Today I want to talk about gold IRAs and 4 cons if you’re thinking about owning or buying one.
Now overall I think that having a Gold IRA goes against some of the great reasons to own the precious metal. To start, it’s important to have money outside the system in your control (Read about Gold and the Great Recession here).
So let me get into the 4 disadvantages of having one and these are reasons I don’t think people are aware of.
(1)The first disadvantage is that physical gold held in an IRA must be stored in an IRS-approved depository. To me, the fact that it must be government approved here definitely makes me nervous. We hear people talk about a potential gold confiscation down the road, and I’m absolutely positive if that were to happen, we would see the government come and get this gold first. And the account owners would probably be made whole in cash, but basically, they would never get the asset. Even if a private business owned the depository, I think the government would come in and buy out the gold. They would either force a sale or get an offer too good to pass up.
(2) The second disadvantage is around distributions and that there is a penalty (usually 10%) if I withdraw before age 59.5. Here, if you’re owning stocks or bonds an IRA can make sense because you’re getting that tax deferral each year. Normally you’re going to have to pay capital gains on holding things like stocks each year and it can eat away at your returns. But gold or other precious metals isn’t something that you should have to pay taxes on each year. The government in this situation is getting you multiple ways: ordinary income tax if you withdraw and then getting you with a penalty if you need it early And let’s be real here, anything can happen over the long term, a person can lose their job, or a family member can have a health situation come up. And this leads me to my 3rd disadvantage.
(3) Gold IRAs require a RMD or required minimum distribution. And essentially here the govt is trying to get taxes here on the money/gold before you pass away (What is fractional gold?). It begins at age 70.5 and the amount required to take goes up every year. There are several things that bother me with this. First, the government is trying to treat the capital gains of the gold as an investment but it’s really not. Think about it. The account value increases from the gold are really preserving purchasing power because gold is real money. Gold keeps up with the cost of living. The government is essentially saying we know you lose money every year because we cause inflation, and we’re not going to let you try to combat your loss of purchasing power even though you could by holding gold (and other precious metals too).
(4) The 4th disadvantage about gold IRAs are the high fees you incur, and almost always the fees are higher fees than a traditional or Roth IRA that invests solely in stocks, bonds or mutual funds. And these fees are going to essentially eat into your gold value every year. To me, it’s basically you’re paying for security and storage. There’s no other strong reason to be paying these. And there are various fees charged to your account, like custodian fees, storage costs and even cash out fees at many places. There can also be setup costs along with some sellers’ fees charged, or commissions.
Of course, some people might want to own gold but maybe they are not able to take ownership. If you travel a lot or live in a dangerous area this surely is understandable to me. It’s possible to get the funds in gold and not cash, so this can make sense.
Now some people might have both, a Gold IRA with a firm and gold at home, and having both can be great from a diversification perspective.
To me though one of the greatest advantages of gold or silver is that you have real money outside the system. No worries about taxes each year, insurance in a SHTF scenario (7 prepping tips) and an inflation and deflation hedge.
Thanks.
