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Gold has been used for countless generations to preserve wealth. In modern times gold has been used as a way to diversify portfolio risk because gold is sought out as a safe haven during times of economic stress and geopolitical crisis.
During raging bull markets gold is often forgotten as the popularity of tech stocks, cryptocurrencies, SPACs (special purpose acquisitions companies, like Virgin Galactic), and whatever else happens to be popular, reaches the heights of mania.
When reality, volatility, and uncertainty creep back into the markets, investors suddenly "remember" the value and stability of owning physical gold and rush to buy-in.
This is why many of Vanguard's clients are wondering if a Gold IRA is a good idea.
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Founded in 1975, Vanguard is a huge American-based investment advisor with trillions of dollars under management.
Vanguard is known as one of the Big Three index fund managers, along with State Street and Blackrock, the three of which basically own every large corporation in America.
They are also an investing platform that offers a myriad of products including mutual funds, exchange-traded funds (ETFs), and much more.
While Vanguard does have services for investors that need to roll over their 401(k), 403(b), or IRA, they do not offer investors IRAs that are allowed to hold physical gold and other precious metals.
What is a Gold IRA?
A gold IRA is a particular type of self-directed IRA (SDIRA) that is allowed to hold physical gold, silver, platinum, and palladium, in both bars and coins, in a savings account for your retirement.
While they are allowed to hold other metals besides gold, gold is by far the most popular and so these accounts are often called Gold IRAs or Precious Metal IRAs.
These types of tax-protected savings accounts are sought out by prudent investors that want to diversify their retirement investments and hedge against that silent thief known as inflation.
Similar to traditional IRAs, gold IRAs can be created as either traditional (pre-income tax) or Roth (after income taxed) accounts.
Your contributions, disbursements, and taxes are nearly identical to the rules of regular IRAs with the unique difference that you can take your disbursements in the physical metal, instead of cash, if you choose.
These special accounts must be set up with gold IRA custodians that are approved by the IRS to hold precious metals on your behalf.
Although there are some intricacies you need to be aware of when setting up these accounts, it can be well worth the effort because a gold IRA can protect your retirement against stock market declines, geopolitical tensions, and reckless government money printing.
Benefits of a Gold IRA
Owning physical gold and precious metals can benefit your retirement portfolio because the value of your gold is usually uncorrelated to other assets like stocks, real estate, and bonds.
Owning physical gold inside of a self-directed IRA has additional benefits in that it allows your assets to grow on a tax-advantaged basis (you don't pay tax until you retire when you're at a lower tax bracket) or tax-free if you choose to go with a Roth account.
The tax advantages also extend to rollovers and transfers. If you have an old 401k or IRA from a former employer, you can roll it over into a gold IRA without triggering any tax penalties, as long as you follow the IRS-specific requirements.
While this is not difficult to do, there are important steps to take, and we recommend that you speak with an advisor that specializes in gold IRA rollovers and transfers, so you avoid tax penalties.
The main reasons that smart investors choose to own physical precious metals inside of Gold IRA are:
Historically when gold enters a bull market, it lasts for about 10 years. We are currently in the third year of this bull market. What really moves bull markets are catalysts.
This current gold bull market has all the catalysts a gold investor could want: financial uncertainty, shortages in everything including commodities, wars, reckless fiscal and monetary policies from all governments, and levels of inflation that investors haven't seen in 40 years.
These are goldilocks conditions (pardon the pun) for owning gold.
Gold is real money that cannot go to zero, unlike paper stocks and government promises. Gold hedges your risk to inflation and governments that think the only solution to a problem is to print more money.
All societies throughout history have valued gold, it is inherent to human nature. The gold market is vast with a huge amount of liquidity.
For these reasons and more gold's value tends to go up when financial markets go down, thereby smoothing out the returns in a balanced retirement portfolio.
