Gold has immense historical value as a symbol of wealth and as a hedge against economic uncertainty. But did you know that you can also invest in gold as a part of your retirement fund?
Gold IRAs are quite common these days, with investors realizing the importance of investing in a “safe haven” asset and diversifying their portfolio to secure their financial future. However, as with all good investments, there is a catch: you must only choose from IRS-approved gold bullions and coins.
This guide will walk you through the world of gold that’s eligible for IRAs and help you make the most of this precious metal in your investment strategy.
Gold in IRAs: A Primer
Gold has often been misconstrued as a rich man’s asset. However, if you observe gold’s historical significance you’ll realize that it's an incredibly safe option, mainly because of the immense stability it offers.
To be specific, gold has a very low correlation with traditional assets like stocks, bonds and mutual funds. This offers investors the opportunity to diversify their investments, mitigate risks and improve the stability of their portfolio. Thus, gold is a necessary investment for individuals looking to preserve their wealth long term.
Additionally, gold has historically been considered a hedge against inflation. During times of rising inflation, the purchasing power of currency can erode, but the value of gold is known to increase. This makes it an absolutely essential asset to have during modern times of growing geopolitical instability.
With that said, what makes gold IRAs especially appealing though, is how they allow your gold assets to achieve tax-deferred growth. This essentially ensures that if you invest in a gold IRA now, you will receive tax benefits on your withdrawals in the future.
IRS Specifications for Gold Purity
We previously touched on how the IRS has imposed certain restrictions on the purchase of gold and other precious metals through a gold IRA. Well, these restrictions are mostly based on the purity of these metals. The IRS wants you to invest in high quality precious metals that are up to the industry standard.
Keeping that in mind, let’s take a look at the IRS’ purity requirements for all precious metals eligible for gold IRAs:
Always remember to keep these guidelines in mind when purchasing precious metals through your gold IRA. More than that, make sure to verify the purity and authenticity of any precious metals you’re purchasing with the IRS first.
Approved Gold Bullion
If you're looking for a straightforward gold investment without the added cost of collectible value found in gold coins, then gold bullion bars and rounds are perfect. These are priced based on their gold weight, making them a more budget-friendly option.
In terms of minimum purity requirements, the same rules apply: Each gold bar or round purchased through a gold IRA must have a minimum fineness of 0.999. On top of that, the IRS also requires that all gold products purchased must be produced by a national government mint or accredited refiner/manufacturer.
Keeping those conditions at the forefront, here’s a list of popular gold bullion bars that fit the IRS’ standards.
PAMP Suisse Gold Bars
PAMP Suisse is one of the most well known gold refineries in the world and is currently well placed on the IRS’ approved refinery list. The weight of their gold bars range from just 1 gram all the way to 1 kilogram (1,000 grams).
Valcambi Suisse Gold Bars
The Valcambi Suisse mint in Switzerland is regarded as one of the most trusted bullion mints in the world. It's also responsible for producing one of the most extensive ranges of bullions assets in the world.
Perth Mint Gold Bars
Officially recognized as the national mint of Australia, the Perth Mint processes 10% of the world’s freshly mined gold. Producing exceptionally pure gold bullion bars that fit the IRS’ carefully constructed requirements.
Approved Gold Coins
As affordable as gold bullions bars are, gold bullion coins still reign supreme as the first choice for investors. Mainly because of the collectability aspect of these assets, which adds a premium to their original value. Having said that, there’s only a select few that fit the IRS’ eligibility criteria for holding in a gold IRA.
These coins are at the absolute top of the list when it comes to purity and quality, and are available in gold, silver and platinum varieties. Here’s a full list of the top IRS-approved gold coins you can invest in as part of your gold IRA.
American Gold Buffalo Coin
The American buffalo coin is the purest gold coin ever made by the U.S mint. It contains one-troy ounce of 24-karat gold.
Canadian Gold Maple Leaf Coin
Produced by the Royal Canadian mint, the Canadian Gold Maple Leaf coin is also considered one of the purest gold coins ever made. It has a fineness of 0.9999, making it 99.99% pure.
South African Gold Krugerrand
The South African mint produced the world’s first modern bullion gold coin, the gold krugerrand. The coin’s collectability aspect and exceptional purity has kept its value up all these years, making it one of the most valued gold coins available currently.
