Understanding the Gold IRA market does require some context outside of simply knowing who’s looking to invest in gold. First we need the context of who the typical IRA consumer is, then narrow it to who is looking to diversify that IRA into other investment streams, and finally look at who, exactly, is the Gold IRA investor.

In that respect, we also need to know how Gold performs, what the comparison is of gold to other precious metals, and what the returns are of a Gold IRA against traditional IRAs.

Let’s dive into the numbers.

A Brief Overview of Terms

It is important to know some terms, right off. All of the following definitions are paraphrased directly from the IRS page and subsequent pages linked to it.

IRA

Individual Retirement Account; a managed portfolio where an individual elects to send a portion of their income into the portfolio for investment. Those funds and their maturities are eligible to be withdrawn when the person reaches 59 ½ years old.

TRADITIONAL IRA


Money contributed to these accounts are tax-deductible at the time of contribution, but withdrawals in retirement are taxed as income.

ROTH IRA


Money contributed is not tax-deductible, but qualified withdrawals are tax free.



Self-Directed IRA

In this type of IRA, the investor can direct their investments into collectibles, including art, fine wine, or even gold. However, with most of these investments, as soon as the purchase is made it counts as distribution, garnering a 10% tax.

  • Unless...the investor sets up a Custodian for certain qualified gold, silver, platinum, and palladium investments. In these cases, the investments are treated just like a normal stock or bond IRA investment, subject to the same taxation schedule as outlined by the Traditional or Roth guidelines.

Who is the American IRA Holder?

Taking a look at the IRA market and consumer can give us a lens through which to analyze the niche market of self-directed IRAs. (Main data pulled from a report from the Investment Company Institute in 2021)

  • 37% of American households own an IRA.
  • Of those Americans only 35% made contributions in 2019.
  • 29% of American households have a traditional IRA.
  • Of those, more than 8 in 10 also had an employee assisted plan.
  • That means that roughly 30% of Americans have two retirement plans.
  • More than 60% of households have at least one retirement plan.

We’ll return to these data at a later point, to attempt determining their decision making processes. For now, we see a clear picture that while many American households have access to or already own an IRA, they are not making contributions. 

An important piece of contextual data: the maximum contribution to an IRA is only $6,000. As we’ll see later, that means that the incidence of contribution to an IRA climbs steeply with the income of the participant. The more wealthy someone is the more likely they are to contribute.

Who is the Gold IRA Contributor

Data on who is holding gold, and how much of it is in IRA accounts can be difficult to hunt down. Here are some general numbers for context.

  • Only 3-5% of total IRA accounts are self-directed.
  • This includes all forms of self-directed IRA, not just gold.
  • Only 12% of the American population owns Gold.
  • Survey did not specify if gold was owned in IRA or physically.

These data indicate a very small proportion of Americans hold gold in an IRA. Here’s the quick math: 37% of households have an IRA, the top-end of self-directed gold accounts would come to 1.85% of American households.

By deduction we can conclude that the 12% reported gold ownership is not representative of Gold IRA ownership.

Demographic data on gold IRA investors is difficult to come by, as those records aren’t public. And as stated, the survey referred to above on gold ownership does not report on Gold IRA ownership. We can, however, use those data to extrapolate and hypothesize on who might be interested in a Gold IRA.

  • 14.3% of males 45-54 years old own gold and silver.
  • 5.1% of males 35-54 own only gold–no silver.
  • 7.8% of females 35-44 own silver only.
  • 1.8% of men in that same range owned only silver.

If investments in Gold and Silver IRAs follow these trends, we can assume that gold IRA investors are going to be predominantly male and between 35 and 54 years old.

Benefits of Gold IRAs

First we’ll look at the benefit of Gold versus Stocks, in general terms. Then at Gold investments in IRAs versus other ownership options. Then at tax implications.

Gold Versus Stocks and the Dollar

  • 360% increase in price of Gold, 1990-2020.
  • 991% increase in the Dow Jones (stock index) during the same period.
  • 198% increase in dollar over same period.

To break that down, gold out-performed the dollar almost two-to-one. But the stock market averaged gains of five-to-one in that same period.

Gold also does better with lower interest rates, between 0-4%, which is the rate of interest that in 2022 we are moving out of. 

Gold IRA Performance Vs Traditional IRA

Every investment plan will return a different rate based on market forces that can’t be compared. However, if we took a $1,000 dollar investment in Gold in 1990, and the same investment in the Dow Jones in 1990, we would see:

  • $4,419 return, as of 7/19/22, or $3,419 profit from gold.
  • Or $11,878 dollars in stock gains.
  • Versus losing 2x purchasing power of those same dollars if kept in savings.

Tax Implications of a Gold IRA

Because Gold is taxed differently based on whether it is held as a Collectible or within an IRA, it is important to know how gold is being invested in for tax implications. The following data were compiled by the Journal of Accounting, and reflect tax rates at the time of compilation:

For an earner at $60,000, annualized returns for a $10,000 investment, after taxes and fees to brokers, would be:

For a $398,500 earner, with the higher taxes, returns would be:

  • 3.71% for physical.
  • 5.68% for Roth.
  • And 7.94% for a Traditional IRA.

These returns, taking tax implications into account, reflect a small advantage for earners in lower tax brackets (25% tax bracket at time of investment, 15% tax bracket at retirement) than for more wealthy investors.

Consider the Source

The last thing to cover when looking at Gold IRA data is from whom the information is coming. While one survey we looked at did come from a Gold IRA industry publication, their data relied on anonymous polling, similar to any outside firm’s.

Now we’ll take a look at what a financial advisor might say, according to the investment arm of Prudential Financial.

  • 50% of analysts use alternative investments for clients. 
  • 62% of those analysts say they have a “wide range” of alternatives available.
  • 6% of those analysts say they have little or no range of alternatives.
  • 49% said their clients needed more diversification in their portfolio.
  • 40% say that their client relies on them to find alternatives.

When we combine that feedback from financial advisors, along with the low rate of full investment in IRAs, and the sub-2% investment in Self-Directed assets, we find a tremendous gap most likely existing between traditional stock/bond IRAs and Gold IRAs.

Investment Company Institute (ICI)

A last note on the sources lacking in Gold IRA data. The aforementioned data from the ICI comes from rigorous collection by that firm.

  • 80 years experience.
  • 97% of US funds are represented by members.
  • $29.6 Trillion total.

With all that experience, we could not find any compiled data on Self-Directed or Gold IRAs. This, again, highlights the low prevalence of these assets.

About the author 

Greg Lorenzo

Greg is a financial expert who has been advising his audience on loans for over 10 years. He has a wealth of knowledge and experience in the area, and he is passionate about helping people get the best possible deal on their loans. Greg is an expert in negotiating loans, and he has a proven track record of getting his clients the best possible terms. He is also a strong advocate for financial literacy, and he regularly gives workshops and seminars on the topic.

Leave a Reply

Your email address will not be published. Required fields are marked

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}
Subscribe to get the latest updates