Gold IRA vs. physical gold: Which is better?

You’ll need to consider tax advantages, fees and storage options

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Investing in gold is a popular way to diversify your portfolio and preserve your purchasing power, especially in times of economic uncertainty.

But investing in gold isn’t just buying gold bars or coins. You can also own gold inside your retirement account. Gold IRAs allow you to purchase gold within an individual retirement account (IRA), saving on taxes while diversifying your holdings. But buying physical gold allows you to directly own gold bars and coins and hold a tangible asset.

Gold and other precious metals are an investment and carry risk. Consumers should be alert to claims that customers can make a lot of money in these or any investment with little risk. As with any investment, you can lose money and past performance is not a guarantee of future performance results. Consumers should also obtain a clear understanding of the fees associated with any investment before agreeing to invest.


Key insights

  • Gold IRAs are retirement accounts that allow you to own physical gold through a custodian.
  • Gold IRAs penalize withdrawals before age 59½, while physical gold outside of an IRA can be accessed at any time.
  • Gold IRAs save on taxes, while physical gold may be taxed at a higher rate than most investments.
  • There are limits on how much you can purchase within a gold IRA based on IRS contributions limits.

How investing in physical gold works

Investing in physical gold includes purchasing gold bars, gold coins or gold jewelry. You can buy gold through a gold dealer online or in person, or directly through the U.S. Mint. If you ever want to sell your gold, this can be done through a dealer or online marketplace.

You can take custody of physical gold yourself or leave it with a custodian. Custodians are companies that store your physical gold in a safe storage facility and insure your gold against loss.

If you choose to purchase and store physical gold yourself, it’s a good idea to have a secure way to store it. And if possible, it’s also a good idea to get an insurance policy or rider on your current policy to insure your gold against theft or loss.

» COMPARE: Best gold dealers

Pros and cons of physical gold

Investing in physical gold allows you to own a hard asset that can’t be stolen through identity theft or online theft.

Physical gold has been around as a currency and investment for thousands of years and offers an affordable way to physically own part of your investment portfolio. But it’s not the best for everyone.

Pros

  • Owning physical gold gives you a tangible investment
  • Gold instantly diversifies your portfolio
  • Gold is a known hedge against inflation

Cons

  • Physical gold is harder to buy and sell than stocks or exchange-traded funds (ETFs)
  • Physical gold is at higher risk of loss or theft
  • You may need to pay for insurance and storage of physical gold

How investing in a gold IRA works

To invest in gold inside an IRA, you need to open a self-directed IRA that works with a custodian. Gold IRA companies make this process easy, helping set up your account legally and working with an insured custodian to hold the gold in your account.

Once you’ve selected your gold IRA company, you’ll need to do the following:

  • Transfer funds into the account. If rolling over from another IRA, you need to sell your old investments as you can only transfer over cash into a gold IRA.
  • Choose your investments. Once funds are transferred, you’ll choose your investments. These may include physical gold or other precious metals. Physical gold must be held with a custodian.

Gold IRAs allow you to save on taxes. You can choose a traditional IRA to get a tax deduction for contributions in the year you deposit, or a Roth IRA to get a tax break in retirement. Gold IRAs grow tax-free until retirement, and you don’t have to pay any capital gains taxes for buying and selling gold within the account until you start making withdrawals.

However, keep in mind you cannot access the gold in your IRA before age 59½ without incurring a penalty. Gold IRAs follow the same rules as a regular IRA, and you are subject to the tax treatments and withdrawal rules of IRA accounts.

There are also annual contribution limits on gold IRAs, subject to the same limitations that regular IRA accounts have. For 2023, the contribution limit is $6,500, and starting in 2024 that limit will rise to $7,000. If you’re age 50 or older, you can contribute an additional $1,000 as a “catch-up” contribution.

» COMPARE: Best gold IRA companies

Pros and cons of gold IRAs

“The primary advantage of a gold IRA, backed by physical gold, lies in the associated tax benefits,” said Arielle Tucker, a certified financial planner and the founder of Connected Financial Planning.

“During the distribution of a traditional IRA, your tax rate aligns with your ordinary income rate, which could be lower than the 28% tax rate applied to the sale of physical gold outside of a retirement account. Additionally, establishing a self-directed Roth gold IRA allows for potential tax-free growth and withdrawals, enhancing long-term advantages. However, the significant downside is characterized by generally higher account maintenance fees.”

Pros

  • Provides investment diversification
  • Save on taxes when buying and selling gold
  • Can own physical gold for retirement

Cons

  • May have high fees
  • Can’t access gold without penalty until age 59½
  • No dividend payments
  • Annual contribution limits

Should you invest in a gold IRA or physical gold?

“With a gold IRA, you don't physically hold the gold; instead, you must work with a vendor, and your hold must meet specific IRS standards,” said Tucker. “For those well on their way to future retirement savings and seeking additional diversification, holding physical gold can be attractive, providing immediate access and control over assets.”

For those who are just getting started with gold, Tucker recommends “opting for gold ETFs like IAU or GLD to obtain diversification in the most cost-effective way. Despite the allure of physically holding gold bars, practical considerations such as secure storage, additional insurance and awareness of common scams warrant careful consideration.”

Gold IRA

  • Tax-advantaged account for investing in gold
  • Gold required to be held with a custodian
  • Cannot access funds without penalty before age 59½
  • Can invest in physical gold or gold ETFs

Physical gold

  • Tangible investment you take custody of
  • Can be purchased from online dealers or directly from the U.S. Mint
  • Can buy or sell anytime without restrictions
  • Will pay much higher taxes on gains than using an IRA

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    FAQ

    How safe is a gold IRA?

    Gold IRAs are safe investment accounts that are regulated by the IRS and require your gold investments to be securely stored and insured. Most gold IRA companies work with reputable custodians that store your gold in a secure location and are insured against any type of theft or loss. And you can access your gold in retirement, whether you want to sell and cash out or have it physically shipped to you.

    Can you invest in other metals in an IRA?

    Many gold IRA companies offer more than just gold. You may be able to invest in silver, platinum, palladium and other precious metals. And since gold IRAs are self-directed IRA accounts, you can also invest in other assets, such as stocks, bonds, real estate and even crypto. But your investment selection depends on the company you choose.

    Does gold earn interest?

    No, gold does not earn interest. Gold is a physical metal and is not the same as investing in a dividend stock or depositing funds into a bank account. Gold is simply a physical asset that grows in value based on market supply and demand.

    Bottom line

    Gold IRAs are a great way to help diversify your retirement investments. You can purchase physical gold and have it securely stored for use in retirement while saving on taxes. But gold IRAs have some limitations, such as not being able to hold your gold until retirement.

    Investing in physical gold directly is more akin to opening a brokerage account and buying investments. You can purchase it from a gold dealer or directly from the U.S. Mint, and there are no restrictions on access to your gold. While there are no tax advantages with physical gold, you can take custody yourself and buy or sell it at any time.

    No matter which investment you choose, gold can help to diversify your portfolio. But it also comes with a risk of loss and volatility, so it’s a good idea to meet with a licensed financial advisor before making your gold investment choices.


    Article sources

    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:

    1. IRS, "IRA FAQs - Distributions (Withdrawals)." Accessed Dec. 13, 2023.
    2. IRS, "Individual Retirement Arrangements (IRAs)." Accessed Dec. 13, 2023.
    3. IRS, "Retirement Topics - IRA Contribution Limits." Accessed Dec. 13, 2023.
    4. United States Mint, "Gold Coins." Accessed Dec. 13, 2023.
    5. IRS, "Retirement Plan Investments FAQs." Accessed Dec. 13, 2023.
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