American Eagle Coin
American Eagle coins are a popular choice for IRA investors, not just because of their exceptional purity but also because of their iconic design. These coins, produced by the U.S mint, provide investors with an efficient and economical way to include a small amount of gold in their investment portfolio.
Non-Approved Gold Items
It should be pretty obvious by now that the IRS has pretty strict rules and guidelines regarding precious metals that can be held in a gold IRA. However, it’s important to highlight the specific gold items that are ineligible for gold IRAs to provide a better understanding of the IRS’s criteria.
Here’s a list of items generally prohibited in a gold IRA:
Inexperienced investors often believe that setting up a gold IRA allows them to invest in collectible coins that only have historical significance.
However, the IRS does not permit the purchase of collectible coins, also known as numismatic coins, through a gold IRA. Examples include rare coins, antique coins and limited edition commemorative coins.
Gold Jewelry and Plated Items
Gold jewelry and gold plated items are usually created by alloying gold with other metals, which reduces the purity of the gold itself to a value below 99.5%. Thus, gold jewelry and plated items aren’t IRS-eligible investments in a gold IRA.
Proof coins are indeed striking due to their detailed craftsmanship and high-quality finish. While they do contain gold, their value primarily stems from their collectible nature rather than their gold content.
This means they typically don't qualify for inclusion in a gold IRA, as IRS regulations generally exclude collectibles from such investment portfolios. It's essential to focus on standard bullion coins or bars if you're considering a gold IRA investment.
Storage Requirements for IRS Approved Gold
In addition to their requirements regarding precious metal investments in an IRA, the IRS has also mandated that all precious metals within an IRA be kept in third-party depositories.
These depositories must be listed with the IRS and need to be specialized facilities that have no correlation with regular bank vaults. Their only purpose should be to hold precious metals in an IRA.
Fortunately, you do also have the ability to choose the depository you want to store your precious metals in. When you’re done setting up your gold IRA and purchasing your precious metals, your custodian will provide you with a few storage options. All you have to do is pick one from the list.
Prohibiting Home Storage
Previously, gold IRA holders had the option to store the precious metals they purchase in their home. However, recently the IRS has prohibited investors from storing precious metals in their home, until they reach retirement age.
A good move considering how homes are considerably less protected than a secure, protected third-party depository designed specifically to hold precious metals.
Segregated or Commingled Storage?
Most depositories offer two types of storage, commingled or segregated. The IRS gives gold IRA holders the choice of picking any of the two storage options. If you opt for commingled storage, your assets will be mixed in with the assets of other gold IRA holders.
Whereas if you go for the segregated options, your assets will be stored separately from other gold IRA holders. Each gold bullion coin or bar you invest in will be individually identifiable, using their unique serial id.
Segregated storage is slightly pricier but safer than commingled storage. Mainly because there is a lower chance that your assets are misplaced or lost.
Potential Penalties for Non-Compliance
To make sure that all individuals investing in gold as part of their retirement portfolio comply with the IRS’ requirements, they imposed some heavy penalties for non-compliance.
To begin with, any individuals investing in non-approved gold items through their IRA may see the tax-advantaged status of their account revoked.
This tax-disqualified status will also affect their withdrawals as they’ll be taxed 10% of their withdrawal amount.
Individuals can even incur tax penalties if the IRS finds them engaging in prohibited transactions. For example, using IRA funds to invest in collectibles or life-insurance contracts.
Confiscation of Your Assets
In extreme cases, investing in prohibited assets through your IRA can even result in confiscation of assets held within a gold IRA. This’ll eventually result in you losing your investment.
So, make sure you take the IRS’ compliance requirements into consideration when investing through your gold IRA.
Your account’s custodian should help you in this regard, as it's part of their job description to keep you away from non-approved precious metal items.
All in all, the IRS is quite strict in their eligibility criteria when it comes to the investments in a gold IRA. However, it's important to understand that these strict requirements are there for the account holder’s benefit.
To make sure that any metals purchased are according to industry standards and will net the account holder a profit, at the time of withdrawal.
Plus, make sure you contact your custodian or the gold IRA company you’ve opened the account with and ask them to explain all of the IRS’ requirements to you.