs?
Before they learn about the benefits of gold IRAs, investors need a clear understanding of what they are. Technically, they are considered self-directed IRAs, which means these accounts allow investors to hold nontraditional retirement assets in compliance with IRS regulations. Gold IRAs offer the same tax benefits as traditional IRA investments and are subject to the same contribution limits, required minimum distributions, and other regulations.
Advantages of Gold IRAs
People looking to hold gold as a long-term investment are often interested in these types of IRAs. This should come as no surprise given their numerous advantages, including:
Tax Benefits
Gold IRAs offer the same tax benefits as traditional IRAs. Investors preparing for retirement can thus use pre-tax contributions in gold to lower their taxable income, deferring the payment of any taxes until they begin to take withdrawals during retirement.
Portfolio Diversification
Investing in precious metals is a great way to diversify a retirement portfolio. The amount of a person’s nest egg invested in gold might vary depending on a person’s risk tolerance, but everyone can benefit from holding some number of precious metals in a gold IRA.
Protection Against Inflation
As a physical asset, gold retains its value well over time. This asset’s value often moves inversely to that of the US dollar, as well, which makes it an excellent hedge against recessions and market volatility. That said, gold prices still go up and down so it’s a better long-term investment than it is a short-term one.
Drawbacks of Gold IRAs
There are no types of investments that come with all benefits and no drawbacks. Gold IRAs are no exception, and they’re not the best choice for every investor. Potential drawbacks that investors should know about include:
Management Fees
Gold IRAs require more management than traditional IRAs, which means there may be additional fees imposed by the account custodian. For those who hold physical gold, storage fees, and insurance can also apply.
Complications Upon Withdrawal
When people reach an age where they must start taking required minimum distributions (RMDs), they must liquidate the assets or find a secure place to store the gold. This extra step can be a hassle for investors who aren’t used to holding physical assets, although those who routinely include precious metals in their portfolios don’t find it problematic.
Limited Liquidity
The limited liquidity of gold and other precious metals can make it difficult for investors to rebalance their portfolios to maintain a breakdown that aligns with their risk tolerance, goals, and timeline. There are no online brokerage platforms that allow direct, commission-free trading of these physical assets.
Are Gold IRAs Worth It?
While no type of investment is without its drawbacks, most investors find that those associated with gold IRAs are worth the trade-offs. Opening a gold IRA is a great way to diversify a portfolio and hedge against market downturns, so it can give investors extra peace of mind no matter how far they are from retirement.
