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How Does a Gold IRA Work | All You Need To Know About Investing Gold

Have you been scratching your head asking yourself “How does a gold IRA work?” If that is the case, you are in the right place to get all the information you need on gold IRAs and how gold IRA companies can help you with your physical gold and other precious metals investments.

You are probably here because you are considering opening some retirement accounts based on gold coins and other precious metals. Perhaps you already have a traditional IRA or Roth IRA and now you want to diversify to a self-directed IRA account based on gold, silver, platinum, and palladium.

Whatever the case may be, you are not the only investor who is seeking the shelter of a precious metals IRA. The current economic uncertainty has had many people doubting the longevity of their Roth IRA or Traditional IRA. Physical gold and other precious metals seem to be the best choice for an individual retirement account right now.

However, knowing that Traditional gold IRAs are the way to go is not the same as knowing how to create a gold IRA account that will provide you with the benefits and growth you need. Read this article to learn more about gold IRA accounts.

What Is a Gold IRA?

How Does a Gold IRA Work

A gold IRA can best be described as a retirement account that allows you to directly invest in gold, silver, platinum, and palladium bullion coins or bars without actually taking physical possession of these precious metals.

In other words, it is a way of securing your retirement funds by basing them on the value of gold and other precious metals managed by one of the many reputable gold IRA companies that you can choose from.

It is in some ways similar to the Roth IRA or Traditional IRA accounts you may be used to hearing about, but it also has some fundamental differences that you need to be aware of.

Chief among these differences is the fact that unlike Roth IRAs and Traditional IRAs, your gold IRA holds physical gold bullion and other precious metals instead of fiat currency, stocks, bonds, mutual funds, and exchange-traded funds (ETFs).

However, due to the similarities in terms of tax benefits, contribution limits, and other specific IRS regulations, there is always a close link between a gold IRA and traditional self-directed IRA accounts.

As such, there are three types of gold IRAs you need to know of, which are:

  • Traditional gold IRA

  • Roth gold IRA

  • SEP gold IRA

Let us now deep dive into each of these gold-based retirement accounts:

Traditional Gold IRA

The traditional gold IRA is the most common type of all gold IRAs and is funded using pre-tax dollars. The taxes on this gold IRA are paid when the investor decides to withdraw funds upon retirement.

Contributions are tax-deductible as well, meaning any deposits or gains on your gold IRA will not be taxed. As with any other self-directed IRA, there are annual contribution limits set by the IRS, which limit your deposits to $5,500 per year or $6,500 if you are above 50 years of age.

Roth Gold IRA

A Roth gold IRA, on the other hand, is funded using after-tax dollars. This means until you reach retirement age, your money grows tax-free and you do not have to pay taxes when you finally choose to withdraw funds.

However, all this depends on the assumption that you will not make any withdrawals before retirement, as this will be regarded as a distribution. Rules on early distribution mean that you will be heavily penalized by the IRS.

Also Read: Gold IRA Investment Amount Limits


SEP stands for Simplified Employee Pension and is the type of traditional IRA that is normally used by small business owners and other self-employed individuals. If you fit this description, then a SEP gold IRA is the right choice for you.

This type of gold IRA is funded with pre-tax dollars. It is possible, if you own a small business, to contribute to the SEP gold IRAs of your employees as part of the job perks or an incentive package.

In terms of contribution limits, you are allowed to contribute up to $53,000 or 25% of your income, whichever is less.

How Does a Gold IRA Work?

A gold IRA account can be one of the most valuable assets in your entire retirement portfolio is managed correctly. It requires opening an account with an IRS-approved custodian that will help you set up your gold IRA account.

Depending on your reasons for opening a gold IRA, you can fund your account by taking from your traditional IRA (if diversifying your portfolio was the main reason), or by buying gold directly using cash or bank transfer (if you simply wanted to add physical gold to your list of assets).

You should expect to pay a wide range of custodial and storage fees associated with the running of gold IRAs. Strict rules by the IRS also dictate which types of gold and other precious metals you can buy as part of your gold IRA.

A properly managed gold IRA can be very profitable as a long-term investment provided that the right gold IRA companies are managing the account. The foundation of a gold IRA lies in its ability to shield your funds from global economic turmoil by basing their value on tangible assets, such as gold, silver, platinum, and palladium coins.

Benefits of Gold IRAs

Benefits of Gold IRAs

Choosing to invest in gold IRAs is a long-term decision that should not be taken lightly because a significant chunk of your savings will be tied up in one self-directed IRA account or another for a very long time.

Therefore, before making such a decision to buy gold coins and bars, you need to be sure of the benefits it will give you, such as the following:

Tax Deductible

Anyone who has ever made any type of long-term investment knows that one of the biggest issues is the tax that you will have to pay on your savings. This is why any kind o investment that offers significant tax benefits is always popular.

Depending on the type of gold IRA you choose, you will be in line to receive tax benefits that are similar to either a Roth IRA or a Traditional IRA account. This means you will either choose to pay taxes when you invest (Roth gold IRA) or when you make your withdrawals after retirement (Traditional gold IRA).

Either way, you stand to benefit a lot more than if your funds were just sitting in a bank account somewhere.

Long-term Investment

As we mentioned before, investing in gold is a long-term choice, meaning when you start, you know that you are in it for the long run. However, this is not necessarily a bad thing because the longer you keep your gold there, the more it will gain in value.

Historically, gold has shown that it is guaranteed to go up in price after a few years, While it does fluctuate from day to day in terms of spot price, when looked at over a period of years, you will notice that the value keeps on increasing, which is what all long-term investments aim to achieve.

More Control

Unlike a traditional IRA, when you choose to invest in precious metals, the IRS gives you a lot more control over your account. This is why a gold IRA is described as a self-directed IRA.

