How Does A Gold Backed IRA Work?

In this article, you will learn every single thing that you need to know when it comes to how a gold-backed IRA works today. For those who are retired or ready to retire, this is certainly an important topic. After reading the article, you will understand how gold IRAs work, the different types of options, the steps for setting an account up, the pros and cons, and lastly the answers to the most common questions about the whole process. Let’s get started…

How Gold-Backed IRAs Work

Do you want to protect your hard-earned financial assets? Are you planning to invest in gold IRA and other precious metals? Then, this post is for you!

Like mutual funds, gold is considered by many investors as a haven asset. After all, it can hold its value over time. Including gold alongside other precious metals in the retirement portfolio potentially protects savings from inflation and provides a hedge against economic uncertainties.

Remember, physical gold and other precious metals can retain their value and be trusted to preserve the wealth that paper assets cannot. The Internal Revenue Service (IRS) is responsible for regulating and controlling the products added to the precious metals-backed IRA.

If you are new to the gold IRA world, this guide will walk you through understanding how gold-backed IRAs work, their types, the risks, and more!

Gold IRA Overview

A gold IRA refers to a specialized IRA allowing investors to hold physical gold as a qualified retirement investment. It should be held separately from traditional retirement accounts. However, the rules involving distributions, contribution limits, etc., remain the same.

Investors with gold IRAs can hold their physical metals, like coins or billions, and precious metals-related securities within their portfolios. Also, they must open gold IRAs through a trusted broker-dealer or other custodians.

Understanding Gold IRAs

Individuals who want to save for retirement consider individual retirement accounts, which are tax-advantaged accounts. These accounts come in different forms, such as gold IRAs, Roth IRAs, and traditional IRAs.

Gold IRAs, also called precious metals IRAS, enable investors to stash money in silver, gold, platinum, and palladium. They can either be set up as Roth IRAs, purchased with post-tax money, or set up with pretax funds.

These accounts require physical gold purchase and storage. This requires gold IRAs to use a custodian, often a brokerage firm or a bank that manages the account.

Furthermore, traditional IRAs enable investors to hold only mutual funds, stocks, and other traditional investors. But the IRS allows self-directed IRA account holders to buy coins and bars minted from gold and other approved physical precious metals, including silver, platinum, and palladium.

Below are gold-related paper investments where gold IRA funds can be invested in:

  • Precious metals commodity futures
  • Precious metals mutual funds
  • Stock in gold mining firms
  • Exchange-traded funds

What are the Different Gold IRA Types?

Like traditional investment accounts, gold IRAs have different forms, such as:

Traditional Gold IRA

The traditional Gold IRA is a retirement account funded with pretax dollars. So, the contributions and other earnings will grow on a tax-deferred basis. All withdrawals from a traditional gold IRA account are taxed at retirement.

Roth Gold IRA

A Roth gold IRA does not involve immediate tax advantage. This is because contributions made to this gold IRA are funded with after-tax money. Investors have to pay taxes once they start taking distributions during retirement.


A SEP gold IRA is available to self-employed individuals or small business employees, like traditional SEP IRAs. Investors are only taxed on their withdrawals at retirement instead of the contributions they make. The IRA can limit SEP IRA contributions.

For example, investors can set aside up to $61,000 or 25% of compensation for 2022 and $66,000 for 2023.

How Does a Gold IRA Exactly Work?

Here are the steps in starting a gold IRA investment, which help better understand how a gold IRA exactly works:

Step 1: Look for a Custodian

Most brokers and custodians that invest in traditional assets that open mainstream IRAs do not have the capacity to open and operate SDIRAs, including gold IRAs.

So, the first step to operating a gold IRA is to find a trustee or custodian that provides gold IRAs. Some popular gold IRA companies include Oxford Gold Group, Gold Alliance, Goldco, Red Rock Secured, Birch Gold Group, Orion Metal Exchange, etc.

