In countries all over the world, gold has been considered a status symbol, investment, and even a currency for thousands of years. In times of economic volatility, many investors take a closer look at gold to provide a feeling of “safe haven”.
Gold was once used to back a country’s currency and this was referred to as the gold standard. “The gold standard is not currently used by any government” (Lioudis, 2020). Today many countries use what is called fiat money. “Fiat money is a government-issued currency that isn’t backed by a commodity such as gold”(Chen, 2020).
Gold bars or coins
Physical gold is fashioned as bars or coins. The United States Mint produces the American Gold Eagle. “Visit the Bullion Dealer Locator to locate a dealer – bullion coins are not sold directly by the U.S. Mint” (American Eagle Coins). Buyer beware, physical gold may come with cost in addition to purchase price; such as, dealer mark up, insurance, and storage (Folger, 2020).
Gold ETF’s (exchange-traded funds)
If the idea of holding gold in physical status is daunting, an investor may choose a gold commodity exchange-traded fund. ETF’s are bought and sold on a stock exchange. ETF’s do have an expense ratio. “An expense ratio is the recurring annual fee charged by funds to cover its management expenses and administrative costs” (Folger, 2020). ETF expense ratios are ordinarily far less expensive than the expenses of holding gold physically. Not all ETF’s are backed directly by physical gold. When they are, the gold may be held in countries other than the U.S.A.
Can I hold gold in my IRA?
The IRS does not allow collectibles to be held in an IRA (Individual Retirement Account). “If you invest your IRA in collectibles, the amount invested is considered distributed in the year invested and you may have to pay a 10% additional tax on early distributions” (2020 irs.gov). The IRS deems gold to be a collectible. The United States Mint produces the American Gold Eagle which “defines purity standards for gold” (Avenue, 2017). The American Gold Eagle coin is an exception to the IRS collectibles rule. The reason the IRS has excluded most collectibles from being used in an IRA is to protect stolen artwork and to reduce incidence of tax gain shield.
Gold can be an important hedge against economic volatility; however, holders face cost and storage expenses. Both physical gold and ETF’s provide common vehicles for holding gold investments for general investment purposes, but the IRS frowns on holding gold in IRA’s. They limit the acceptable means of holding physical gold to US Mint American Gold Eagle coins.
About the Author
My name is Marianne Martini Nolte, CFP® As a Certified Financial Planner™ practitioner, I provide fee-only fiduciary financial advice and services. I work with women of all ages and stages of life and I have a passion for working with young investors just starting on their path to financial independence. This article is intended as a high level view. For more in depth information, please reach out:
Marianne Martini Nolte, CFP®
Imagine Financial Services
Phone, (760) 846-2569.
American Eagle Coins. (n.d.). Retrieved August 21, 2020, from https://catalog.usmint.gov/coins/coin-programs/american-eagle-coins/
Avenue, N. (2017, June 18). Think Twice Before Opening A Gold Or Silver IRA. Retrieved August 21, 2020, from https://www.forbes.com/sites/nextavenue/2017/06/18/think-twice-before-opening-a-gold-or-silver-ira/
Chen, J. (2020, August 15). Fiat Money. Retrieved August 21, 2020, from https://www.investopedia.com/terms/f/fiatmoney.asp
Folger, J. (2020, June 10). The Most Affordable Way to Buy Gold: Physical Gold or ETFs? Retrieved August 21, 2020, from https://www.investopedia.com/articles/investing/031913/most-affordable-way-buy-gold-physical-gold-or-etfs.asp
Lioudis, N. (2020, January 29). What is the Gold Standard? Retrieved August 21, 2020, from https://www.investopedia.com/ask/answers/09/gold-standard.asp
Retirement Plans FAQs regarding IRAs Investments: Internal Revenue Service. (2020, January 15). Retrieved August 21, 2020, from https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-investments
IMAGINE FINANCIAL SERVICES is an Investment Advisor registered with the State of California. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services.
The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the information cannot be guaranteed.
Exchange-traded funds and mutual funds are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospects carefully before deciding whether to invest.