What Is a Gold-Backed IRA?

A gold-backed individual retirement account (IRA) allows workers to invest in gold or other precious metals. Often simply called a gold IRA, anyone with earned income can open one, but it isn’t as simple as setting up a regular IRA. Only self-directed IRAs may hold gold, and the IRS requires that gold to meet certain standards.

Keep reading for everything you need to know about how to open a gold-backed IRA without running afoul of government rules.

In this guide:

What is a gold-backed IRA?

IRAs are one of the most popular ways to save for retirement. These tax-favored accounts come in three main varieties.

• Traditional: Contributions to a traditional IRA are tax-deductible. Money grows tax-deferred, and withdrawals in retirement are subject to regular income tax. Any withdrawals made before age 59½ could be assessed a 10% tax penalty as well. In 2023, workers age 50 and younger can contribute up to $6,500 to an IRA, and those who are older can contribute up to $7,500.
• Roth: With a Roth IRA, the tax benefits come at retirement. There is no deduction for contributions, but withdrawals after age 59½ are tax-free if you’ve met the five-year holding requirement. Roth accounts have the same contribution limits as traditional IRAs, and gains are subject to the same 10% penalty in case of early withdrawal.
• SEP: Short for Simplified Employee Pension, a SEP IRA is for those who are business owners or self-employed. Those with SEP accounts may choose traditional or Roth tax benefits, but either way, they have much higher contribution limits. In 2023, workers can contribute 25% of their income, up to $66,000.

To use one of these accounts as a gold-backed IRA, you must open what’s known as a self-directed IRA. These specialized accounts allow people to hold alternative investments beyond the typical stocks, bonds and mutual funds.

We asked Natalie Slagle, CFP®, about the tax implications of owning a gold-backed IRA. Here’s what she advised:

The tax implications of owning a gold-backed IRA are similar to traditional and Roth IRAs as long as the account owner has satisfied the rules regarding holding gold in a self-directed IRA.  

You can make contributions with pretax dollars for gold-backed IRAs. Contributions for gold-backed Roth IRAs can be made with after-tax dollars.  

Distributions from a traditional IRA are taxed as ordinary income. Distributions from a Roth IRA are treated as tax-free as long as the account owner met the five-year holding requirement.

Distributions made from either a traditional or Roth gold-backed IRA prior to 59 ½ will face a 10% penalty.

Legal and regulatory considerations for gold-backed IRAs

Once you have opened a self-directed IRA, you can begin purchasing gold up to the annual contribution limits to hold in the account. You can also roll over money from another IRA and use that to fund your gold-backed IRA.

It’s crucial to understand that only certain gold can be held in an IRA. For instance, the IRS does not allow gold collectible coins to be held in an IRA. Instead, the rules and regulations state gold must fall into one of the following categories:

• Coins with a purity of 99.5%, such as American Buffalo coins.
• Bars with a purity of 99.5% from a national mint or a certified or accredited source.
• American Eagle coins, which are the one exception to the 99.5% purity rule.

Bars must be manufactured to specific weight specifications, and bullion coins must be uncirculated. Gold U.S. coins can be one ounce or a half, quarter or tenth of an ounce.

Similar purity requirements exist for silver, platinum and palladium, all of which can also be held in a gold or precious metals IRA.

How does investing in a gold-backed IRA work?

If you’re ready to get started with a gold-backed IRA, here’s how to set one up.

1. Select a custodian: The IRS requires gold IRAs to have a custodian. This is a company that manages your investments and ensures all government regulations are met.
2. Choose a gold-backed IRA company: If selecting a custodian sounds confusing, you can skip ahead to this step. Many companies that specialize in gold-backed IRAs work with custodians and can help you select one to set up your account.
3. Decide on a depository: If you want the tax advantages of an IRA, you must store your gold in an IRS-approved depository. Your custodian or gold-backed IRA company can help you find the best option.
4. Buy your gold: The next step is to purchase your gold. Many gold-backed IRA companies make it simple to see which items are IRA-eligible. They may also allow you to make a purchase by rolling over money from another IRA.
5. Ship gold to depository: Once you have selected your gold and completed the transaction, your gold IRA company will send the precious metals to the depository for storage.

