Gold is sexy, and it has a low correlation of returns with other asset classes, which means it can hold its value or rise when other asset prices fall -- and it may fall when other assets rise. Gold bullion is one of the more exotic choices for owning gold. You may hold such assets in a self-directed retirement account, as long as you meet IRA eligibility requirements. However, unless you really want assets you can touch and see, bullion may not be the best way to take advantage of gold as a long-term investment.
While most people stick with stocks, bonds and mutual funds for their retirement plans, the IRS lets you invest in a smorgasbord of asset types through a self-directed IRA including real estate, private equity, mortgages, tax liens and certain types of precious metals. The average financial broker isn't equipped to handle most of these assets, which is why most people don't choose them for a retirement account. Contributions are subject to the same limitations governing regular IRAs, such as annual contribution limits and tax treatment.
One drawback of self-directed IRAs is that custodians can and do charge high fees for their services. Fees may run upward of $200 per year simply for required paperwork and record keeping. If you own gold bullion or coins, storage fees can run into the hundreds of dollars annually as well. You can't keep the stuff sitting around in the living room or the IRS considers it a distribution from your IRA -- you must, instead, pay a custodian to keep it for you. Management and holding fees come out of the value of your investment, rather than being paid separately, eating up a portion of each year's contribution. Some storage companies charge fees in grams of gold, so you can literally watch your balance dribble away.
Bullion vs. Other Formats
For a self-directed IRA, you may hold physical gold, defined as any gold coins minted by the U.S. Treasury, Canadian gold maple leaf coins, and bars that are 99.9 percent pure. However, bullion is not the only way to tap into gold's financial power. Consider other forms if your main goal is to hold an asset that keeps its value in a down market. You can invest in gold exchange-traded funds, which are sold and managed by investment firms like Barclays, iShares or State Street's SPDRs. While gold purists argue against such funds because of management overhead, holding securities lets you avoid storage fees.
Do More Homework
You already know to check into any investment before you send money. With gold bullion and a self-directed IRA, you're working at a whole new level of potential pitfalls. Check out your intended trustee or custodian carefully before setting up your account, and make sure the gold dealer and storage company don't charge excessive commissions or storage fees. in other words, check references and shop around.
- Business Week: Blaze Your Own IRA Trail
- IRS.gov: Retirement Topics - Participant-Directed Accounts
- IRS.gov: Publication 590 (Individual Retirement Accounts)
- New York Times: Exotic I.R.A.’s: Leaving Stocks and Bonds Behind
- CBS Money Watch: How to Invest in Gold
- Seeking Alpha: The Economic Case For Gold In Your Portfolio
- Stockbyte/Stockbyte/Getty Images
- Taking a Hardship Withdrawal Without Dinging Credit
- Differences Between a 401(k) & 403(b) Retirement Plan
- The Tax Advantages of Working Over Age 60
- How Do Interest Rates Affect Retirement Plans?
- What to Do If You Have Saved Nothing for Retirement
- How to Collect My Share of Retirement When Divorced
- What Are My Retirement Plan Options If I Have No Plan Through My Employer?
- Can Gold Bullion Be Held in a Retirement Plan?
- Hedge Funds & Retirement Planning
- When Can You Withdraw From a 457 Deferred Compensation Plan?