Gold IRA vs Physical Gold: What’s Better?

Concept art of an article about Gold IRA vs Physical Gold: gold bars on an antique wooden table (AI Art)

Recently, one of our consulting clients was wondering the best way to invest in gold. He already had some physical gold at home but had heard about something called a Gold IRA. He liked the idea of being able to defer taxes on the gain but knew an IRA had rules that gold from the local coin shop did not.

As part of his personalized wealth protection plan, we worked with him to figure out what was best for him of course.

But given the importance and amount of misinformation surrounding this topic, we thought it worth sharing these insights with you as well.

Let’s start off by clarifying each term:

  • A Gold IRA is a type of self-directed individual retirement account. It allows for holding gold and other precious metals. It can be physical metal directly, a claim on physical metal, or even an ETF or other fund that holds the metal.
  • For our purposes, coins, bars, ingots, and similar struck or refined products constitute physical gold.

Both a Gold IRA and physical gold involve owning physical metals. However, there are notable differences between the two: Each option has specific advantages and limitations. We will explore more within this article.

Why Gold?

Some people consider it old-fashioned and out-dated. But, in fact, there are many reasons to invest in gold. This is true even today, when so much of our lives is digital and the biggest investment gains seem to come from tech and tech-related assets, like Bitcoin and Ethereum.

Reasons for gold as an investment in a nutshell:

  • Gold has been valued for its scarcity and durability.
  • It is often seen as a hedge against inflation and currency devaluation. For centuries, people have seen it as a store of value.
  • It is a sought-after asset in times of economic uncertainty.

Interested in learning more? Here are the top 10 reasons to invest in gold.

Gold IRA vs Physical Gold: An Overview

A Gold IRA is like a traditional self-directed IRA. But, it allows you to include gold and other precious metals as an investment. The gold must be held by a custodian; you can’t personally take possession of it. Also, only certain forms of gold are permitted in IRAs.

Holding physical gold means owning gold coins, bars, or bullion directly. You have full control over your gold investments. You can store them at home or in a secure location of their choice. But there are no tax advantages as there is within an IRA.

The Main Differences Between a Gold IRA and Physical Gold Include:


Gold IRA

Physical Gold

Physical Gold A Gold IRA can hold physical gold and other precious metals. You can own physical gold and other precious metals.
Transfer Process Approval from the custodian is necessary for transferring assets in or out of a Gold IRA. The process of adding or selling gold can vary in speed and complexity. There also may be a fee for every transaction. You have the flexibility to buy, sell or transfer your gold at your discretion at any time.
Storage The custodian is responsible for storing the gold in a storage facility. You cannot store it at home. You control where to store your gold (i.e. at home, at a bank, private fault, etc.)
Possession You do not have physical possession of the gold. You have physical possession of the gold.
Control You have control over your gold, but can act only through your IRA custodian. You have complete control over your gold and can liquidate or transfer it as you see fit.
Access With a Gold IRA, you cannot physically access your gold as it must be stored in a depository selected by your custodian. You can access your gold any time you want.
Diversification There are strict rules on the types of gold and other precious metals that can be included in a Gold IRA. You decide what gold to purchase. There are no limits to what precious metals you decide to purchase.
Compliance The custodian is responsible for making sure all IRS rules and regulations are met. It is your responsibility to make sure you comply with IRS rules and regulations when it comes to selling your gold.
Fees There are higher fees associated with owning a Gold IRA. There will be storage costs if you decide to store your gold at a vault or safe deposit box.
Estate Planning A Gold IRA may be inherited, but must be transferred to a beneficiary through the IRA custodian. Physical gold can be passed on directly to heirs, offering tangible assets for inheritance. But the gold remains part of your estate.
Tax Benefits A Gold IRA offers tax benefits, including tax-deferred growth and in some cases tax deductions. With a Roth Gold IRA, the growth in value of the gold is tax-free after certain conditions have been met. Owning physical gold does not offer tax advantages and is subject to a capital gains tax.


Physical Gold Investing

How it works:

  • Investing in physical gold involves purchasing gold coins, bars, or bullion from reputable dealers. (Here is more information on best gold coins to buy and best gold bars to buy.)
  • You must then decide on storage solutions. You can choose to store them at home, in a bank safe deposit box, or through a third-party storage facility. (Here is more information on how to store precious metals.)

