Last Updated on March 17, 2024 by Ben
Choosing between a Gold IRA vs Roth IRA is not an easy decision. Both offer tax advantages, but there are some subtle differences that you should be aware of before making your choice. In this blog post, we will discuss the difference between a Gold IRA and Roth IRA account to help you make the right decision for you and your retirement plan!
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Gold IRA vs Roth IRA: What’s the Difference?
A Gold IRA is an IRS-approved type of retirement account where you’re able store your investments in precious metals such as coins and bullions–even during pre/post tax dollars! The best way to get started with this investment scheme is through setting up a special custodian who will help manage all aspects of purchasing these assets (including storage). The IRS also permits a self-directed IRA that buys gold as well as other types of coins, bars, and metals. Gold IRA also carry higher fees than other IRAs since they require buying and storing the actual metal.
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A Roth IRA is a special account where you pay taxes on money going in and then it’s free from taxes when you take it out. Roth IRAs are good when you think that your taxes will be higher when you retire than they are now. You cannot contribute to a Roth IRA if you make too much money. Roth IRAs are available from many companies in the financial industry.
The Roth IRA is an individual retirement account that offers tax-free growth and tax-free withdrawals in retirement. The Gold IRA, on the other hand, invests mainly in physical gold as well as precious metals like silver or platinum. A standard Roth IRA cannot invest in physical gold bullion (or any other approved metal). To invest in these metals through your IRA you must purchase stocks of mining companies or a mutual fund with shares from those types of companies. There are also ETFs which give you indirect access to investing in these types of assets indirectly.
What You Should Know About Gold IRA
Being able to invest in gold makes for a one-of-a kind opportunity. Gold IRAs are retirement accounts that allow you the chance to diversify your portfolio into physical metals or stocks, depending on what type of investment strategy best suits you.
The most important difference between traditional IRAs and Gold-IRAs has to do with what they are invested in – Traditional investments include stocks, bonds, mutual funds while Gold-IRAS invest exclusively in precious metals like silver or gold itself as well as other commodities related items such as platinum that enjoy an increasing popularity amongst investors today when considering various investment options available on the market these days.
Advantages of Gold IRA
The Gold IRA offers a number of advantages and it’s important to know what those are so you can make the best decision about how your retirement savings should be invested.
Hedge Against Inflation
Gold has always been used as a currency, making it the safest place for your retirement portfolio funds. While gold is in there you can lessen the chance of being affected by inflation or other forms of economic crises while still maintaining some liquidity on tap if needed.
Greater Control
You have little to no say in what you invest with a traditional IRA or 401 (k). A self-directed IRA is different from other investment accounts. You have more freedom with it. The ability for investors to buy and sell their holdings themselves rather than relying on someone else’s strategy. Gold IRAs are always self-directed, which means investors can take complete control of managing their retirement assets with more flexibility.
Tax Benefits
Gold IRAs offer a special tax treatment for the same reasons as standard IRAs: Contributions made to traditional self-directed IRAs are deductible and qualified withdrawals from Roth accounts are free of taxes.
Gold-backed IRAs are a great way to save for retirement because there’s no tax on gains as long as they stay put. This is true whether the gold is in its physical form or when it’s sold unless you withdraw from your account first.
Disadvantage of Gold IRA
While there are advantages to investing in gold, such as its stability over the years, there are also disadvantages that need to be considered before making this investment.
No Interest, Dividends, or Yields
Gold doesn’t pay dividends, interest, or other returns. You can only profit if the price goes up, and it’s also not guaranteed that increasing prices will even happen in the first place.
Higher Fees
You are not allowed to keep your gold in a bank’s safe deposit box or at your home. The only way to protect your gold is by keeping it with a custodian. The cost of buying, shipping, storing, and insuring gold in an IRA can cause the benefits to be outweighed by additional fees, which tends to be more expensive than regular IRAs management fees.
Fund Restrictions
You cannot move any gold or other precious metals that you already own into your Gold IRA. You are also not allowed to buy gold and send it directly over the account on behalf of yourself, a custodian must take care of all transactions for your sake.
Gold IRA’s Special Costs
Owning gold in a self-directed IRA means that you need to pay some extra expenses. These are some expenses that an investor will face:
The Seller’s Fee
Gold has several different types, such as coins and bullion. Each type is usually sold at a markup from its going rate of gold per ounce depending on the vendor or mint that produces it. Gold’s value also fluctuates so an investor might have to sell their physical gold for less than they bought it in order to account for this change in price.
Gold can be divided into many categories: bullions, proofs, etc., each with varying markups dependent upon whether you go through a broker or directly purchase them from your local shop (e.g., coin store).
Retirement Account Setup
The retirement account setup fee is a one-time charge to establish your new IRA account. This varies by institution but might be more than the usual set up fee because not all financial institutions offer gold IRAs.
Custodian Fees
These annual custodian fees (on top of all other expenses) may be higher for a Gold IRA type of account, especially if you have to go to different financial institutions other than the one holding your other accounts.
Storage Fees
A storage facility is needed so the gold can be properly held without fear of it being lost or stolen. Storage fees may apply for keeping the precious metal safe and sound.
Cash-out Costs
It is important to always remember that when you close out a gold IRA, the dealer will only pay what it goes for on the open market. Unless prices have risen significantly since you bought your shares of metal, then there’s likely going to be some lost capital involved in this transaction.
What You Should Know About Roth IRA
Roth IRAs are a tax-advantaged retirement account with some key differences from the traditional IRA. Whereas “traditional” IRAs have contributions that are both free of taxes and incorporate deferred growth, Roths receive distributions which can be taken without any taxation on them; those who contribute to their accounts only pay after-tax dollars into it. You will not deduct these contributions for your income at all (although you might save more in taxes later). It is now possible to continue contributing after the age of 70. You can avoid early withdrawal punishments, and this applies only if you were born on or before July 1, 2019. This change was made by the SECURE Act in effect from January 2020 onward as a way to improve retirement benefits for everyone who has reached their golden years!
