Whether you’re a seasoned investor or just getting started, you’ve likely heard one piece of advice repeatedly: diversify your portfolio. That’s with good reason. Adding a rich variety of assets to your retirement account–not just market-dependent stocks, mutual funds, etc.–can help safeguard your investment from volatility.

Precious metals have long been considered a reliable long-term investment asset, and, particularly, gold has long been viewed as an inflation hedge.

Unfortunately, most traditional and Roth IRA accounts don’t allow for gold investing.

So how can you add gold to your IRA and protect your retirement against inflation? Here’s everything you need to know about Gold IRA investing.

What Is a Gold IRA?

A gold IRA is an individual retirement account in which investors can hold gold and other precious metals such as silver, palladium, and platinum. When you open a gold IRA, you have the option to include the following assets:

• Gold bullion and coins that meet IRS requirements, which include fineness and purity
• Other precious metals, such as silver, palladium, and platinum
• Gold and precious metal commodity futures
• Gold-related stocks, exchange-traded funds (ETFs), and mutual funds

Unlike a regular IRA, Gold IRAs are typically not available through traditional brokerages. Instead, you must work with a custodian specializing in gold IRAs via a self-directed IRA.

These custodians will be trained in rules surrounding gold investments, including in physical gold assets–not just stocks.

For example, a qualified custodian will oversee the gold IRA’s administration, helping ensure your investment meets tax and paperwork requirements. They will also assist in transferring and storing assets, as physical gold must be held in a national depository or another qualified account.

What Is the Best IRA for Gold?

You cannot hold gold or any precious metal in a regular IRA account. If you want to invest in precious metals, including gold, you must open a self-directed IRA.

A self-directed IRA (SDIRA) is a type of retirement account that allows investors to invest in a host of traditional and alternative investments that aren’t available under other retirement plans. In addition to gold and precious metals, an SDIRA can also hold a vast array of other assets, like real estate, cryptocurrency, promissory notes, and livestock.

Like regular IRAs, SDIRAs are available in traditional and Roth forms, with the same types of tax benefits. As such, you can either invest in gold with pre-tax dollars (traditional IRA) or post-tax dollars (Roth). If you’re a business owner, you can also open a SEP SDIRA to hold gold as an investment plan for your employees.

Is a Gold IRA a Good Investment?

Gold can be a good investment, whether in bullion form or traditional investment, like gold stocks, ETFs, mutual funds, and commodity futures. Here are some of the primary benefits of investing in gold:

• Gold can provide reliable long-term growth. And though there may be periods of volatility, its value tends to bounce back quickly.
• Holding gold in your IRA hedges against drops in other investment assets. Investment experts often point to gold as a way to stabilize your portfolio in case of a stock market crash or major inflation.
• Gold is generally considered liquid, making it a flexible asset.
• Gold trends in the opposite direction of the US dollar, providing investors a safeguard against drops in the value of world currency.

Every investment asset has its benefits and drawbacks, and gold is no different. If you’re considering gold, remember that in its physical form, gold carries additional rules and requirements for purchase and storage. In addition, you’ll also likely see additional fees associated with a gold IRA, including storage fees and potential buyback fees.

Pros and Cons of Gold IRA Investing

Gold IRA Rules

When you invest in gold, especially in its physical form and not related stocks, futures, and ETFs, it’s important to be aware of the IRS rules that govern precious metal investment.

To qualify as an IRA asset, gold must meet the following standards.

• Only gold that is at least 99.5% pure is considered qualified for holding in a gold IRA. Silver must be 99.9% pure, and palladium must be 99.95% pure.
• Gold bullion and other collectible forms that qualify for IRA holding must be stored in an approved depository. Precious metals that are purchased by an IRA (or its corresponding LLC) cannot be held in an individual’s home or other unqualified location.
• Gold bars, coins, and rounds must be produced by the national government mint or by an accredited or certified refiner, such as NYMEX, ISO 9000, or LBMA.
• Bullion bars must meet exact weight specifications, with the exception of 100-ounce gold and 400-ounce gold bars.
• Gold held in a traditional self-directed IRA is treated like any other asset, and you must begin to take required minimum distributions (RMDs) at the age of 59 ½. You can take a gold RMD by requesting the gold be shipped to you or by liquidating your gold and receiving a monetary payment.

How is a Gold IRA taxed?

How your Gold IRA is taxed depends on what type of IRA you own. With a traditional IRA, your gold is purchased with pre-tax dollars. When you take a distribution, it will be subject to income tax. If you purchase gold through a self-directed Roth IRA, then you pay for the asset with post-tax dollars, and you will not owe income tax when you take a qualified distribution.

Because self-directed IRAs are held to the same tax rules as an IRA, all contribution limits apply. That means you can contribute up to $6,000 ($7,000 if you’re over 50) annually as of 2022. Contributions limits are subject to change, so always check with the IRS for the most up-to-date information.

In addition, early withdrawal penalties may also apply if you have a traditional SDIRA and make an early withdrawal. If you have a Roth SDIRA, you can withdraw an amount equal to or less than your existing contributions without penalty, but you may be penalized for withdrawals on interest. Both types of IRAs make exceptions for certain withdrawals, such as those meant to pay for the purchase of your first home or unreimbursed medical expenses without penalty.

If you’re considering investing in physical gold, it’s a good idea to speak to an investment expert who can help you understand the role gold can play in your retirement account and long-term investment needs. It’s also vital that you work with a custodian, like Horizon Trust, who has experience with gold IRA investing and other precious metals and understand the additional tax reporting and management requirements unique to this type of investment.