ETFs vs. Physical Gold
You can invest in gold with an exchange-traded fund (ETF) which is also considered "paper gold", but there is no substitute for investing in physical precious metals.
The risk to ETFs is that they are created by Wall Street and while they may track the spot price of physical gold, they are riddled with loopholes and escape clauses that remove any liability from the company that issues the ETF.
If you read and understand an ETF's prospectus, you'll see that the ETF shareholders do not have any rights of redemption. What this means in plain English is that the investors don’t own gold, but rather a third-party liability that is backed by gold.
And if there comes a time of real crisis, the situation may demand that your wealth depends on not only having exposure to the price of gold but also the ability to have it in your possession.
There are numerous recent scandals of ETFs suspending redemptions and restricting shareholders from the asset giving the investors zero advanced notice. You can find more info on these kinds of incidents with an internet search for: "iShares Gold Trust (IAU) March 2016".
ETFs are good for high-frequency traders, not long-term investors. And there is another problem, if you trade a gold ETF, you get hit with 28% taxes because the IRS considers gold as a collectible and taxes it as such.
If you'd like to avoid the theft of 28% of your gold, a much better idea is to hold physical gold in a precious metals IRA.
What Is a Self-Directed IRA?
A self-directed IRA is a saving account that takes power away from Wall Street and its overpriced mutual funds and gives control back to the investor.
Just like regular 401k and IRA's a SDIRA gives the same tax protections to the investor that allow your money to grow tax-free in a Roth account or tax minimized in a regular account. The main difference between a SDIRA and a regular IRA are:
1. Ability to invest in a wide range of assets, not just stocks and bonds
2. Control over your retirement portfolio
With a SDIRA you are allowed to invest in:
-Gold and other precious metals
-commodity right like oil and gas
-and much more.
With the added benefits of a self-directed IRA come added responsibilities. You are liable if there are errors that go against the IRS regulations. This is why it's important to partner with a company that specializes in working with investors to set up SDIRAs.
How Does a Gold IRA Work?
A gold IRA works the same way as any tax-advantaged retirement account with the added benefit that you are allowed to invest in gold, silver, platinum, and palladium coins, bars, and ingots.
Not all precious metals are allowed in a Gold or Precious Metals IRA. To be eligible each piece of precious metal bar, coin, or ingot must meet specific fineness requirements of purity as stated by the IRS.
Gold IRAs also have the same annual contribution limits as traditional retirement accounts. And finally, one of the best features of this type of account is that when it comes time to take your required minimum disbursement, you can choose to take that in cash, or the physical precious metal.
Types of Gold IRA Accounts
The three different types of gold IRA accounts are just like the three most popular regular retirement accounts, each with slightly different tax benefits.
Regular Gold IRA
A regular gold IRA account is similar to a traditional tax-deferred savings account in that your money has not been taxed as income and any gains will not be taxed. Also, there are many situations where contributions to your account are tax-deductible.
Currently, the contribution limits on a traditional gold IRA are capped at $5,500 if you are under 50 years of age and $6,500 if you are above 50.
Gold Roth IRA
A gold Roth IRA is a tax-advantaged retirement account that you can contribute to with money that has already been taxed via income tax. Your contribution and any gains grow tax-free.
When it's time to make withdrawals after the age of 59 1/2, your withdrawals are free of any penalties and taxes.
There are zero required minimum distributions so that your nest egg can grow even during retirement. You have the control and get to decide when to withdraw your tax-free money.
A little-known benefit is that there's no income tax in Roth IRAs that are passed on through inheritance. Your heirs will be able to make tax-free withdrawals.
SEP Gold IRA
Simplified Employee Pension (SEP) Gold IRA lets employers of any size, even small businesses and the self-employed, contribute to traditional IRAs (SEP-IRAs) set up for employees.
These accounts are good for small businesses because they are simple to create and allow the business to make tax-deductible contributions to their employee's retirement accounts.
What Precious Metals Are Eligible for Gold IRAs?