Gold IRA Investing

How it works:

  • Setting up a Gold IRA involves these steps.1) Choose a Reputable Custodian: Select a trustworthy company to handle your Gold IRA account and act as your Custodian. Research potential providers thoroughly to ensure reliability and compliance with IRS regulations.2) Open Your Account: Complete new account paperwork. It includes an IRA application, IRS forms, and the terms of service agreement. The custodian will guide you through this process.3) Fund Your Gold IRA: Fund your Gold IRA through options like rolling over or transferring assets from an existing retirement account. You can also make new annual contributions as with a standard IRA. Your custodian and the Gold IRA company rep will help with the needed paperwork.

    4) Select Your Precious Metals: Choose the types of physical gold, silver, platinum, or palladium you wish to invest in within your Gold IRA. (Please note: Only certain forms of gold are permitted within an IRA.)

    5) Secure Storage: Gold storage is handled by the custodian. Custodians work with depositories like Delaware Depository, Brinks Global Services and International Depository Services to ensure the safekeeping of the precious metals held in the Gold IRA.

    6) Monitor and Maintain Your Account: Once your Gold IRA is established and metals are stored, regularly monitor your investment portfolio. Your Gold IRA company will provide statements on your holdings and their valuations.

IRS Rules and Regulations Governing Gold IRAs

The IRS has specific rules for Gold IRAs. Only certain coins bars, and rounds qualify as eligible investments for a Gold IRA. Precious metals must meet criteria such as minimum fineness and production standards.

You also need a qualified custodian to hold the gold and store it in a storage facility.

Here are some gold and silver coins approved for IRAs:

  • Gold: US Eagle and Buffalo coins; Australian Kangaroo and Nugget coins; Austrian Philharmonic coins; Canadian Maple Leaf coins; and bars and rounds accepted for settlement of domestic futures contracts and with a fineness of 0.995 or higher.
  • Silver: US Eagle bullion and proof coins; Australian Kookaburra coins; Austrian Philharmonic coins; Canadian Maple Leaf coins; Mexican Libertad coins; and bars and rounds accepted for settlement of domestic futures contracts and with a fineness of 0.999 or higher.

In addition, IRAs can hold most other forms of bullion that are accepted for settlement of US futures contracts:

  • Physical gold with a purity of 99.5%
  • Physical silver with a purity of 99.9%
  • Physical palladium with a purity of 99.95%
  • Physical platinum with a purity of 99.95%

Also, coins and bars must be made by recognized entities. These include national government mints and accredited refiners.

Finding the Right Custodian

The custodian is responsible for custody of IRA assets. They also maintain records and process transactions involving IRA assets.

Many custodians prohibit investments in precious metals other than mining shares or ETFs.

But custodians who specialize in self-directed IRAs will generally allow you to hold precious metals in your IRA.

The custodian will oversee your IRA’s purchase of the metals. They will ensure the metals are in a form that meets IRS requirements.

Be sure to choose a custodian that permits precious metals investments. Dozens of companies are available to assist in this regard. One that we’ve worked with for many years is GoldStar Trust.

Prohibited Transactions that Can Invalidate a Gold IRA

Strict rules apply when it comes to holding precious metals in a Gold IRA.

It is easy to accidentally trigger a “prohibited transaction.” And that is something you really don’t want. First, it will be considered a distribution of your entire IRA – not just the assets involved in the transaction.

In most cases, that means you’ll have to pay tax on the entire value of the IRA, up to a top federal rate of 40.8%. Plus state tax, if applicable. And if you’re under 59½ years old, the entire distribution would be subject to an extra 10% penalty.

Not using a qualified qualified custodian to hold the gold and in a secure depository is an example of a prohibited transaction. You cannot take possession of it and store it at home or a safe deposit box.

In addition, only certain coins bars, and rounds qualify as eligible investments for a Gold IRA. Precious metals must meet criteria such as minimum fineness and production standards. Section 408(m)(3) of the Tax Code lists the forms of precious metals that can be held in an IRA.

If you buy precious metals that don’t meet these requirements, that portion of your IRA invested in them is deemed distributed. Fortunately, in this case, the rest of your IRA won’t be affected.

Choosing the Right Option

When choosing between a Gold IRA and owning physical gold, ask yourself these questions.

  • What are your investment goals?
  • What is your risk tolerance?
  • What are your liquidity needs?
  • What is the impact of owning either a Gold IRA or physical gold on your overall investment and wealth protection strategy?
  • What is more important to you: long-term growth with tax benefits or prioritizing the security and autonomy offered by physical gold?

