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IRA Gold

Holding gold in IRA accounts has been a very attractive option for a while.

Some of the benefits of IRA Gold investments are:

  • Gold adds real diversification to an investment portfolio
  • Gold is a long-term investment, just like an IRA (or 401k)
  • The future prospects look good

Financial experts have always been aware of this and have long recommended that depending on one's financial circumstances and goals, anywhere from 5% to 15% of one's portfolio should be held in commodities like gold and precious metals in order to both increase the potential return and reduce risk over the long term. Many smart investors proceeded to add physical gold to their IRAs when that became possible a couple of decades ago and are now reaping the rewards of having done so.

But when one investigates this idea a little closer, he is confronted with a confusing and seemingly onerous series of steps in order to "do it the right way"--one finds that not any kind of gold is allowed into an IRA and that one needs to find an IRA custodian who is capable of holding gold and administering it efficiently, one needs to submit paperwork for a 'precious metals IRA',  transfer money from a 'regular IRA' to a 'gold IRA' and then decide what type of allowable gold to put in the new IRA. These extra troubles are only made necessary because the first 'investments' that enter an investors mind when thinking of adding gold to an IRA are gold coins and gold bars. Unfortunately, these could be the worst way to add gold to an IRA, specially for the relatively small amounts that we will likely hold in our IRAs. 

What many fail to realize is that gold can easily be held in an IRA without any of this extra effort by owning gold mutual funds, gold ETFs, gold stocks or all of them and that these investments do not require any special type of IRA custodian or administrator--any 'regular' IRA account will do.

What is IRA Gold
The Tax payer Relief Act of 1997 allowed precious metals including silver, platinum and gold in IRA accounts in physical form, recognizing their power to add meaningful diversification to a portfolio of stocks and bonds. Before this, only American Eagle gold coins were allowed in IRAs but now, many more gold bullion items are allowed though they are still restricted to:

  • gold bars with 0.995% minimum purity
  • gold coins that are legal tender and have a minimum fineness of 0..9999 with the exception of the American Eagle coins which have a fineness of 0.9167%.  

Some IRA qualified gold coins:
American Eagle Gold Coins
Canadian maple Leaf Gold Coins
U.S. Mint Gold Buffalo Coins
Vienna Philharmonic Gold Coins

Some IRA qualified gold bars:
Gold Kilo Bars
Suisse PAMP Gold Bars
Credit Suisse Gold Bullion Bars

Why physical gold may not be the best idea for IRAs
The first thing different about gold bars and coins when compared to gold funds, stocks or ETFs is that they are physical and need to be actually stored somewhere with an adequate amount of security. Of course, we get to pay for that security and administration and the smaller our hoard of coins and/or bars, the higher our per-unit cost premium, ie. it is more expensive to hold smaller amounts of physical gold than it is to hold larger amounts. Keep in mind that even 'small' amounts can amount to tens of thousands of dollars!  But even large amounts of physical gold have problems unfortunately, the chief among them being physical storage. Compared to this, our paper investments in gold via gold mutual funds, gold ETFs and gold mining companies are just as secure if not more, much cheaper and easier to hold, far more liquid and offer us the kind of flexibility and choice that physical gold does not. For example, we can use the IRA-approved options strategy of writing covered calls on our gold stocks or ETFs if we wanted to which is impossible with gold coins or bars.

Another serious problem is the premium in allowable gold coins which are simply not available in enough quantity. Very often, the premium over the actual gold content is so high that it negates the current value of gold. Actually, any kind of physical gold will have this problem to varying degrees, including gold bars and gold jewelry.

So as you can see, the best way to hold IRA gold in our accounts could very well be with gold mutual funds, gold ETFs or gold stocks.  However, many people still prefer to hold the actual metal for other reasons, including the psychological aspect of owning this attractive precious metal and this is perfectly OK. In the end, your IRA is supposed to give you peace of mind and a feeling of control and whatever achieves that is the right thing to do. The intent of this article is to point out that real alternatives do exist when it comes to putting gold in an IRA.

Related articles:

Should I put Gold In My IRA?

How To Open A Gold IRA

Should I Buy Gold Bars or Gold Coins?

How Safe Is My Gold IRA?

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