Gold has been used for many centuries as a symbol of wealth. In more recent times, this metal has been purchased by investors as a hedge against inflation, a protector of portfolio value, and a catalyst for overall portfolio growth.
Likewise, investing through an IRA, or Individual Retirement Account, can offer investors numerous tax advantages such as long-term tax-deferred growth and the potential for deductible contributions or tax-free withdrawals (depending on the type of IRA account that is being used).
Gold IRA Overview
When most investors open a traditional or Roth IRA account, they are told that they can invest in a variety of different investments such as stocks, bonds, and mutual funds. Yet, most brokerages do not offer gold as an IRA asset option. This is because investing in gold requires a type of IRA that is referred to as a self-directed account.
A truly self-directed IRA allows the account holder to make investment choices on behalf of the retirement plan. In its basic structure – along with the tax advantages it can offer – a self-directed IRA is technically no different than other types of IRA accounts.
However, self-directed IRAs are unique in that they provide an element of control, along with a much wider array of investment options that are offered to their investors. For example, with a self-directed IRA, the account owner directs the investments rather than being restricted to only what a brokerage company or bank representative offers them.
One such investment option is gold. By allowing investors to set up a gold IRA, the opportunity to diversify their portfolio is heightened, allowing for additional growth potential along with protection from inflation.
How a Gold IRA Works
When purchasing gold in a self-directed IRA account, the investor’s IRA trustee will actually make the gold purchase on the account owner’s behalf. Likewise, even though investors are allowed to invest in physical assets such as gold bars in a gold IRA, the law requires that the metal be held by the IRA account trustee. This means that investors are not allowed to take actual physical possession of the metals that are part of their IRA investment holdings.
Why Invest in Gold?
There are a number of benefits to investing in gold – starting with the fact that gold has consistently outperformed many more “traditional” types of retirement assets such as stocks, mutual funds, and bonds over time.
There are several factors that contribute to the rise and fall of gold prices. These include:
Economic Performance – The performance of the overall economy can have an effect on the value of gold. For example, in times of poor economic – and stock market – performance, the price of gold will typically rise.
Demand – Just as in basic economics, when the demand for gold is high, it price will also be high. The converse is also true.
The Dollar – The price – and thus the value – of gold is typically viewed as being inversely related to the value of the U.S. dollar. In this instance, a stronger dollar will generally keep the price of gold low, while a weaker dollar is likely to increase the price of gold.
Given the amount of worldwide economic uncertainty today, it is likely that the value of gold will continue to rise over time – and this can help with overall portfolio growth, as well as provide a hedge against inflation in the future.
The Advantages of Investing Through a Gold IRA
Investing in Gold IRA accounts can be advantageous to investors for a number of reasons. First, the ability to diversity one’s holdings is increased, as is the potential for additional growth – even in a struggling economy.
In addition, due to their tax advantaged nature, IRA accounts do not require that investors pay tax on their gains until these monies are withdrawn – and with a Roth IRA, withdrawals may even be taken tax-free.
The Bottom Line
Today, gold is being sought by investors as a potential catalyst for portfolio growth, as well as a hedge against inflation. The past few years have seen a significantly increased demand for this metal – in turn, increasing its value even further. Coupling gold’s many benefits with the tax advantages of IRA investing, can make this metal a great alternative over other more volatile investment options such as stocks and mutual funds.
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