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Last Updated on December 2, 2023
Gold has been a valuable asset and a symbol of wealth throughout human history. Today, it continues to be a popular investment choice for investors looking for an alternative to stocks, bonds, and other financial instruments.
One way to include gold in your investment portfolio is by holding it in an Individual Retirement Account (IRA).
IRAs provide tax advantages to investors, making them an ideal vehicle for long-term savings. In this article, we will explore the differences between gold coins and gold bars, discuss the eligibility requirements for each in an IRA, and help you determine which option is best for you.
Deciding How to Allocate the Gold in Your IRA
When deciding how to allocate golld in your IRA, it’s essential to consider your risk tolerance, investment objectives, and time horizon. Both gold coins and gold bars have their pros and cons, and the decision ultimately comes down to personal preference.
Gold coins can be a better choice for investors who value collectability, variety, and historical significance. Coins often carry a higher premium than gold bars due to their limited mintage, artistic designs, and historical value.
gold bars, on the other hand, can be more suitable for investors focused on the intrinsic value of gold and those seeking a more cost-effective way to invest in large quantities of the precious metal.
Bars typically have a lower premium than coins, making them more attractive for investors who prioritize cost efficiency.
IRA Eligible Gold Coins
To be eligible for your precious metals IRA, gold coins must meet certain criteria set by the Internal Revenue Service (IRS). Eligible gold coins must be at least 99.5% pure gold and should be legal tender in their country of origin.
Some popular gold coins that meet these requirements include:
- American Gold Eagle
- American Gold Buffalo
- Canadian Gold Maple Leaf
- South African Gold Krugerrand
- Austrian Gold Philharmonic
- Australian Gold Kangaroo
These coins are widely recognized and traded in the global market, making them a relatively liquid investment.
IRA Eligible Gold Bars
Like gold coins, gold bars must also meet specific IRS requirements to be eligible for your IRA. Gold bars must be at least 99.5% pure gold and manufactured by a refiner, assayer, or manufacturer that is accredited by COMEX, NYMEX, or another approved international organization.
Gold bars come in various sizes, ranging from 1 gram to 400 ounces. The most common sizes for investment purposes are 1, 10, and 100 ounces.
Some reputable gold bar manufacturers that meet the eligibility requirements include:
- Credit Suisse
- PAMP Suisse
- Perth Mint
- Royal Canadian Mint
Tax Advantages of Buying Collectible Gold Coins
Collectible gold coins can provide some tax advantages when held in an IRA. Capital gains on collectible coins are taxed at a maximum rate of 28%, which is lower than the 37% maximum tax rate for ordinary income.
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However, it’s essential to note that not all gold coins are considered collectible by the IRS. To qualify as a collectible, a coin must have a significant value above its gold content due to rarity, historical significance, or artistic merit.
As a result, only a small subset of gold coins can provide these tax advantages.
Other Factors to Consider When Deciding Between Gold Bars and Coins for Your IRA
- Storage and insurance costs: Gold bars typically take up less space and are easier to store than an equivalent value in gold coins. This can result in lower storage and insurance costs.
- Liquidity: Gold coins are generally more widely recognized and easier to sell than gold bars. This can make them more liquid in case you need to convert your investment into cash quickly.
- Premiums: Gold coins usually carry higher premiums compared to gold bars due to their collectibility, historical value, and intricate designs. If you’re looking for a more cost-effective option, gold bars might be a better choice.
- Diversification: Investing in gold coins can offer more diversification than gold bars due to the variety of coins available. This can help spread your risk and potentially enhance your investment returns.
How to Set Up a Gold IRA
To set up a gold IRA, follow these steps:
- Choose a self-directed IRA custodian: Unlike traditional IRAs, a self-directed IRA allows you to hold alternative investments such as gold. Select a custodian that specializes in self-directed IRAs and offers gold investment options.
- Open an account: Complete the required paperwork to open a self-directed IRA account. You’ll need to provide personal information, including your name, address, Social Security number, and other relevant details.
- Fund the account: You can fund your gold IRA by transferring funds from an existing IRA, rolling over a 401(k) or other qualified retirement plan, or making a direct contribution. Consult your financial advisor to determine the best funding method for your situation.
- Select your gold investment: Decide whether you want to invest in gold coins or gold bars, and choose the specific products that meet the IRS requirements.
- Arrange for storage: The IRS requires that physical gold held in an IRA be stored in an approved depository. Your IRA custodian can help you arrange for the storage of your gold investment.
- Monitor and manage your investment: Regularly review the performance of your gold IRA and make adjustments as needed to ensure it aligns with your investment objectives.
Deciding between gold coins and gold bars for your IRA is a personal choice that depends on your investment goals, risk tolerance, and preferences.
Both options have their advantages and disadvantages, but by considering the factors discussed in this article, you can make a more informed decision.
Gold coins offer collectibility, variety, and historical significance, while gold bars provide cost efficiency and are easier to store. Eligibility requirements for both gold coins and gold bars must be met for inclusion in an IRA. Collectible gold coins can offer some tax advantages, but these benefits only apply to a small subset of coins.
To set up a gold IRA, choose a self-directed IRA custodian, open an account, fund the account, select your gold investment, arrange for storage, and monitor and manage your investment.
By including gold in your IRA, you can diversify your retirement portfolio and potentially enhance your long-term investment returns.