Follow the Yellow Brick Road: Your Step-By-Step Guide to Setting Up a Gold IRA

Precious Metals


In the aftermath of the 2008 financial crisis, many investors were understandably nervous about investing their money. With stock markets having lost over 50% of their value during the crisis, many investors saw years’ worth of investment gains wiped out in a matter of months. And for those close to retirement, those losses were particularly painful.

But saving and investing are the only ways to ensure that you’ll have enough money to live comfortably in retirement. Putting money under your mattress or keeping your money in a bank account may feel safe to some people, but you’re losing money to inflation every year. Only by investing your assets and putting them to work for you can you grow your nest egg and provide yourself with the money you need to retire safely and securely.

You don’t even have to resort to the risk of stock markets either. With investment options such as a gold IRA, you can grow your retirement savings safely over the long term and avoid the booms and busts of stock markets. The safety that gold has offered investors for centuries makes it a great choice for investors looking to preserve their retirement savings, particularly if they’re rolling over existing IRA or 401(k) assets.

Why You Should Consider Starting a Gold IRA

Gold has captivated the imaginations of people for millennia. Its unique set of characteristics helped lead to its adoption as money, having been used in commerce and trade for thousands of years.

The modern gold standard era saw an explosion in industrial production and commerce, as the stability offered by gold brought an end to economic uncertainty. With businessmen able to trust that their money was “as good as gold,” they were able to plan for the future and make investments in business processes and production on a scale that they never were able to before.

The classical gold standard saw the use of gold itself as money. Minted into coins, it was not uncommon to see gold used in day-to-day transactions. Over time, the classical gold standard began to replace gold coins with paper gold certificates. Gold coins were left in bank accounts as backing for that paper money. As long as customers could redeem those paper certificates for gold coins, all was well.

Problems began to arise when banks started to issue more certificates than they had gold to back them. If people couldn’t get their gold, a bank run would ensue and the bank would go out of business. Rather than discouraging banks from doing this, governments and central banks around the world tried to prop up banks that engaged in this behavior, keeping them afloat in the face of bank runs.

From 100% backing with gold, the dollar was eventually diluted to 40% backing, and then finally to no gold backing whatsoever. It was a gradual process that happened over decades, with the final blow occurring in August 1971 when President Nixon “temporarily” banned foreign governments from redeeming their dollars for gold.

That closing of the gold window ushered in a period of unrestrained monetary creation, with immediate inflation of the money supply, rising prices, and eventually higher interest rates. While gold’s detractors claimed that severing the link between the dollar and gold would result in gold fading away into obscurity, the opposite has been true.

Gold has remained the ultimate source of money, sought after by investors looking to safeguard their assets as well as central banks looking to shore up their balance sheets. Its performance since the close of the gold window has even outpaced stock markets. And its performance during the financial crisis brought the lesson home to numerous investors just how important gold could be in safeguarding investor assets.

With a gold IRA, investors even have the ability to roll over existing retirement assets from their retirement savings, sparing them painful tax consequences while simultaneously ensuring that they won’t get hammered by stock market losses. And they can continue to accrue gains tax-free, just like with a traditional IRA. Don’t be afraid if you don’t know how to invest in gold, because the process is easy.

How to Invest in Gold

There are numerous ways to invest in gold, and each one has its benefits and drawbacks. Depending on how old you are, how much money you have saved already, and how you want to fund your gold purchases, one or the other method of investing in gold may be right for you. Read on to learn a few of the options you have for investing in gold and the benefits and downsides of each.


Buy Actual Gold

For decades American investors weren’t allowed even to own gold. From 1933 to 1975, owning gold could have landed investors in jail. Once that decision was overturned, American investors were once again free to purchase gold. For many years that meant purchasing physical gold coins such as South African Krugerrands and, later, American Gold Eagles. Various mints and refineries also offer gold rounds and small gold bars.

The advantage of owning physical gold that you hold yourself is that it is immediately liquid. If you need to barter it, or want to sell it for some quick cash, you can do so with no delay. The downside, however, is that you are responsible for your own storage and insurance. If you fail to insure the gold you own, you have no recourse in the event of fire, theft, or any other incident that destroys your holdings.

Gold ETF

Exchange-traded funds are another way to invest in gold, and they have become incredibly popular over the years. These funds buy gold and then issue shares in the fund to investors. The value of each share rises and falls along with the gold price. Those shares are highly liquid, traded on numerous exchanges, and can be purchased through many brokerages.

The downside is that you’re not actually owning gold. You don’t know if the fund actually owns the gold it says it does, or if it’s issuing more shares than it actually has gold to cover. That’s why gold ETFs are often known as “paper gold,” because the risk of owning diluted shares, just like the bank certificates that weren’t actually backed by gold, is great.

Gold ETFs also don’t allow you to convert your shares to gold. If you want to cash out, you have to sell your shares, and you have no ability to take delivery of physical gold.

Gold for Your Future

There is one other way to try to profit from gold’s price moves, and that’s by investing in gold futures. As with other types of futures, investors pledge to buy gold at a certain price at a certain point in the future. So, if an investor pledges to buy gold at $1,400 per ounce six months from now but the price has risen to $1,500 an ounce, that investor has booked an immediate paper profit of $100 per ounce. Conversely if the price has dropped to $1,300 per ounce, the investor has overpaid by $100 per ounce.

