Gold IRA vs Roth IRA: The Differences You Should Know

When choosing retirement options, most people tend to get overwhelmed by the available options. To find one that works for your particular situation, you’ll need to go through a lot of different providers but also figure out a lot of specialised terminology. Things can get even more difficult if the concepts (and often used acronyms) are similar to each other. This is the case for the often mixed-up terms — Gold IRA and Roth IRA.

While they are both self-directed individual retirement accounts (IRAs) we can say that their similarity pretty much ends there. If you are unsure what makes them different from each other, stick around and we’ll provide all the information you need.

Roth IRAs are a special type of tax-advantaged IRAs

Roth IRAs are a specific subtype of IRAs you can make contributions to with after-tax funds.

With this type of IRA, you can make contributions to the account with taxed money but the growth of your earnings is tax-free. The withdrawals from your account are also tax-free but keep in mind that the account needs to be at least five years old and that the account owner needs to be at least 59 ½ years old to make withdrawals penalty-free. Otherwise, you are subject to penalties set by the service provider. 

The way they are taxed is what makes Roth IRAs distinct from traditional IRAs. It’s important to note that we make contributions to Roth IRAs with taxed funds so you cannot list these contributions as tax-deductible. You reap the tax benefits once you meet the penalty-free withdrawal requirements and start using your funds.

Gold IRAs are specialized IRAs focused on gold as a retirement investment

Gold IRAs are the answer if you want to tie your retirement investment to physical gold. This type of IRA allows investors to purchase precious metals including gold, platinum, silver, and palladium.

You can store them as bars or coins and precious metals-related securities. It’s important to note that your Gold IRA needs to be separate from your traditional IRA. The benefits of this kind of account are tied to the precious metal and its value. On the other hand, it also has additional expenses, an annual IRS contribution cap, and requires a custodian to be set up and maintained. 

There are three types of Gold IRAs:

Traditional Gold IRAs:

With this type of Gold IRA investors make contributions using pre-tax funds. Hence, when the investor starts using the funds, withdrawals are taxed. Meanwhile, the growth of the holdings serves as tax-deferred investment income.

Roth Gold IRAs:

As we have previously seen, Roth IRA contributions are made with post-tax dollars and this also applies to the gold version of the Roth IRA. Following the fulfillment of your retirement requirements, you earn your investment returns through tax-free withdrawals.

SEP Gold IRAs:

The SEP Gold IRA is for self-employed individuals and small business employees. You make contributions to this account with pre-tax money, just like with traditional Gold IRAs, and you are taxed when you start making withdrawals. Once more, IRS regulations apply to all SEP IRA contributions.

Traditional Gold IRAs and Roth Gold IRAs are often mixed-up

Unsurprisingly, investors often confuse a traditional Gold IRA with a Roth Gold IRA.  

The main difference between the two is that:

  • traditional Gold IRAs can get funded with pre-tax money,
  • while you use post-tax funds for a Roth Gold IRA. 
  • A traditional Gold IRA requires the acquisition and storage of physical gold. Investors can store physical metals, such as bullion or coins, and assets tied to precious metals with traditional Gold IRAs. Because of this, Gold IRAs need to hire a custodian to store their precious metal and must also find brokers to help them acquire the precious metal.
  • According to the IRS, Roth IRAs cannot invest in physical gold bullion or other precious metals. Most IRA custodians also prohibit the possession of gold in IRAs. Investors can only hold stocks, mutual funds, or other conventional investments in traditional IRAs, but there is a catch.
  • Opening a self-directed Roth IRA, an account type that doesn’t fall under the above-mentioned restrictions made by the IRS allows investors to buy gold or other acceptable precious metals such as silver, platinum, or palladium.
  • The self-directed IRA variation (SDIRA) is available for both traditional and Roth individual retirement accounts. A qualified IRA custodian specializing in self-directed IRAs is required if you want to open one.

How to choose between the two

Choosing between a Roth IRA and a Gold IRA shouldn’t be that hard if you consider your current financial situation. Depending on your long-term objectives, both can be great at providing tax advantages and making you a bit richer.

If you believe that your taxes will increase after retirement compared to today, Roth IRAs are a great choice. This is because you contribute to this account with after-tax dollars but don't pay taxes again when you withdraw. Furthermore, they provide a wide range of investment alternatives like bonds, equities, ETFs, CDs, mutual funds, money market funds, and even cryptocurrencies.

Gold IRAs, on the other hand, are great when you want to diversify your portfolio with physical gold, an asset class with a good track record for growth and a useful hedge against inflation. 

All three Gold IRA types also offer some flexibility. Taking this into account though — because they demand purchasing and storing the precious metals along with all the fees and expenses this entails, they are more expensive.

Bottom Line

Since Gold IRAs have their pre-tax and after-tax variations, the potential for growth, and they diversify your portfolio, this option makes perfect sense as a retirement plan. 

At the same time, a Roth IRA gives you the flexibility to invest in different intangible assets. Besides, their investment returns upon meeting retirement requirements with tax-free dollars make it equally attractive.

That said, it all depends on what your objectives are in the long run and the financial goals you hope to achieve. Both, Roth IRA and a Gold IRA are worth the investment if they fit your game plan.

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.

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