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 Those funds and their maturities are eligible to be withdrawn when the person reaches 59 ½ years old.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.
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)
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.
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.
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
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:
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:
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.
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.
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.
