Can an Individual Withdraw From an IRA and Invest in Gold?

By: Ryan Cockerham | Reviewed by: Ashley Donohoe, MBA | Updated August 18, 2019

When it comes time to plan for your retirement, you will have many options available to you. Whether you are initiating your savings plan at a young age or are developing your nest egg at the juncture between your working years and retirement, you can make effective decisions that will help you generate income over the long term. An individual retirement arrangement, or IRA, is easily one of the most popular retirement savings tools available today.

However, you can also convert your IRA to gold if you so choose. Making this conversion happen is as simple as withdrawing funds from your IRA using standard means and then using it to purchase gold.

Tip

You can withdraw funds from your IRA as needed in order to invest in gold. You will need to decide what specific type of gold investment you wish to make, however.

Exploring IRA Basics

Before you can determine what your best strategy may be for converting IRA funds into gold, you will first need to assess which specific IRA you are using and what, if any, penalties or taxes you may be forced to pay as part of your withdrawal.

When an individual decides to open an IRA, they will choose to activate either a traditional or Roth IRA. Both of these accounts allow you to generate profits on deposited funds over time. However, key differences do exist. These distinguishing factors are primarily associated with the means by which an individual can place funds inside of the account and then withdraw them at a later point.

Traditional IRA Deposits and Withdrawals

When an individual chooses to open a traditional IRA, they will be able to deposit funds into the account up to the current IRS-mandated maximum contribution amount. When these funds are deposited, they are effectively "shielded" from taxation thanks to a unique deduction opportunity. However, this does not mean to imply that these funds will be forever shielded from tax assessment.

Upon reaching the age of 59 1/2, traditional IRA holders will have the opportunity to withdraw funds from their traditional IRA without first being forced to pay a stiff "early withdrawal" penalty. Once an individual has withdrawn funds, they will be forced to pay tax in keeping with their current income tax rate on this money. With that in mind, a relatively simple way to remember the tax rules associated with traditional IRAs is as follows: there is no tax "coming in," but standard income tax rates "leaving."

This method of taxation carries its own fair share of benefits and downsides. It is obviously a benefit that individuals will not be forced to pay income tax on the funds they deposit into the IRA. That being said, this "convenience" may soon be forgotten if an individual begins to withdraw funds from their traditional IRA and they are generating significantly higher yearly income. At this point, these funds will be taxed at the highest rate possible according to standard IRS income tax guidelines.

Roth IRA Deposits and Withdrawals

Unlike a traditional IRA, a Roth IRA requires that individuals pay tax on their initial contributions during that tax year. No deduction opportunities are available for individuals choosing to make Roth IRA contributions. While this may initially seem to be a relative disadvantage compared to traditional IRAs, the situation requires somewhat more nuance.

By paying taxes on contributions at the time they are made, this allows individuals to make eligible withdrawals beyond the age of 59 1/2 tax-free. If an individual begins making contributions to their Roth IRA in their mid-20s, it is quite possible that they will find themselves generating a larger amount of income in three decades later. This means that their income tax bracket will also be higher as well. Because they have already paid tax on their Roth IRA contributions, they will not be required to pay tax on these funds at the higher tax bracket they have found themselves in later in life.

IRA Contribution Guidelines

There are numerous guidelines that dictate exactly when and how funds can be contributed to an IRA and how they can be withdrawn while simultaneously avoiding any undue penalties.

For tax year 2019, the IRS has stipulated that individuals can contribute up to a maximum of $6,000 to an IRA. However, if the individual in question is over the age of 50, they are also eligible to contribute an additional $1,000 as part of what is known as a "catch-up" contribution. Keep in mind that it is possible to have both a traditional IRA and a Roth IRA. However, you can only contribute up to these designated amounts for both IRAs combined. You are not granted a $5,000 for each IRA.

A common question that arises with IRAs is whether or not contributions can be made in the event that an individual also has a traditional employer-sponsored 401(k) or similar plan. This is allowed by the IRS, although individuals may not be able to deduct the entirety of their traditional IRA contributions in situations such as these. A full overview of IRS deduction limits is published on a yearly basis.

IRA Withdrawal Guidelines

For both traditional and Roth IRAs, individuals enter their eligible withdrawal period at the age of 59 1/2. This means that they can begin to remove funds from the IRA without any form of additional tax penalty. The consequences for early withdrawal can be somewhat stiff. Not only will the withdrawn funds be included in gross income tax calculations for that year, but a 10 percent tax penalty will likely apply on the sum as well.