One of the major drawbacks to gold futures is that the minimum contract size is 100 ounces, currently over $130,000. That’s more money than most ordinary investors are able to pay, which is why futures are most often used by institutional investors. Then there’s the fact that settlement isn’t always with physical metal. You may find yourself dealing with a speculator who’s only trying to profit from gold’s price moves and doesn’t actually have gold to deliver. You’d have to end up settling for a cash settlement rather than physical delivery.

Invest in a Gold IRA

Finally, there are gold IRAs, which offer investors the ability to invest in gold through an individual retirement account. Just like a traditional IRA, a gold IRA gives investors the ability to make gains tax-free, only paying taxes at the time they decide to or are required to take a distribution.

At distribution time, gold IRA investors can decide to take their distribution either in cash or in physical gold. And during their period of IRA ownership, their gold is stored with a certified custodian who is responsible for storage and insurance of that gold.

Gold IRAs differ from traditional IRAs in that they are self-directed IRAs. Rather than having a financial firm as the fiduciary for your IRA, you as the investor are the fiduciary. That means you determine what assets you invest in, which custodian you want to store them, and when you want to sell them.

Like a traditional IRA, a gold IRA offers investors the opportunity to use pre-tax dollars to purchase gold. That gold appreciates in value tax-free, and taxes are only paid at the time the investor takes a distribution. As with a traditional IRA, distributions taken before age 59 ½ are assessed a 10% penalty, and once the investor reaches age 70 ½ required minimum distributions (RMDs) are necessary.

For those early in their careers, opening a gold IRA allows them to take advantage of gold’s long-term growth and stability to safeguard their retirement savings. It offers a hedge against economic turmoil and financial uncertainty. Over the past 20 years gold has been the second-best investment asset around, gaining nearly double the annual returns of stock markets.

For those nearing retirement, a gold IRA offers price stability that can keep retirement savings from succumbing to the volatility of stock markets. Knowing that stocks are prone to crashes, investing in gold can keep your assets safe, liquid, and available to you when you need them most. And with a gold IRA rollover it’s easy to move existing retirement savings into gold.

Once you reach retirement and want to take a distribution, it’s as easy as doing so with a traditional IRA. You would contact your custodian, order a sale of your assets, and take either a cash payment or physical delivery of your gold. You also want to make sure to consult with your tax advisor to ensure that you make any required tax payments and that you’re complying with RMD rules once you reach age 70 ½.

Starting a Gold IRA With Goldco

If you decide that a gold IRA is right for you, you have a couple of options. You can either choose to roll over existing retirement assets through a gold IRA rollover or you can choose to set up a brand-new gold IRA that is funded through your paycheck.

Gold IRA Rollover

A gold IRA rollover doesn’t have to be difficult, but there a few important things to keep in mind. A rollover is the process in which a person rolls over money from one retirement account to a different type of retirement account, for instance from a 401(k) to an IRA. The 401(k) to IRA rollover is one of the most common types of rollovers, particularly when people leave their jobs and wish to roll over their 401(k) assets to an IRA. There are two types of rollovers, a direct rollover and an indirect rollover, with very important distinctions between the two.

1. Indirect Rollovers

An indirect rollover occurs when money is transferred from one retirement trustee to another but is first sent to the investor. For instance, the funds from someone’s 401(k) plan will be transferred by check to the investor, who then deposits the check into a new retirement plan. The investor must take the funds from the first trustee and deposit them with the second trustee within 60 days, otherwise the payment is treated as a distribution, with the associated taxes and penalties.

Some people choose indirect rollovers because they do not understand the difference between indirect and direct rollovers. Others may have plans to use some of that money within the 60-day period, essentially treating it as a short-term loan. Investors are allowed only one indirect rollover per 12-month period. Because of the potential tax ramifications of indirect transfers, they are generally not recommended.

2. Direct Rollovers

Direct rollovers are rollovers in which the funds are transferred between trustees. The funds never touch the hands of the investor, so in the eyes of the IRS they are not even treated as rollovers. There are no limits to how many times an investor can engage in direct rollovers. Because direct rollovers do not incur any taxes or penalties, they are the preferred method of rollover.

Start a New Gold IRA

A new gold IRA can also be started by funding it through paycheck contributions, just as you would fund a traditional IRA or 401(k) account. Once you have established whether you will establish your gold IRA through a rollover or paycheck contributions, you will choose a custodian to manage and store the assets in your IRA.

Once funds are transferred into your new gold IRA you can then purchase assets for your new IRA. Once you have purchased your assets, your custodian will take custody of your IRA’s assets. The custodian will be responsible for storage and safekeeping of your gold and will also be responsible for making certain required annual reports to the IRS. The entire process, from opening a gold IRA to depositing your gold with your custodian, should take about two to three weeks.

Making the decision to invest in gold can be a daunting one, particularly since many people don’t know how to invest in gold. But if you decide that investing in a gold IRA is the right decision for you, contact the experts at Goldco to find out more. Our experienced representatives can help you determine if a gold IRA rollover is right for you.

This article was originally posted on Goldco.

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