Owning Physical Gold: Who’s it for?

Investing in physical gold may be more suitable for individuals …

  • who seek short-term returns on their investments.
  • who prefer physical possession of their assets.
  • who are looking for quick liquidity when needed.
  • who want direct ownership and control over their precious metals.

Case Study: Melvin would like to accumulate some gold bullion. He plans to store it at home in a safe embedded in concrete. In this situation, he should buy physical gold, even though he also has an IRA.

Gold IRA: Who’s it for?

Investing in a Gold IRA may be more suitable for individuals …

  • who are looking for long-term financial planning, particularly for retirement.
  • who are looking for investments with tax benefits.
  • who are looking for professional custodian assistance who ensure IRS requirements are met.

Case Study: Joanne would also like to buy gold bullion. Most of her net worth is tied up in her IRA. In addition, she doesn’t want to worry about storage. In this situation, a Gold IRA would probably be more suitable than physical gold.

Need Help?

Have questions about what is the best choice for your wealth protection plan. Get in touch to book in a free, no-obligation consultation with one of our Associates.

Mistakes to Avoid when Investing in Gold IRAs

Common Mistakes

  • Inadequate market research.
  • Ignoring storage and insurance costs connected to owning physical gold yourself.
  • Not knowing the IRS rules and regulations as well as taxes connected to owning and selling precious metals yourself.
  • Not clearly understanding the fees involved in holding precious metals within a Gold IRA.
  • Choosing the wrong custodian: Selecting an unsuitable custodian for your Gold IRA can affect the management of your investment, compliance with IRS regulations, and potentially lead to a prohibited transaction within your Gold IRA.

How to Avoid these Mistakes

  • Careful due diligence when it comes to choosing a custodian for your Gold IRA.
  • Careful due diligence when it comes to storing your precious metals in a domestic or international vault or safe deposit box. You can find more information on how to ship gold internationally here.
  • Know all your cost related to a Gold IRA (i.e. custodian fees, transaction fees, etc.) and related to owning physical gold (i.e. storage, insurance, etc.)
  • Know the IRS tax rules and regulations related to owning and selling precious metals yourself.
  • Consult an experienced advisor.
  • Make sure gold investment option fits your overall financial goals and retirement plan.

Frequently Asked Questions about Gold IRA vs Physical Gold

Is it possible to set up a home storage Gold IRA?

Some marketing pitches may say otherwise, but you can’t store gold and other metals in your IRA at home. Doing so will result in a prohibited transaction and result in the distribution of your entire IRA. [Here you can find more information on home storage Gold IRAs.]

How is a Gold IRA different from traditional retirement accounts?

A Gold IRA has its own rules and limits. But, contribution and distributions are the same as in traditional IRAs. A Gold IRA offers tax advantages but may come with higher fees.

Can other precious metals besides gold be included in a Gold IRA?

Yes! Gold IRA can also hold silver, platinum, and palladium. Please note, there are strict rules on the types of precious metals that can be included in a Gold IRA.

Can you convert a 401(k) into a Gold IRA?

Yes! Your custodian will be able to help you with this transaction.

When executing a 401(k) to Gold IRA rollover, it is crucial to understand the tax implications, potential risks, and costs associated with this investment decision.

You can find more information on how to set up a Gold IRA and find a custodian here.

What is a Gold IRA Rollover?

A Gold IRA rollover involves moving funds from a traditional IRA or 401(k) into a self-directed Gold IRA. The Gold IRA allows for investment in precious metals like gold.

Need some help?

Hopefully you’ve taken away some good insights. Maybe you’re ready to make a decision or maybe you need more information.

Either way, please feel free to reach out if you need any help.

Since 1984, we’ve helped more than 15,000 customers and clients protect their wealth. For its proven record as a wealth preservation tool, gold has often been a part of that planning.

We can help you too. And it will cost you nothing to get started. Just book a free, no-obligation call with one of our Associates to see if a wealth protection plan is right for you.

On another note, many clients first get to know us by accessing some of our free publications, courses and reports on important topics that affect you.

Like How to Go Offshore in 2024, for example. It tells the story of John and Kathy, a couple we helped from the heartland of America. You’ll learn how we helped them go offshore and protect their nestegg from ambulance chasers, government fiat and the decline of the US Dollar… and access a whole new world of opportunities not available in the US. Simply click the button below to register for this free program.

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