Gold IRAs: A Good Retirement Savings Vehicle?

Gold IRAs allow investors to invest in gold through a self-directed IRA, as long as the gold investment meets regulatory requirements. Is gold investment through an IRA a …

Gold IRAs allow investors to invest in gold through a self-directed IRA, as long as the gold investment meets regulatory requirements. Is gold investment through an IRA a sound investment? Joe Mont from The Street, explains the rules for gold IRAs and when it is a good time to add gold to your portfolio.

Gold cracked $1,000 an ounce this week. A concern about faster inflation and the dramatic stock-market decline that devastated 401(k)’s and individual retirement accounts begs the question: Is gold a good retirement savings vehicle?

Though they’re a lesser-used flavor of retirement plans, precious metal IRAs have been around for decades. The IRA plans allow individuals to fund their savings with a short list of federally approved metals. Until 1997, only Gold Eagle and Silver Eagle coins from the U.S. Mint were permitted. Regulatory changes broadened the scope that year to include bars with a larger weight and even some foreign-minted bullion, such as Canadian gold and silver Maple Leaf coins, the Australian Kookaburra coin and the Mexican Libertad. The list of approved metals was also expanded to include platinum.

Those accounts are self-directed, not company-sponsored, and an existing retirement account can be rolled into one. Like a traditional plan, a penalty of 10% is assessed for withdrawals made prior to age 59 1/2.

But are precious metals worth their weight when it comes to retirement plans?

An obvious concern is that the current gold rush has meant an increase in unscrupulous businesses. Without due diligence research about the plans, it’s easy to overpay or otherwise be taken advantage of. Your future nest egg is too valuable to take chances with.

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Regulations require that bullion be held by a third-party trust. As such, there are annual custodial fees that run in the ballpark of $100 to $160 a year.

Do the plans even make financial sense?

When locked into gold, silver and platinum, there’s no room for diversification, making the plans an “all or nothing” bet. Will the rate of return even increase, given that gold prices are already at a near-record high? Of course, some analysts are calling for $4,000 gold. Others say prices can only go down.

Proponents say that lack of flexibility is a non-issue and that gold’s performance has fared well for many years. The price of gold has risen more than 21% since last September, according to the World Gold Council. A $10,000 IRA investment in gold back in 2000 would be worth more than $41,000 today.

The debate may also hinge on an individual’s investing philosophy and economic viewpoint. Gold and stocks have traditionally maintained an inverse relationship — as stocks fall, gold rises and vice versa. A willingness to go the metals route may depend on whether you think recent stock rallies are a sign of things to come or if you see more market instability and inflation on the horizon, fueled by the Federal Reserve’s ever-escalating printing of money.

Peter Grant, a senior market analyst and broker for USAGOLD-Centennial Precious Metals, is seeing an uptick in those who fall into the latter category.

“There has definitely been increasing interest, particularly during the bubble-and-bust phase that we seem to have been going through for the past 10 years,” he says. “There has been mounting interest in having hard assets in one’s portfolio. You can just look back at past performance on gold versus any of the stock indices and, certainly over the past seven years, gold has significantly outperformed them.”

Wall Street’s woes have been gold’s gain. As the stock market crashed, demand for bullion strengthened.

Should you take the gilded option?

Proponents are as enthusiastic as critics are skeptical. A middle ground might be using gold to supplement a traditional retirement plan, perhaps as 2% or 3% of one’s portfolio. The caveat is that gold tends to attract short-term speculators who could create frustrating fluctuations for those in it for the long haul.

This article has been republished from The Street. You can also view this article at
The Street, an investment news and analysis site.


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