While these gold IRA companies can help individuals to open a gold IRA account, they still need to consider some factors, such as accountability, transparency, customer support, track record, fees, etc.

Step 2: Fund the Gold IRA

Now, it’s time for the investors to fund their gold IRAs. They do it by contributing within the annual contribution limits. Investors younger than 50 should contribute $6,000, while those 50 or older should contribute $7,000.

Also, investors can roll their traditional IRA or 401(k) over into a gold IRA. All gold IRA rollovers follow similar rules applied for rolling over into a Roth IRA or traditional IRA.

For instance, pre-tax funds rolled into the Roth IRA are taxed before being converted into a Roth IRA. As with the pre-tax funds that are rolled into a traditional IRA, they are not taxed unless they are already withdrawn.

Step 3: Purchase Approved Gold

Strict rules about physical gold, as well as other precious metals, are set by the IRS. For example, silver should have 99.9% purity, palladium and platinum 99.95%, and gold bars 99.5% purity.

Here are other eligibility conditions:

  • The producer should be an assayer, refiner, or manufacturer certified by ISO 9000, TOCOM, LPPM, LBMA, LME, NYSE/Liffe, COMEX, NYMEX, or national government mint.
  • Bullion coins should be in brilliant uncirculated condition and free from any damage.
  • Small bullion bars should be produced to exact weight specifications (other than 100 oz palladium, 50 oz platinum, 1000 oz silver, and 100 oz and 400 oz gold bars.
  • Proof coins should be in excellent condition, in original and complete mint packaging, and include an authenticity certificate.

The IRS approved four precious metals types (silver, gold, palladium, and platinum) that investors can hold in a custom precious metals or gold IRA. However, only specific metal forms are allowed, including rounds, bars, bullion, and coins.

Also, the IRS has established fineness requirements for these products. This ensures that the precious metals are of high quality with potential long-term value. Gold bullions and coins should have a 99.5% fineness or higher.

Below are the IRA-eligible precious metals:

  • British Britannia (2013 or newer)
  • Chinese Panda Coins
  • Austrian Philharmonic Coins
  • Australian Kangaroo Coins
  • Canadian Polar Bear
  • Canadian Arctic Fox
  • Canadian Maple Leaf Coins
  • Canadian Polar Bear & Cub
  • American Eagle Proof and American Eagle Coins
  • American Buffalo Coins

Furthermore, silver coins and bullions should have a .999 fineness or higher, and here are the options:

  • Chinese Panda Coins
  • Austrian Philharmonic Coins
  • Australian Kookaburra Coins
  • British Britannia (2013 or newer)
  • Canadian Polar Bear & Cub
  • Canadian Polar Bear
  • Canadian Arctic Fox
  • Canadian Maple Leaf Coins
  • American Eagle Proof Coins
  • American Eagle Coins
  • American The Beautiful Coins

Platinum and Palladium should be 99.95 fineness, and the options are:

  • Platinum and palladium bars and rounds produced by a refinery approved by the NMEX or COMEX
  • Canadian Maple Leaf
  • American Eagle Proof Platinum Coins

Please note that the IRA allows gold coins, such as Canadian Maple Leaf, American Buffalo, American Gold Eagle, etc., but does not allow investment in British Sovereign or South African Krugerrand gold coins. The IRS also does not permit investment in different gold collectibles.

After discovering an approved gold IRA for purchase, investors can complete the transactions via a broker.

The trustee or custodian oversees the accounting, but the SEC dictates that they have no responsibility to the broker or gold seller that the investors use. While they can offer some recommendations, they are not held accountable for the investors’ decisions and choices.

Step 4: Use an Approved Precious Metal Depository

Investors cannot store silver, platinum, gold, or palladium just anywhere. That is why the IRA has approved specific depositories for that purpose.

Moreover, investors cannot take and store gold at home. If they store gold at home, the IRS considers it a withdrawal and subject to taxes if they are traditional gold IRAs. They are also subject to penalties if the withdrawal occurred before age 591/2.

