How To Invest in Gold With a Roth IRA

Should you add gold to your retirement portfolio?

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A Roth IRA (individual retirement arrangement) is a popular investment tool for retirement savings, thanks to the tax advantages it provides. You pay income taxes on the funds you contribute to the account, but you don’t pay taxes on your investment earnings or distributions in retirement.

A Roth IRA also offers flexibility with the type of investments it can hold, but not all assets are easily accessible through IRAs. Certain gold assets are allowed to be held in IRAs, but not all brokerages provide that option.

In this article, we’ll review the rules for investing in gold with a Roth IRA, the advantages gold can bring to a retirement portfolio, and some alternative ways to invest in gold.

Key Takeaways

  • The IRS generally prohibits you from investing in collectibles like metals in an IRA, but there is an exception for certain gold assets.
  • While the IRS may technically allow you to hold gold in your Roth IRA, the custodian must physically hold onto the gold.
  • Some alternative methods for investing in gold are exchange-traded funds (ETFs) that invest in gold futures or companies in the gold industry.
  • One way to buy gold directly is through a self-directed IRA, which can hold an even greater variety of assets, including physical assets.

Buying Gold Directly With a Roth IRA

The IRS rules for investing in gold through an IRA are slightly complicated. Essentially, you cannot invest in gold through a Roth IRA because it is considered a “collectible.” The purchase of a collectible in an individually-directed account is treated as a distribution in the amount of the purchase price.

So if you purchased $1,000 of collectibles, the IRS would consider that to be a $1,000 distribution, and you would be taxed accordingly.

The IRS definition of a collection includes:

  • Works of art
  • Rugs or antiques
  • Metals or gems
  • Stamps or coins
  • Alcoholic beverages
  • Other tangible personal property the IRS deems to be a collectible

But, the IRS also has a few exceptions. Among them, certain gold, silver, platinum, and palladium bullion are excluded from the definition of “collectibles” as long as an approved non-bank trustee maintains physical possession. In other words, if you purchase gold in your Roth IRA, you can’t hold onto the physical bars or coins yourself.

In addition to IRS rules, you’ll also face rules set by the brokerage firms offering the Roth IRA accounts. Many traditional brokerage firms don’t allow you to purchase gold and hold it in your IRA. And those that do might limit the specific gold assets accepted.

Alternative Methods of Investing in Gold With a Roth IRA

While you can’t buy gold directly in most Roth IRAs, you can invest in gold in indirect ways to profit from gold price trends or broader industry trends.

“Investors in securities can invest in gold mining companies, gold processing companies, and even gold retailers,” David Frederick of First Bank told The Balance in an email. “As gold goes up, the values of these stocks go up as well.”

Another way to indirectly invest in gold is through gold exchange-traded funds (ETFs). Some of these funds also invest in the various companies in the gold industry, while others invest in gold futures contracts. 

But investing in gold ETFs doesn’t necessarily offer the same benefits as buying gold directly, Frederick said. 

“The purpose of investing in gold is twofold,” Frederick said. “First, gold as an asset has never dropped in value to $0. It is possible for any given stock or bond tied to gold to drop to $0, despite its ties to gold, with normal market effects, like poor business management or default on debt. The only way to really take advantage of gold’s intrinsic value is to own gold, not to own companies that work with gold.”

Another benefit of owning gold, which is considered a “safe haven asset,” is that when the stock market is down, gold can serve as a hedge against the economic downturn. But that doesn’t apply when you’re invested in gold ETFs rather than owning physical gold, Frederick said.

Self-Directed Gold IRAs

Many traditional brokerage firms don’t allow you to invest in gold through your Roth IRA. There is an alternative approach called a self-directed IRA

A self-directed IRA allows inventors to access many of the securities they can’t buy in a standard IRA. Those assets can include real estate, tax liens, and commodities like gold. There are companies that specialize in offering these self-directed accounts.

Self-directed IRA custodians can help individuals set up a precious metals IRA or Roth IRA. “These custodians work for a fee and their fee may be higher than brokerages that invest in the securities markets due to the need to physically purchase, store, and insure substantial amounts of precious metals,” Frederick said.

While self-directed IRAs offer the same tax benefits as any other IRA, they have increased risks. The investments in self-directed IRAs may have less disclosure and liquidity.

Self-directed IRAs may have a higher risk of fraud. The custodians and trustees of these accounts may not offer the same level of protection and due diligence as a traditional brokerage account, which leaves investors more vulnerable.

Should You Invest Retirement Funds in Gold?

Gold remains a popular investment choice as it can bring a number of advantages to a diversified portfolio. A 2021 Gallup poll found that gold ranks in the top three choices by Americans for best long-term investments along with real estate and stocks/mutual funds.

“I recommend all investors invest in a diversified portfolio,” Frederick said. “Gold and other commodities certainly have a place in such a diversified portfolio. But no one should put all their eggs in one basket, not even a golden basket.”

Gold can serve as a hedge against stock market volatility and downturns. The benefits of gold are most prevalent when you buy gold directly rather than investing in gold EFTs or companies within the gold industry, Frederick said. 

It’s important to understand the risks and downsides of buying gold before adding it to your portfolio. That includes the fact that its potential for gains isn’t as high as with other investment choices.

“While gold may have some downside stability, it just does not have the same upside as business investments,” Frederick said. Some potential downsides to consider are that, compared to other investment choices, gold does not: 

  • Have quarterly earnings
  • Distribute dividends
  • Buy out competitors to expand its market base
  • Develop new products or delivery methods
  • Expand operations into new and innovative markets

If you fully understand the risks and downsides, gold may be worth adding to your retirement portfolio. Consider consulting with a financial advisor who can offer suggestions for how gold can fit into your personal wealth plan.

Frequently Asked Questions (FAQs)

How do I sell physical gold assets held in a Roth IRA?

When you’re ready to sell the physical gold holdings in your Roth IRA, reach out to your brokerage firm. Whether you’re working with a traditional brokerage firm or have a self-directed IRA, your broker can provide you guidance on the next steps. Keep in mind that physical assets within a self-directed IRA often have less liquidity than you might find with stocks, meaning the sale may not happen immediately.

How do I fund a Roth IRA with gold?

To buy gold or any other asset in your Roth IRA, you’ll first have to fund the account. The process for funding a traditional brokerage account is fairly straightforward, and you’ll be able to set up a deposit from your bank account. For a self-directed IRA, the process to fund your account may depend on the custodian or trustee you work with.

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