You should expect to pay $75 to $200—or more—per year for your custodian’s services, and storage expenses can vary. 

It’s most common for depositories to charge a fee that is a percentage of the total value of your gold. These fees may range from less than half a percent to one percent or more, but some companies charge a flat fee, such as $10 or $50 a month, to keep commingled metals.

The best gold-backed IRA companies

Before selecting a gold-backed IRA company, be sure to research what type of gold it sells and whether it has a minimum purchase requirement. Plus, look for value-added features, such as buyback programs that make it easy to liquidate gold when you want to make a withdrawal.

Here are three of our top picks for opening a gold IRA.

American Hartford Gold

• Extensive catalog of IRA-eligible gold products.
• Gold IRA rollovers can be completed in as little as three days.
• Buyback commitment simplifies the process of liquidating gold assets.

As one of the fastest-growing private companies in the nation, American Hartford Gold has made the Inc. 5000 list four times. The company says it is the nation’s largest retailer of gold and silver and has delivered billions of dollars in precious metals.

However, we don’t like American Hartford just because it’s the biggest company. The firm is notable for its terrific customer service, fair pricing, and added features. It has an A+ rating from the Better Business Bureau and a multitude of five-star ratings from customers to back that up.

American Hartford promises transparent pricing and clear communication throughout the process of setting up a gold IRA. It also employs a buyback commitment and doesn’t charge any liquidation fees when purchasing precious metals back from a client.

Goldco

• High ratings with excellent customer reviews.
• Works with all major self-directed IRA custodians.
• Diverse collection of IRA-eligible gold coins.

With an A+ rating from the Better Business Bureau and plenty of five-star customer reviews, countless investors trust Goldco for their gold-backed IRA. Personalities including Chuck Norris, Sean Hannity, and Ben Stein have recommended the Los Angeles-based private company.

Goldco has simplified the process of opening a gold IRA by having company representatives walk customers through the process. It works with all major self-directed IRA custodians. When it comes time to make a withdrawal, Goldco can help convert gold into cash.

Having sold more than $2 billion in gold and silver, Goldco is another member of the Inc. 5000 list. It offers a large selection of IRA-eligible gold coins, including several not commonly sold by other companies.

Lear Capital

• More than 25 years in business.
• Extensive investor resources and easy-to-reach customer service.
• Price Advantage Guarantee for transparent pricing.

In business since 1997, Lear Capital has completed more than $3 billion in transactions. The company has an AAA rating from the Business Consumer Alliance and is also a Professional Coin Grading Service authorized dealer.

Unlike some gold companies, Lear Capital lists the prices of its products online, and its Price Advantage Guarantee means customers don’t have to worry about hidden fees. Representatives guide customers through the process of setting up a gold-backed IRA and, if needed, rolling over funds from another retirement account.

Lear Capital offers extensive investor resources and educational material on its website. When it comes time to buy your gold, you’ll find a variety of coins and bars that may be suitable for your IRA or private collecting.  

Should you invest in an IRA backed by gold?

As with other financial products, a gold IRA may not be for everyone. To decide whether one makes sense for you, consider these pros and cons.

A gold IRA can be a valuable retirement resource, but it’s often best when used as part of a larger financial strategy. 

We asked Natalie Slagle, CFP®, about her recommendations to clients, and here’s what she told us:

I do not recommend clients of any age to invest their retirement portfolio in gold via a self-directed IRA. I see the benefit to having some of your retirement portfolio invested in alternative investments to have a different investment experience beyond cash, bonds, and stocks. However, I don’t see its in my clients’ best interest to have more than 10% of their portfolio allocated toward this category.

I would advise any investors to consider the pros and cons of investing in gold in a self-directed IRA. Liquidity is crucial when you retire and need to start recreating your paycheck. 

If you need liquidity to fund your cash flow needs or satisfy your required minimum distributions, an illiquid self-directed IRA can be costly. If we’re seeking investment in the alternative investment space, I would likely recommend a mutual fund or exchange-traded fund of some kind.

