What is Gold IRA and why do people invest in it?

Posted on

What is Gold IRA and why do people invest in it

This article is for entertainment only.  Please seek professional advice before you invest your money.  As with all investments, your capital is at risk.  If you are in the United States then you may be interested in the types of IRA (Individual Retirement Accounts) that are available to you, including the Gold IRA. 

The best way to prepare yourself adequately for retirement is by saving and investing while you’re still working through an individual retirement account (IRA). With such an investment account, you get to enjoy tax advantages when saving for retirement. Most people usually opt for the conventional IRAs that invest in paper-based assets such as bonds, stocks, and mutual funds. But if you’re looking to diversify your portfolio to lower your risk exposure, there’s another viable alternative in Gold IRAs.

However, most average investors aren’t familiar with gold IRAs despite the Internal Revenue Service (IRS) approving this in 1998. If you fall into that category and are considering getting a gold IRA, look no further. Here’s a detailed guide into gold IRAs and why you should invest in them.

What’s a Gold IRA? 

A Gold IRA is a self-directed individual retirement account that enables investing in gold and other precious metals. This type of IRA is identical to conventional IRAs with the same distribution rules and contribution limits. However, its distinct difference is that gold IRAs are reserved for holding physical coins or bullion bars of certified precious metals such as gold, silver, palladium, and platinum. The gold IRA can also comprise gold mutual funds that invest in gold stocks, bullions, or gold ETFs that track gold indexes and gold stocks (shares of companies that mine gold). 

These are three types of gold IRA accounts you should consider, depending on your financial position;

  • Traditional Gold IRA: It’s the most common kind of gold IRA and works like the traditional IRA, where you can deduct an amount from your income once you’ve filed your taxes. With this type of IRA account, your taxes reduce in the year when you make the contributions. You’ll need to pay income tax once you make a withdrawal from the traditional gold IRA. 

  • SEP Gold IRA: This kind of IRA is meant for small businesses and self-employed individuals. It works almost the same as the traditional gold IRA, with the only difference being business owners have an option to contribute to themselves and their employees. 

  • Roth Gold IRA: This is the opposite of the traditional gold IRA, as you’re expected to pay taxes when making your contributions to the Roth IRA. After your contribution, the money grows tax-free since you won’t need to pay taxes when withdrawing. In addition, Roth IRAs differ from other IRAs in that it doesn’t limit the withdrawal of contributions.

According to the IRS, the physical gold you can hold in your gold IRA should have a minimum purity of at least 99.5%. Examples of such gold IRAs that only accept 99.5% pure gold include the following:

  • Australian Gold Nugget or Kangaroo Coins 

  • American Buffalo coins 

  • Canadian Maple Leaf 

  • Chinese Panda coins 

The American Eagle coins can allow you to include gold coins that are 91.67% into your gold IRAs. But silver, platinum, and palladium bars and coins must always be 99.95% pure. And with this physical gold in your retirement portfolio, you’re certain to enjoy the growth potential gold offers and its protection.

What is Gold IRA and why do people invest in it

Why do people invest in Gold IRAs? 

It’s best to first look at the benefits of investing in gold IRAs to understand better why it’s advisable to invest in one. To learn more about gold IRAs, you can read online resources such as https://learnaboutgold.com/review/augusta-precious-metals-gold-ira-review/. That said, here are the benefits of investing in Gold IRAs:

  • Hedge against deflation and inflation 

The cost of living has continually been rising as years pass because everything is becoming more expensive every day. Governments across the globe bring about this trend by printing money, hence eroding the purchasing power of currencies. However, gold doesn’t suffer from this because it holds an intrinsic value. Therefore, a Gold IRA is an excellent hedge against inflation because the price of gold increases with the increasing cost of living.

With your retirement savings protected from inflation, you get to experience a sense of security and peace of mind. Having such control over the unpredictable future is every investor’s dream, and you can accomplish this through a gold IRA.

  • Profit opportunity

Gold and other precious metals are known to increase in value during times of economic uncertainty. In addition, these precious metals have consistently shown consistent growth over the years, something that isn’t guaranteed with paper-based assets. For this reason, you need to invest in a gold IRA as it serves as an excellent short-, medium-, and long-term opportunity to earn you profit.

  • Diversify your retirement portfolio

Diversification is crucial to help ease the volatility within any particular investment holding. After all, your goal is to earn stable returns over time continually. However, you can’t simply achieve this by investing in correlated assets such as bonds and stocks. This is especially critical today due to threats such as inflation, weakening of the US dollar, quantitative easing, geopolitical tensions, and significant government debts, to name a few.

Fortunately, investing in a gold IRA provides you with a safe haven because these assets are inversely correlated to paper-based investments such as bonds and stocks. This means that these assets usually increase in value when the prices of these financial assets fall. As a result, gold IRAs offer you an excellent diversification platform, something you wouldn’t get after investing in paper-based assets.

  • Disaster insurance for your financial future 

People typically take insurance covers such as health insurance or life insurance to protect themselves and their loved ones. With these measures, you get some protection against certain unwanted situations such as unanticipated death or health complications. However, many often overlook getting such financial protection for their future against unforeseen calamities. Fortunately, gold IRAs offer you financial protection in case of any unwanted calamity.

  • Beyond the banking system’s reach 

 Another advantage of investing in a gold IRA is that it helps you get out of reach of Wall Street and the banking system. Because of this, you get to enjoy greater financial security from systemic failures such as the Great Recession and the 2000 tech bubble. This is also crucial because the technological era we’re living in greatly exposes financial institutions to cyberattacks. As a result, the safety of your mainstream assets—for example, bank savings—aren’t guaranteed fully from freezing by your bank or hacking.

Investing in gold IRA safeguards you from this trouble because your physical precious metal is stored outside the banking system.

Takeaway

The average investor chooses traditional IRAs that invest in financial assets such as stocks or bonds when saving for retirement. However, the gold IRA is a worthy alternative you need to consider due to its numerous advantages. And with this quick guide, you’ve now learned the value and benefits of investing in a gold IRA.

 trading 212 free share