Not all precious metals are eligible for precious metals IRAs. For example, the IRS mandates that gold must be fineness, or purity, of at least 99.5% or higher. Some examples include:
American Gold Eagle coin 1 oz.
American Buffalo coin 1 oz.
Canadian Maple Leaf coin 1 oz.
Austrian Philharmonic coin 1 oz.
Australian Kangaroo coin 1 oz.
Various Bars & Rounds
Silver has slightly different requirements in that coins and bullion must be 99.9% fineness or higher. Some examples include:
American Silver Eagle coin 1 oz.
Mexican Libertad coin 1 oz.
Canadian Maple Leaf coin 1 oz.
Austrian Philharmonic coin 1 oz.
Various Bar and Rounds
Platinum and Palladium both must meet the minimum requirements of 99.95%. Some examples include:
Canadian Maple Leaf coin 1 oz.
Various Bar and Rounds
Precious metals IRA's are limited to only gold, silver, platinum, and palladium. There are many more examples than listed above.
How to Fund Your Gold IRA
There are three main ways to fund your precious metals IRA and they are all fairly simple.
A rollover from a 401k or another of the various qualified savings accounts is the most popular way to fund an IRA. This method also allows your money to remain tax protected, as long as you follow the rules per the IRS.
You are only allowed to do this with a 401k from a former, not current, employer.
Your new self-directed IRA that can hold physical gold can be funded by simply transferring an old IRA to your new one.
All you have to do is fill out a form with your IRA custodian and they can handle the process for you and make sure that the process is completed in accordance with IRS rules so you do not incur taxes and penalties.
This is straightforward. You can make money and add it into your account via check or direct deposit. The way your contribution will be taxed depends on the type of account you are funding, whether it's traditional, or Roth.
As always, it's important to work with a company that specializes in these types of transactions so that you do not make an error and end up with costly taxes and penalties from the government.
Depository Storage Facility for IRA
Depository storage is a third-party facility that holds precious metals on your behalf. These are high-security facilities that have round-the-clock security and are 100% insured against any loss be it theft, damage, natural disasters, etc.
Think of a James Bond movie when thinking about the level of security at these places.
You have to use these third-party facilities because just like a regular IRA the IRS demands that your retirement account is managed by an approved custodian. Do not fall into the mistake of storing your IRA gold at home, that is a great way to lose money in taxes and penalties.
Again, choosing your depository is a bit complicated, so it's best to work with a company that specializes in these types of accounts.
Withdrawal Rules for Gold IRA's
When it comes to withdrawal regulations for gold IRAs the important thing to remember is that they are almost exactly the same as those for regular IRAs.
- If you make a withdrawal before the age of 59 1/2, you get hit with a 10% penalty, and the IRS treats that money as income so you get taxed on that too. Avoid this if at all possible.
- While you can start taking distributions after 59 1/2, you are not required to take distributions (RMD) until 70 1/2.
- Cash Distribution is the most common way to receive your payment and this can be via check or direct deposit and your metals are sold at the current market price to make this payment.
- Physical Precious Metals Distribution is one of the unique benefits of these accounts. Your bars and or coins can be sent directly, and discreetly, to your home or wherever you choose.
We live in dangerous times. There is so much instability and governments are starting to crack under the weight of their own terrible decisions.
The inflation they have unleashed is tearing through hard-working Americans' savings accounts and there are no repercussions for those that made the horrible decisions that created this mess.
That is why so many people are looking to see if Vanguard has an IRA that can hold physical gold. Unfortunately for Vanguard, this is not a service they offer.
Fortunately for investors, there are other great options to choose from if you want to take control of the situation and defend your retirement with a Gold IRA.
You can get a Free Gold Investors Guide from our top gold and precious metals company recommendation by clicking the link above or you can read our article of the top companies we reviewed this year:
Or, if you like what you have read about Vanguard, you can go to their website below: