Gold IRA vs Physical Gold

Gold IRA vs Physical Gold

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Many professional investors consider gold an essential component of a portfolio, especially in today's hectic economy. With the market fluctuations from pandemics, political unrest, and natural disasters, more and more people are turning to precious metals.

Gold investments confer multiple benefits when used as part of a balanced portfolio. They are largely an investment that helps with your security. When the stock market crashes, the price of gold tends to go up. You can buy enough to weather the economic turbulence while waiting for your other investments to stabilize.

But there are many different ways to invest in gold. So which one is the best? And what do you need to know about each?

Investing Fully in Gold

Gold IRA vs Physical Gold

Everybody knows that you can buy gold pieces on the market. Some are scrap metal or jewelry, while others are investment-grade bullion. If you're making decisions for your portfolio, it's always a good idea to go for pure bullion above jewelry or other items. Bullion is priced based on the value of gold, while other objects have a more speculative price range.

But there's even more to the situation than that. In addition to buying actual gold, there are also types of gold investments that are set up differently. Some examples include:

  • Buying stock in a mining company or refinery, so you earn a share of the profits when gold prices are high.
  • Investing in a gold ETF, a type of mutual fund that involves speculatively purchasing gold based on its on-paper value.
  • Investing in a gold mutual fund, in which you and several other investors all own one small piece of a gold item.
  • Signing up for an automatic investment service, so you put a certain amount toward gold each month and receive a coin when you pass the price threshold.

Many of these options come with their own advantages, but they're also very risky. The risk is significantly heightened when compared to simply buying physical gold with cash or IRA funds. Since most people invest in gold as a safe and secure hedge against volatility, these options might not give you what you're looking for.

For example, a stock purchase is subject to many pitfalls outside of the price of gold itself. What if the company is poorly managed? What if one or more of the mining projects falls through? What if there isn't any room for growth? What if the company is edged out by a competitor and stops making money?

The cost of a stock share is typically much more than the dividends you'll receive profit-wise. So you stand to lose your entire investment if the company goes under.

There's also danger in buying any gold that you don't fully, 100% own. You need a guarantee of your full ownership. If an ETF goes under, the paper you bought means absolutely nothing. If a mutual fund fails, you can't pull your money out, because you only own a fraction of the gold inside.

But if you buy pure bullion straight-up, then you won't have any of those issues. You will have a tangible asset that grows in value as inflation increases. It's a good way of protecting your dollars on a long-term basis. If you hold onto the gold for a decade or longer, you can often sell it for a profit.

Purchasing physical gold and investing in a gold IRA both give you these benefits. So now here's an important question: What's the difference between a gold IRA and a physical gold purchase?

About Gold IRAs

Gold IRA vs Physical Gold

To answer this question, you need to understand exactly what a gold IRA is.

In 1997, the IRS introduced new legislation regarding retirement accounts. Part of this legislation made it legal to hold gold, silver, palladium, and platinum in a retirement account. Since these are alternative assets, you need to open a self-directed IRA to do so.

You'll buy gold using your saved retirement funds. Then that gold will be shipped to a storage facility and cared for by a custodian. It is a piece of your retirement. You are the sole owner, so even if the depository goes under, you won't lose your investment.

It's basically the same as having retirement funds, except they're gold rather than liquid cash. When you're ready to take distributions, you can either sell the gold and take cash, or you can have the gold itself shipped to you.

You will be making a purchase of pure bullion using your retirement savings. This investment is tangible, unlike the stock market.

So what exactly is the difference between buying gold with your IRA and buying gold with your cash savings?

Source of the Funds

Gold IRA vs Physical Gold

The biggest difference between purchasing physical gold and purchasing a gold IRA is in the funds that you use. With a gold IRA, your funds will be sourced from your retirement savings. You'll roll over money from your existing accounts into a self-directed IRA, then use that money to buy gold.

Because you're using tax-advantaged retirement savings, there are tons of strict IRS regulations. You have to comply with certain rules regarding what you buy, how you buy it, where you store it, and how you report it.

With physical gold purchases, you'll be using your cash savings to make the purchase. Many people don't have enough in their savings to do this, so they use their retirement funds instead. But if you do have your own personal investment portfolio, it's worth putting a portion into gold to balance the assets.

Physical gold purchases aren't subject to the same IRS regulations, and they can be sold at any time. There's a lot less red tape. You also have more freedom, since you don't need to ensure that your items all comply with IRS regulations. If you're not sure what to buy, though, IRA-eligible bullion is always a solid bet. These coins and bars are made from pure gold, and they're very easy to liquidate.

Regulations and Requirements

Gold IRA vs Physical Gold

A gold IRA has multiple regulations and requirements to comply with. A cash purchase of physical gold doesn't have these same requirements. If you use your savings to buy precious metals, you can have them delivered right to your house. If you want, you can store them in your home.

Gold IRAs, on the other hand, have extremely specific rules. In fact, the rules might seem so complex that you'll struggle to parse them. There's a lot of paperwork that must be filed, and a lot of choices that must be made about how and where to store your account. A gold IRA company will typically help you with this paperwork to make sure you've complied fully with all of the requirements.

Some of the requirements for a gold IRA are as follows:

  • The items purchased must meet a certain level of purity.
  • Coins must be created by sovereign mints and pre-approved by the IRS.
  • Collectible coins, historical rarities, and numismatics are not allowed, since their value is speculative.
  • Jewelry and scrap metal are not allowed for the same reason.
  • You must buy the gold with your retirement funds, rather than entering already-owned gold into your account.
  • Your gold must be stored in a secure depository and cared for by a licensed IRA custodian.

As for the paperwork, you'll need to apply to create a self-directed IRA, communicate with your custodian, and file paperwork to transfer funds from your current retirement account. This needs to happen within 60 days of opening the account, or you'll be penalized by the IRS.

The account is also subject to the same rules as any other individual retirement account. You cannot take distributions until you're 59 and a half years old, or you'll be penalized. You must pay taxes on the distributions, since the income wasn't taxed originally.

A physical gold purchase is much less complicated. But if you aren't careful, that can make it much less secure. Home storage is risky, as is having valuable packages sent to your doorstep. You might consider taking some of the same security measures that are required for an IRA.

Storage Options

Gold IRA vs Physical Gold

With a cash purchase of physical gold, you can store your items literally anywhere. Many investors choose to keep their gold in a safe in their home. While a home safe might feel secure, it's highly vulnerable to natural disasters, break-ins, and other issues.

Other investors choose to keep their gold in a small safety deposit box with their bank. But there are some disadvantages to this as well. Though bank storage is more secure than home storage, banking systems do a lot of reporting and monitoring of your assets. Some people don't trust the banks to handle their money with care. Others are concerned about the government seizing the assets in a safety deposit box.

A licensed storage depository solves these issues. Many of these massive vaults are run by private corporations with extremely strict privacy policies. They may offer local and offshore storage alike. While you'll have to pay to keep the account open, you'll reap multiple benefits, such as frequent auditing and a full insurance policy. If anything at all happens to your items while they're in the depository's care, you can be fully reimbursed by your insurance.

That's why the IRS requires people to store their gold IRAs in one of these depositories. There are several specific security requirements that a facility must meet in order to be approved for IRA storage. Dozens of vaults in the US and hundreds of vaults worldwide meet these requirements.

Gold IRA companies often partner with a few specific storage companies. They have a small number of vault options, often in tax-advantaged areas like Delaware, Texas, and Singapore. But if you have a different vault in mind, these companies are often able to accommodate that.

A gold IRA company can set you up fully with a storage vault and a custodian without you needing to lift a finger. Instead of struggling to look through different custodial options, you simply choose one of the company's trusted partners.

Potential Fees

Gold IRA vs Physical Gold

The potential fees will vary depending on your IRA's specifics or your physical gold purchase's specifics. But IRAs have some guaranteed ongoing fees that physical purchases might not. With an IRA, you will pay annual fees:

  • To your custodian, since they're maintaining your account.
  • To your depository, since they're keeping your gold secure.

Many companies take a percentage of your holdings as a fee. But it's better to work with a flat-rate company instead. These charge the same amount for annual storage no matter what, so you always know exactly what you'll be paying.

A physical cash purchase does not involve a custodian, so you don't need to pay custodial maintenance fees. You also don't necessarily need to pay storage fees, but as mentioned, opening an account with a depository is a good idea.

Some IRA companies have a small setup fee as well, which you'll pay only once. This is to cover the labor necessary to manage your paperwork and talk to your custodian for you. The fee typically ranges from $50 to $200. More rarely, a company might have a percentage-based setup instead, taking fees based on the total amount of your investment.


Gold IRA vs Physical Gold

The liquidation process is also something to consider. Whether you're using cash or retirement funds, you want to be able to sell your gold as easily as possible. There are several gold IRA companies that have buyback programs, meaning that they'll buy your bullion back as soon as you're ready to liquidate.

You can sell the gold in your IRA at any time. But you can't take money out of the account until you reach retirement age.

When you sell a personal investment in gold, you get access to the money right away. But it may be harder to find a dealer willing to offer a fair price. That's why it's a good idea to use a gold dealer that offers buybacks, even if you're not making a retirement purchase.

Which Is Better?

Both cash purchases and IRA purchases of physical gold are a good investment. They have all the benefits of gold without any of the drawbacks of the stock market, mutual funds, or exchange traded funds. You'll need to wait for a while before you can sell the items for a profit, but they provide much-needed security and stability.

Gold IRAs are great if you have a significant number of retirement funds that you want to protect. They're an essential part of retirement planning. For younger people, they're a hedge against massive inflation. For older people, they're a hedge against stock market crashes. In both cases, you manage to protect part of your wealth against economic factors outside your control.

A gold IRA is more complicated to set up than a casual cash purchase. But if you work with a good gold IRA dealer, they'll smooth the entire process over.

Cash purchases are great if you have a personal investment portfolio that you want to diversify. While these savings are inaccessible to many Americans, they're vital to others. If you're sitting on savings for your business, your future, your children, potential emergencies, or anything else, then you might want the protection against inflation.

Our Top Picks for Gold IRAs and Physical Gold

As with any investment-related field, the gold industry is rife with unsavory characters. It's important that you only work with a company that's actually good. These are our top choices.

#1. Goldco


Goldco will handle the entire setup of your IRA for you. Not only will they do the paperwork, but they'll also talk to your custodian and your depository. You never need to speak to anyone except your company representative.

Their inventory is filled with gold and silver that can be purchased with cash or with your retirement funds. They also have promotions available to new customers.

Augusta Precious Metals

Augusta Precious Metals offers many of the same gold IRA services as Goldco, with similar streamlining and customer care. The one drawback is that they require a minimum of $50,000 to open a gold IRA with them. That's prohibitively expensive for some people.

However, their lifetime of service makes up for it. You'll get ongoing insights and answers to your questions, as well as the opportunity to participate in free one-on-one webinars with dedicated finance professionals.

American Hartford Gold

American Hartford Gold is a great option for those who are investing on a budget, whether you're buying with cash or with your retirement account.

They don't have any minimums to invest, nor do they have any setup fees. They'll even cover your storage and maintenance fees for up to three years if you meet a certain investment threshold!

Final Thoughts

Whether you use your retirement funds or your personal savings, gold is a vital piece of a balanced investment portfolio. It provides a vital hedge against inflation and performs well when the stock market is volatile. Many investors say that it's one of the best pieces that you can incorporate into your portfolio.

There are companies that offer both gold IRA services and gold for cash purchase. Our favorite option is Goldco. They have the most streamlined IRA services on the market, with a transparent fee structure that's hard to beat. And their inventory is robust, filled with different options for buying with cash.

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