Roth IRAs, named after Senator William Roth, who introduced them in 1997 through the Taxpayer Relief Act. Unlike traditional IRA plans which are often sponsored by employers and protect wage earners from high taxes on their retirement savings accounts, Roths offer a new type of tax-advantaged investment account for individuals independent of where they work with no maximum income restrictions as long as you’re earning less than $129k or couple earnings is under $191k (as per 2014).
Roth IRAs have low contribution limits but are one of the most favorable retirement accounts. Contributions can go up to $5,500 for those under 50 and a catch-up provision allows older people to contribute an extra $1,000 with only 6% penalty on excess contributions.
Roth IRAs can offer greater investment options than traditional IRA accounts, but the custodian has to be careful about what type of assets are available. Standard Roths cannot invest in real estate or precious metals bullion, for example.
Advantages of Roth IRA
If you want to save for retirement then a Roth IRA may be the best option. The Roth IRA is one of the most popular investment vehicles in America. It’s also an excellent way to reduce your tax burden now and in the future. But first, let’s talk about what makes it such a great choice.
Your Savings Grow Tax Free
The tax-deferred structure of an IRA can be a boon for the retiree, as it provides a way to build retirement savings income-tax free. When you hit your golden years, withdrawals will not become taxable; this could give your money powerful momentum if there is now more in taxes during those years than when you were working and earning.
There’s No Need for Required Minimum Distributions
Traditional IRAs will make you take out your money beginning at age 72. But not so with a Roth! You can keep your contributions until the day of retirement and take them as needed for living expenses in old age without worrying about penalties or taxes on those withdrawals.
You Can Withdraw Your Contributions
Unlike most retirement accounts, Roths are easy to withdraw your contributions from without penalty. This emergency fund is great if you have the discipline not to abuse it.
Tax Diversification in Retirement
If you have a 401(k) or traditional IRA, you will pay taxes on that money when it comes time to withdraw in retirement. You may also owe taxes on some of your Social Security income.
A Roth IRA offers more flexibility, which can be great for those who wish to stay in the same income bracket. For example, you could collect your Social Security and some of your 401(k) or traditional IRA money – just enough to bump up against the top edge of that particular tax bracket. If you need any extra funds, then withdraw from a Roth which will not count as taxable income since it is already taxed at this point.
Disadvantages of Roth IRA
The Roth IRA has a lot of advantages, but it also has some disadvantages. The Roth IRA is not for everyone and there are many factors to consider before making the decision to use one.
The Maximum Contribution is Low
In 2020 and 2021, you can put $6,000 into a Roth IRA. If you are 50 or older, then you can put $7,000. Same contribution limits apply to Traditional IRAs. That’s not a lot. You’ll probably need to invest elsewhere, such as in a 401(k), to have enough for retirement since there are no more tax deductions from investment income with which you can reduce your taxable income on this account type. A 401(k) has an annual contribution limit of $19,500 for 2020 and 2021 ($26 thousand dollars if eligible at age 50 or older).
Pay Taxes Upfront
Roth IRAs are the perfect way to provide free tax withdrawal for the future you. If you’re struggling with saving, taking a deduction now and contributing your savings into an IRA might just be what you need.
You Have to Set it Up Yourself
You’ll need to open a Roth IRA yourself and remember to deposit money into it each year. You can set up from your bank account for automatic contributions to make the process easier.
Roth IRA Contribution Limits
The Roth IRA has an income limit of $139,000 of modified adjusted gross income (MAGI) for single and $206,000 for married couples in 2020. Roth IRA contribution limits in 2020 are $6,000 for people under 50 and $7,000 for those age 50 or older.
The Roth IRA income limit is going to increase in 2021. For singles, the MAGI cutoff will be $140,000 and for joint filers it’s going up to $208,000 this year! You’ll need an annual contribution of at least $6,000 if you’re under 50 or a minimum of $7,000 if you’re 50 or older.
The maximum amount you can put into an IRA is the same for a traditional IRA and a Roth IRA. So, if you have both you can only put in as much money as the limit allows.
How much money you earn has a significant impact on the maximum amount of contributions to your Roth IRA. For those who are higher income earners, their ability to contribute begins decreasing as well until it is completely eliminated for that individual’s tax bracket.
How to Invest in Gold Through your Roth IRA
Roth IRAs provide plenty of investment options, but some IRA custodians and IRS limits are a concern. These are some investments which a person with an IRA could be able to invest in.
- Individual stocks
- Individual bonds (corporate and government)
- Mutual fund shares
- Exchange-Traded Fund (ETF) shares
- Money Market Fund shares
- Certificates of Deposit (CDs)
- Options
According to the IRS, “You can’t invest in physical gold bullion (or any other approved metal) through a standard Roth IRA”. To invest in gold through your IRA, you can buy stocks in a gold mining company or a mutual fund that includes mining company stocks. This strategy is often called buying “paper gold.” Paper gold refers to buying of shares of the companies that invest in precious metals. There are also ETFs which give you indirect access to investing in those metals.The Roth IRA is an individual retirement account that gives tax-free withdrawals in retirement and tax-free growth. The Gold IRA, on the other hand, invests mainly in physical gold as well as precious metals like silver or platinum.
Conclusion
Every investor needs to make their own choice about what is best for them when it comes to IRAs. You need to do an extensive amount of research to plan for the future.
A Gold IRA and a Roth IRA are both good investments and help you in certain ways. The decision will depend on what you need now, how much money you have, and which one is more suited for you as an investor