In some situations, the IRS does make exceptions for early withdrawals. If an individual loses their job and is using their IRA funds to help pay their medical insurance premiums, the IRS will waive these penalties. This one of several scenarios in which such exemptions can occur. However, individuals should examine this list of exceptions carefully, as the vast majority of early withdrawals will result in these harsh fiscal penalties.

Gold IRA Investing

The process for converting funds that have been withdrawn from an IRA into gold can be divided into two individual tasks: the IRA withdrawal and the gold purchase. As mentioned previously, individuals are eligible to withdraw funds from their IRA any time after the age of 59 1/2 for no penalty.

In order to actually make the withdrawal happen, the first step is to access your IRA account using whichever brokerage service you have selected previously. At this point, IRA withdrawal is often as simple as selecting the amount you wish to withdraw, the method you would like to use to receive these funds and confirming the transaction. The tax penalties associated with early withdrawal will be assessed during your tax filing, if applicable.

Many popular retail banks and brokerage services allow individuals to access their IRA accounts through online portals. This may be the quickest and most efficient method for those seeking to quickly route funds out of an IRA into a gold investment. However, by choosing the "DIY" approach to IRA fund transfer, you may be missing out on important advice and/or words of warnings that a financial advisor could offer you regarding this process, but it ultimately is your choice. Once this is complete, you are now ready to purchase your gold.

Preparing to Buy Gold

Once you have removed funds from your IRA, purchasing gold as an investment tool is as straightforward as locating your preferred gold vendor, deciding what platform you would like to invest in and determining the scope of your purchase.

Simply deciding to "invest in gold" is an excellent first step, but this decision will then require you to select from one of several possible investment opportunities. For example, you may decide that you would like to purchase something tangible such as gold coins or bars. Or, you may be more interested in an exchange-traded fund (ETF) that focuses exclusively on gold. In each of these situations, you may be required to pursue a specific vendor or broker.

Exploring an Example of Gold Investing

One of the most common considerations in the world of gold investing is whether to invest in actual gold product, commonly labeled gold bullion, or to invest in a gold ETF. Each option has its own distinct benefits. For example, choosing to purchase bullion provides you with a concrete, "hard" asset which is guaranteed to act as a reliable long-term investment (barring some unforeseen seismic shift in how the global economy values gold).

That being said, purchasing gold bullion can also make it difficult for investors to take advantage of the liquidity offered by an ETF. This is due to the fact that selling bullion requires an investor to actually obtain their asset from a supplier and then sell it to another brokerage or individual. This process is undeniably slower and less convenient than ETFs.

Although ETFs may offer a degree of flexibility that bullion does not carry, it is important to note that ETF shares do not actually grant an individual access to physical gold. Instead, investors are actually purchasing individual shares of a specific fund that specializes in purchasing gold bullion. The individual decisions related to how and when the bullion is purchased by the ETF are not delegated to shareholders.

Moving Ahead With Gold IRA Investing

Once you have decided how you would like to invest your IRA funds, your next steps will already mostly be dictated for you. You can locate more information about ETFs specializing in gold and other precious metals through the majority of online brokerage firms. This is a common activity by many investors, meaning that there will be ample documentation concerning how you can place money in these funds.

In order to invest in gold bullion, you will need to source a vendor that specializes in this form of transaction. A quick internet search will reveal a variety of bullion vendors. It is in your best interest, however, to engage in extensive research before deciding on a specific bullion provider. Make sure that you know exactly what you will be receiving in exchange for your investment, i.e. whether you will be investing in gold bars, gold coins, etc.

Also, it is critical that you have the information you need to fully verify that the gold you are purchasing is, in fact, an investment-grade precious metal. If you have any further questions about this process, you should take the time to speak with a financial advisor or precious metals experts. This type of early consultation will ensure that you aren't forced to deal with an unsatisfactory purchase at a later point.

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About the Author

Ryan Cockerham is a nationally recognized author specializing in all things business and finance. His work has served the business, nonprofit and political community. Ryan's work has been featured on PocketSense, Zacks Investment Research, SFGate Home Guides, Bloomberg, HuffPost and more.

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