Building a smart investment plan will ensure a comfortable and stress-free retirement. It involves leveraging your employer’s investment options such as 401(k)s or opening an individual retirement account (IRA).
When it comes to IRAs, you have two choices: either invest in cash, stocks, and other securities or start a self-directed IRA. Self-directed IRAs allow you to own precious metals. Moreover, self-directed IRAs allow you to possess tangible assets such as art, collectibles, and real estate approved by the Internal Revenue Service (IRS).
How much does it cost to start a gold IRA? Read on to learn more about this potentially lucrative investment option.
What Is a Gold IRA?
Gold IRAs allow you to invest in precious metals such as gold, silver, and platinum. These IRAs protect your retirement account against market volatility and inflation. Gold IRAs have the same tax benefits, contribution limits, and withdrawal rules as traditional IRAs.
While most investors can easily set up a traditional IRA account, starting a gold IRA account involves more steps. That is why people turn to gold IRA custodians for assistance. Gold IRA custodians can quickly convert your existing stocks and bonds into gold coins and bullion.
How Much Does It Cost to Start a Gold IRA?
Opening a self-directed IRA account does not have any minimum amounts. Costs depend on the type of precious metals you want to buy. One ounce of American Gold Eagle Bullion costs $1,886.03, and an ounce of American Eagle Silver costs $22.45.
IRA custodians have set minimum investment requirements, but you can open an account with as little as $100. Some IRA custodians require investment amounts between $10,000 and $50,000. Get the best value for your investment by researching the company.
How Do You Open a Gold IRA?
Open a gold IRA investment account in three steps.
- Open a Self-Directed IRA
Start by opening a self-directed IRA. Select an IRA custodian to assist you with completing the application process. Before opening an account, make sure that the IRA custodian you choose offers physical gold as an investment option.
- Fund Your Account
Use any of the following methods to fund your account.
- IRA: Fill out a transfer request form to fund the self-directed IRA from an existing IRA. This form will allow you to transfer money tax-free and without penalties.
- Rollover: Transfer funds from your current retirement plans such as a 401(k), 401(a), 403(b), 457, and Thrift Savings Plans into your self-directed IRA account.
- Cash: IRA custodians can accept checks or wire transfers for cash contributions.
- Buy Gold: Finally, add precious metals to your gold IRA. IRA custodians can help you determine which gold bars and coins perform the best and how you can diversify your portfolio.
Find an IRA Company to Manage Your Gold IRA
Setting up a gold IRA requires choosing an IRA custodian, finding an approved gold depository, and understanding how IRS tax rules apply. An IRA custodian keeps track of the paperwork and taxes associated with your gold transactions to meet the IRS requirements for retirement planning.
According to the IRS, precious metals must stay in the custody of a federally insured bank, credit union, or another pre-approved facility. Most importantly, IRA custodians can manage the unique storage requirements associated with gold bullion. After setting up your gold IRA, the custodian can refer you to an approved facility and handle the gold transfer.
Gold IRA Investment Options
The IRS has strict rules about the types of precious metals you can choose for your gold IRA. Gold needs a 99.5% purity level, silver requires 99.9% ,and platinum 99.95%.
IRA Approved Coins
- American Buffalo
- American Eagle
- Australian Kangaroo
- Austrian Philharmonic
- British Britannia
- Canadian Arctic Fox
- Canadian Maple Leaf
- Canadian Polar Bear
- Chinese Gold Panda
- Credit Suisse Gold Bars
IRA Custodian Fees for a Gold IRA
Maintaining a gold IRA and buying precious metals involves several costs. Gold IRA custodians charge various fees you would not pay with traditional IRAs. Fees vary, so consider all costs before selecting a gold IRA custodian.
An investor should watch out for hidden fees, markup fees, set up and annual costs, and storage fees. An IRA custodian may waive the fees for the first two to three years for new customers.
- Account fees: To open your account, an IRA custodian charges an upfront fee between $50 and $100. A custodian may waive the setup fee if you make a larger deposit.
- Annual fees: An IRA custodian usually charges a fee for handling paperwork and overseeing your account. This fee typically ranges between $50 to $150.
- Seller fees: A seller may charge a markup when you buy physical gold for your IRA, which means you pay more than the spot market price. Fees vary depending on market conditions and the type of gold. Generally, the seller fee has a fixed rate of $40 per transaction.
- Storage fees: IRA holders must store their gold in approved locations. As your gold portfolio grows, the storage fee increases. Segregated storage has a flat rate of $50 to $300, or a percentage of your account value.
- Insurance fees: IRA custodians may bundle gold insurance fees with the storage fee, charging a flat rate. Gold storage and insurance cost $170 a year. Liability insurance protects your gold against theft or damage.
- Wiring fees: When you send or receive money via wire transfer, the IRA custodian may charge you a $25 fee per transfer.
- Closing fees: The IRA custodian may charge a final cash-out fee when you close your account.
How much does it cost to start a gold IRA? Keep reading for detailed information on gold IRA costs.
Understanding Gold IRA Costs
Buying physical metals costs more than digital transactions. An investor who buys gold funds or an Exchange-Traded Fund (ETF) does not own actual gold. As with gold IRAs, the process does not involve moving or securing precious metals.
IRA investors who want physical ownership do not mind paying slightly higher fees, as precious metals are tangible assets. Like the stock market, IRA dealers set the buy and sell prices for precious metals based on demand. It is not uncommon for dealers to raise the selling price.
IRA Spread Transaction Costs
If you sign a transaction agreement, you agree to pay the sales price, including the dealer’s profit. An IRA spread refers to the price difference between the buying and selling costs. Every gold coin and bar has a different buy/sell spread that fluctuates as supply and demand change.
An IRA spread can vary based on the precious metal you pick and the dealer. Usually, proof coins have a larger price spread than bullion coins. Before investing, it is important to get all the necessary information from your dealer.
Pros and Cons of Gold IRAs
A gold IRA can diversify your retirement portfolio. History shows that gold usually moves in the opposite direction of stocks during severe market downturns. Therefore, gold can act as a hedge against serious financial market crises and inflation.
While fixed-income securities can improve your retirement benefits, consider the risk of inflation. Fixed-income securities do not provide adequate protection against inflation. However, investing in a gold IRA can help ease inflation concerns.
Gold IRAs have some drawbacks, including significant upfront costs and IRA custodian fees. When compared to liquid assets, withdrawing gold IRAs may cause challenges.
Additionally, gold does not pay dividends or interest. As a result, holding it in an IRA defeats the purpose of a tax-advantaged savings vehicle.
Gold IRA Distribution and Fees
Gold IRAs offer more distribution options than paper investments. Since gold IRAs allow you to own the physical assets, you have two withdrawal options.
Direct distribution: With direct distribution, you can have gold coins and bars shipped to your doorstep. IRA custodian handling fees start at $0.10 per ounce for all items.
Liquid distribution: An IRA custodian can convert your precious metals to cash and pay you the price based on the current market value. You can receive the money via wire transfer or check.
While gold IRA assets differ from traditional IRA assets, they must follow the same rules. If you want to make annual contributions or withdraw money, you must comply with the IRS regulations on distributions:
In 2022, the annual IRA contribution limit is $6,000, or $7,000 if you are 50 or older. This limit does not apply to rollover contributions.
If you make the withdrawal before the age of 59 ½, you will incur a 10% penalty fee.
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