How Do Gold Investment Companies Work?

Gold investment companies began to grow in popularity starting in the late 1990s. It was in 1997 that Bill Clinton signed an act passed by the United States Congress called the Tax Payer Relief Act. This new act allowed investors to put their IRA towards gold, palladium, platinum, and silver. This was in contrast to the previous arrangement that only allowed investment in stocks, bonds, and mutual funds.

how gold investment companies work

This act received a lot of praise and sparked a surge in the precious metals market. Many investors preferred the security and reliability of precious metals compared to a stock market that was often volatile and risky. Today, there are dozens of gold investment companies across the country. Most of them specialize in IRA investments, though, of course, they often handle non-IRA investments as well.

How A Gold IRA Works

For the most part, a gold IRA is no different than your standard IRA. Only, instead of holding assets on paper, you hold a physical commodity. The gold is usually purchased in the form of bullion or bars. The physical gold is then stored in an approved facility.

Most gold IRAs are not strictly limited to precious metals. They are often a form of self-directed IRAs, which will allow for a very diverse investment account. It may include other types of accounts as well such as a 401k or an HSA.

Types Of Gold Allowed In The Account – Collectible Gold Exclusion

Only select metals are approved by the IRS for use in an IRA account. These metals are most often seen in the form of bullion, though gold bars are not entirely uncommon. Investing in collectible gold bullion is not permitted by the IRS. However, this restriction can be circumvented in rare cases where the bullion meets very specific requirements outlined by the IRS.

As mentioned, gold bars are sometimes used in these investment accounts. There are a few reasons why doing so is not advised. First, the bars are large and expensive, which can make them difficult to sell when that time comes. Second, the bars are easier to counterfeit. Third, the bars are more difficult to transport in high volumes due to their weight. This often results in a need for more security and higher costs.

Where Is The Gold Stored?

The holder of the account does not keep their gold with them or in some safe at their house. The precious metal must remain with a qualified custodian or a trustee. The IRS defines such as a bank, a savings association, a loan association, a credit union that is federally insured, or an organization that has received an individual certification from the IRS.

The owner of the IRA may not have a say in where the gold is stored. It will depend entirely on the type of IRA that they are using. For example, a self-storage IRA gives them a great deal of control over the storage location of the gold.

Using a gold investment company is a great way to diversify an IRA portfolio and make up for certain risks that come from dealing with the stock market. It is a safe way to secure funds for the future without requiring a business degree.