A Roth IRA also offers flexibility with the type of investments it can hold, but not all assets are easily accessible through IRAs. Certain gold assets are allowed to be held in IRAs, but not all brokerages provide that option. In this article, we’ll review the rules for investing in gold with a Roth IRA, the advantages gold can bring to a retirement portfolio, and some alternative ways to invest in gold.
Buying Gold Directly With a Roth IRA
The IRS rules for investing in gold through an IRA are slightly complicated. Essentially, you cannot invest in gold through a Roth IRA because it is considered a “collectible.” The purchase of a collectible in an individually-directed account is treated as a distribution in the amount of the purchase price. So if you purchased $1,000 of collectibles, the IRS would consider that to be a $1,000 distribution, and you would be taxed accordingly. The IRS definition of a collection includes:
Works of artRugs or antiquesMetals or gemsStamps or coinsAlcoholic beveragesOther tangible personal property the IRS deems to be a collectible
But, the IRS also has a few exceptions. Among them, certain gold, silver, platinum, and palladium bullion are excluded from the definition of “collectibles” as long as an approved non-bank trustee maintains physical possession. In other words, if you purchase gold in your Roth IRA, you can’t hold onto the physical bars or coins yourself.
Alternative Methods of Investing in Gold With a Roth IRA
While you can’t buy gold directly in most Roth IRAs, you can invest in gold in indirect ways to profit from gold price trends or broader industry trends. “Investors in securities can invest in gold mining companies, gold processing companies, and even gold retailers,” David Frederick of First Bank told The Balance in an email. “As gold goes up, the values of these stocks go up as well.” But investing in gold ETFs doesn’t necessarily offer the same benefits as buying gold directly, Frederick said. “The purpose of investing in gold is twofold,” Frederick said. “First, gold as an asset has never dropped in value to $0. It is possible for any given stock or bond tied to gold to drop to $0, despite its ties to gold, with normal market effects, like poor business management or default on debt. The only way to really take advantage of gold’s intrinsic value is to own gold, not to own companies that work with gold.” Another benefit of owning gold, which is considered a “safe haven asset,” is that when the stock market is down, gold can serve as a hedge against the economic downturn. But that doesn’t apply when you’re invested in gold ETFs rather than owning physical gold, Frederick said.
Self-Directed Gold IRAs
Many traditional brokerage firms don’t allow you to invest in gold through your Roth IRA. There is an alternative approach called a self-directed IRA. A self-directed IRA allows inventors to access many of the securities they can’t buy in a standard IRA. Those assets can include real estate, tax liens, and commodities like gold. There are companies that specialize in offering these self-directed accounts. Self-directed IRA custodians can help individuals set up a precious metals IRA or Roth IRA. “These custodians work for a fee and their fee may be higher than brokerages that invest in the securities markets due to the need to physically purchase, store, and insure substantial amounts of precious metals,” Frederick said. While self-directed IRAs offer the same tax benefits as any other IRA, they have increased risks. The investments in self-directed IRAs may have less disclosure and liquidity.
Should You Invest Retirement Funds in Gold?
Gold remains a popular investment choice as it can bring a number of advantages to a diversified portfolio. A 2021 Gallup poll found that gold ranks in the top three choices by Americans for best long-term investments along with real estate and stocks/mutual funds. “I recommend all investors invest in a diversified portfolio,” Frederick said. “Gold and other commodities certainly have a place in such a diversified portfolio. But no one should put all their eggs in one basket, not even a golden basket.” Gold can serve as a hedge against stock market volatility and downturns. The benefits of gold are most prevalent when you buy gold directly rather than investing in gold EFTs or companies within the gold industry, Frederick said. “While gold may have some downside stability, it just does not have the same upside as business investments,” Frederick said. Some potential downsides to consider are that, compared to other investment choices, gold does not:
Have quarterly earningsDistribute dividendsBuy out competitors to expand its market baseDevelop new products or delivery methodsExpand operations into new and innovative markets
If you fully understand the risks and downsides, gold may be worth adding to your retirement portfolio. Consider consulting with a financial advisor who can offer suggestions for how gold can fit into your personal wealth plan. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