Alternatives to gold-backed IRAs

Diversification is one of the cornerstones of good investing. It ensures that even if one investment has a bad year, others will continue to make money.

Gold has historically held its price when other investments have lost value, making it a solid option to diversify. However, gold in an IRA requires specialized storage, and liquidating it can take time if you need cash.

You can eliminate these concerns by investing in a gold exchange-traded fund (ETF). Funds such as SPDR Gold Shares (GLD) and iShares Gold Trust (IAU) invest in gold, so you get many of the same benefits of holding gold yourself. However, buying and selling shares of an ETF is similar to buying and selling stocks—so they’re easy to sell when you want to make a withdrawal.

If you have a self-directed IRA, you can invest in these alternative investments, which may provide the diversification you need:

• Real estate
• Cryptocurrency
• Private equity
• Private debt

Talking to a trusted financial advisor is always wise before investing a sizable amount in any asset.

FAQ

Can I transfer my IRA into a gold-backed IRA?

Yes, you can roll over assets from another IRA to a gold-backed IRA. However, the transfer needs to go directly from one account to the other to avoid any possible tax penalties. Your gold IRA company and custodian should be able to ensure a smooth process.

How does the performance of a gold-backed IRA compare to traditional IRAs?

It’s hard to compare because the performance of a traditional IRA depends upon which funds a person has invested their money in. As a result of the recent historic bull market, the S&P 500 has outperformed gold during the past 10 years, but the value of gold has seen steady growth. For many people, that is the value of owning gold: It provides stability during periods of market volatility.   

What’s the minimum investment needed for a gold-backed IRA?

That depends on the company you use, but most have at least a $10,000 minimum for opening a gold-backed IRA.

Is there a maximum limit on how much gold I can hold in an IRA?

No, there isn’t a maximum limit on how much gold you can hold in a self-directed IRA, but the IRS has annual contribution limits. For 2023, those limits are $6,500 for workers age 50 and younger and $7,500 for workers age 50 and older.

Are gold-backed IRAs insured? What kind of protection do they offer?

Just like stocks and bonds, there is no guarantee a gold-backed IRA will make money. However, physical gold in a depository is likely insured against theft or damage. Check for what protection is offered when selecting your depository.

Many brokerage firms offer Securities Investor Protection Act (SIPC) insurance to help protect against the loss of cash and securities such as stocks and bonds a customer holds in case the firm runs into financial trouble. However, gold and silver coins are ineligible for SIPC protection.

Can I liquidate my gold-backed IRA before retirement? What are the penalties?

All IRAs are subject to the same IRS rules regarding withdrawals. If you take physical possession of your gold or otherwise liquidate it for withdrawal prior to age 59½, you’ll owe a 10% tax penalty. That’s on top of the regular income taxes due on withdrawals from a traditional IRA.

How often can I make contributions to my gold-backed IRA?

You can contribute as often as you like up to the IRS annual limits.

What happens to my gold-backed IRA if the gold market crashes?

Gold values tend to be relatively stable, but the market has crashed on occasion. The most significant drops occurred in 1980 and 2013. However, prices have always rebounded, so if a crash happens, it may be best to hold the assets in your gold IRA.

In the meantime, if you need money for retirement, make withdrawals from other assets while the gold market recovers. This is a perfect example of why diversifying your retirement savings is so important.

Can I also invest in other precious metals within a gold-backed IRA?

Yes, the IRS allows silver, platinum and palladium meeting certain purity standards to be held in a gold IRA.

Do I physically own the gold in my IRA, or is it just a paper asset?

You own physical gold in your IRA, but it must be stored in an IRS-approved depository. When you want to make a withdrawal, the company can send the physical gold to you, or you may convert it to cash. Many gold IRA companies have buyback programs to help with this conversion.

Can I add gold to my IRA from my personal collection?

No, most self-directed IRA custodians won’t allow you to add gold from your personal collection. Instead, you must purchase gold from a reputable company to add to your IRA.