You get to pick and choose which precious metals you will invest in as part of your gold IRA. If you want to further diversify into real estate or even cryptocurrency, it’s entirely up to you because your gold IRA can go way beyond just precious metals investments.

Safe Storage

Precious metals are not something you can just keep in a sock drawer and hope to have peace of mind. These are high-value commodities that attract a lot of criminal attention. If you are going to invest in gold IRAs, then storage should be high on your list of priorities.

However, thanks to the IRS regulations on keeping your physical gold, all precious metals that are part of your gold IRA account must be stored in an IRS-approved depository. this relieves you of the burden of having to store and guard your precious metals by yourself.

With the right custodian, your precious metals will not only be stored safely but will also be insured against theft or destruction.


There is a very high demand for gold and silver globally. Countries such as Russia and China are going all out to purchase gold by any means necessary. This means that the growth of these commodities is all but guaranteed for the foreseeable future.

You can afford to invest as much as you can in precious metals knowing that the chances of you making a loss on your investment in the future are very slim. All you need to do is give your gold IRAs the required time to grow and you will reap the benefits upon retirement.

Hedge Against Inflation

Inflation is one of the biggest talking points not only in the US but globally. The state of our economy right now is not favorable to fiat currencies. Even paper assets are feeling the heat and as a result, many financial advisors are advising their clients to invest in precious metals by opening a gold IRA.

The beauty of gold IRAs is that they seem to benefit from an unstable economy. Looking back at the Great depression or any of the two World Wars, we see that these are the periods in history where the demand for gold was at its highest.

Based on that, we can safely assume that period we are in might be setting up the perfect conditions for those who have a few gold bars stored up somewhere to reap maximum benefits as people rush to shield their investments against inflation.

Easy To Liquidate

In all honesty, precious metals are not the only good investment you can make for your future. Other options, such as real estate are quite good as well. However, where gold IRAs beat them all is when we look at the liquidity of each of these assets.

In times of emergency, you will find a gold buyer for your physical gold bars much faster than you will find a person ready to buy your house on the spot. While most assets need to be analyzed for market value and potential for growth, 99.9% of silver bullion bars will sell in record time without any fuss.

This means you know that even though your investment is secured for many years if you are in a desperate situation that makes the IRS penalties for distribution palatable, you will have ready access to large sums of money.

How To Open a Gold IRA Account

Now that you have seen all the benefits of having a gold IRA retirement account, it’s time to look at how you can go about opening one. The process itself is quite simple as all you need to do is have your funds ready and follow these few steps:

Find an IRS-approved Custodian

You need to dedicate as much time as you can to find a reputable IRS-approved custodian. Any misstep here and your precious metals IRA account is likely to be doomed to collapse. There are many good gold IRA companies out there, but also a lot of not-so-good ones.

The trick is to have a clear picture of what you are looking for in an IRA custodian and what separates a reliable gold dealer from an unsuitable one. In that regard, look out for the following signs of the right gold IRA company to invest with:

  • A good reputation for honesty, integrity, and excellent customer service

  • Many years of experience working with physical precious metals

  • Knowledge of IRS rules and regulations

  • Affordable account setup fees and other associated costs

  • A wide range of precious metals to choose from

  • IRS licensing and insurance for all its precious metals

  • Works with reliable and affordable IRS-approved depositories

Fund Your Account

When you have found your precious metals dealer, they will help you to fund your account in one of three ways as follows:

  • Gold IRA Rollover

You can rollover funds from your 401(k), Roth IRA, or other types of retirement accounts to fund your gold IRA. The process is very simple if you have a competent custodian to help you.

Keep in mind the IRS rules that state that you cannot keep the money from your rollover in your bank account for more than 60 days otherwise you will be penalized up to 10% of the value of your rollover.

You are also only allowed one rollover per year, meaning if you have already used this method to fund some other retirement account, you will have to find alternative options.

  • Direct IRA Transfer

A direct transfer from other retirement accounts is one of the fastest ways to fund your gold IRA. It will incur some additional costs so you need to talk to your financial advisor or custodian about whether it is the right option for you.

  • Cash Contributions

If you do not have a retirement account to withdraw funds from, as is the case with many self-employed individuals, you can go to your custodian and make a direct cash contribution into your gold IRA.

This method has the advantage of being safe from any IRS penalties meaning you can contribute as much as you want to your gold IRA.

Select IRS-approved Precious Metals

Once your account is up and running, it’s time to choose your precious metals. You can invest in any metal you want, as long as it meets the IRS standard for purity, which is 99.9% for silver and 99.5% for gold, platinum, and palladium.

Consider the following examples:

  • American Eagle and American Eagle Proof coins

  • Credit Suisse bars and other bars and rounds produced by an NYMEX or COMEX-approved refinery

  • Canadian Maple Leaf coins

  • Austrian Philharmonic coins

  • British Britannia (2013 and newer)

  • Australian Kangaroo coins

  • Chinese Panda coins

  • Australian Kookaburra coins

  • Canadian Polar Bear & Cub

  • Platinum and Palladium bars and rounds produced by an NYMEX or COMEX-approved refinery

  • Canadian Maple Leaf coins in either platinum or palladium

  • American Eagle platinum coins

Choose an IRS-approved Depository

The last stage of your investment process is to choose a depository. There are many good options spread across the US, such as the Delaware depository. Your gold IRA custodian will probably have a depository that they prefer to do business with, which would benefit you in terms of shipping and insurance.

Invest in Physical Gold Bullion Today!

A gold IRA could be the key to a better future if you start investing as soon as possible and make the right choices early on. It is a very easy investment to manage as long as you have the right custodian.

With so many benefits, there is no reason not to make investing in a gold IRA part of your investment plans for 2023. Now that you know how it works, your financial freedom is in your hands.