Some IRS-approved depositories include CNT Depository, JPMorgan Chase, HSBC, Delaware Depository Service Company, etc.

Step 5: Make Withdrawals

Investors should follow particular rules to withdraw or sell the gold for cash, and these rules depend on whether the gold IRA is Roth or traditional.

If investors want to make withdrawals from their traditional gold IRAs, they should consider the following:

  • RMDs (required minimum distributions) set in at age 72
  • Withdrawals before age 591/2 come in 10% penalty
  • Every withdrawal, voluntary or required, is taxed

Meanwhile, for Roth Gold IRAs, here are some considerations:

  • No RMDs required
  • No taxation is required on withdrawals
  • Any withdrawal before age 591/2, as well as Roth IRA is 5 years old, come with a 10% penalty

Step 6: Keep Accounts

The trustee or custodian will keep accounts of new purchases and withdrawals.

Should You Open a Gold IRA Account?

An individual’s risk tolerance and financial goals can impact whether they should invest in a gold IRA or not.

When deciding, someone should consider different factors. Here are the pros and cons of opening a gold IRA account, which could help during the decision-making process.



Gold is preferred by many investors who want to diversify their retirement portfolio. This is because precious metal comes with a low correlation with bonds, stocks, paper assets, and other asset classes. It also behaves differently from other investments belonging to individual retirement accounts. This minimizes the overall investment risks.

Protection Against Inflation

As mentioned above, gold can potentially attract investors concerned about inflation as it has a long history of holding its value over time. Individuals who invest in gold can protect their savings from the purchasing power erosion that might occur with rising prices.


Expenses and Fees

A gold IRA usually comes with additional costs and fees, like transaction, storage, and custodial fees. Investors might also need to pay taxes. This is why reviewing the costs associated with gold IRAS and how they impact investment returns is critical.

Volatility and Risk

People should understand that approved precious metals, like gold, are never risk-free investments. Gold’s price can be volatile. It might also fluctuate over time. So, gold IRA investment should be one component in investment portfolio diversification.


How much physical gold can be held in a gold IRA account?

The IRS has no specifications with regard to the amount of precious metal someone can hold in a gold IRA account. On the other hand, there are some limits on the number of contributions an investor can make every year.

Please note that these limits might change each year. For 2022, the maximum gold IRA contribution limit is $6,000 for investors under 50 and $7,000 for investors 50 years old or older.

How much money is necessary to start a gold IRA account?

When starting a gold retirement account, investors will not deal with a specific minimum amount. However, most gold IRA companies provide a minimum initial investment requirement of between $5,000 and $10,000.

Some companies have higher minimums, while others have lower minimums, depending on their requirements and policies.

Also, it is critical to consider the costs and fees associated with gold IRA setup and maintenance and the potential benefits and risks of investing in precious metals.

Are self-directed IRAs good?

Self-directed IRAs provide the owners with greater control over their investment accounts. A trustee or custodian is responsible for managing these IRAs, but the owners are still responsible for making investment decisions. These IRAs also allow individuals to invest in a broader range of assets, including private businesses, precious metals, and real estate.

There are several self-directed IRA types, including solo 401 (k)s, Roth, and traditional. Each of these IRAs comes with unique rules and regulations. These IRAs can also be an excellent option for individuals comfortable making investment decisions. However, self-directed IRAs still come with additional responsibilities and risks.

Conclusion: Start A Gold IRA Account Today

Gold IRAs are retirement accounts that allow individuals to invest in gold and other precious metals. The potential investor should pick a custodian and purchase an asset through an accredited dealer to set up a gold IRA.

The custodian is responsible for keeping the precious metal in a secure storage facility or IRS-approved depository and managing it in the investor’s account. Distributions and contributions follow similar rules as traditional IRAs. Gold IRAs also protect against economic uncertainties and inflation and are attractive due to their diversification. They are an incredible option for individuals who want to protect their retirement savings.