Gold IRA vs. Physical Gold: Key Differences

If you want to diversify your savings with physical gold, you have two great options: a Gold IRA and a cash purchase. With a Gold IRA, account owners are able to make tax-deferred purchases, while making a cash purchase to take physical possession of your gold does not allow for tax-deferred purchases. While both options involve buying physical gold, their key features and benefits differ. 

Key differences between a Gold IRA and physical gold with after-tax funds include taxation, storage requirements, liquidity, and associated fees. In this article, we’ll discuss these two savings options to help you make the best decision for your retirement goals. 

Understanding Physical Gold

When making a cash purchase to take possession of physical gold, you have several options — bars, rounds, and coins. These different forms come in varying sizes and weights based on your preferences and budget. One notable advantage of purchasing physical gold is that when you store it at home, your gold investment is not subject to some of the strict IRS regulations that SDIRAs are subject to. While gold purchased for an IRA placement must meet the purity requirements of 99.5% pure (besides the American Gold Eagle at 91.67% pure), a cash purchase of gold outside of an IRA doesn’t need to meet these purity requirements.

Another benefit of making a cash purchase for the physical possession of gold is its liquidity. Unlike other savings options, you can sell physical gold anytime, providing a readily accessible asset. 

Gold is a safe-haven asset that has historically retained its value or even increased during periods of economic uncertainty. This characteristic makes gold an attractive option for various savings goals. 

Gold has also historically served as a hedge against inflation, which can help purchasing power over the long term.

What Is a Gold IRA?

A Gold IRA, also known as a self-directed IRA (SDIRA) or precious metals IRA, is a specialized retirement account that allows you to purchase alternative assets like physical gold and other precious metals. When you purchase gold through a Gold IRA, you own the physical gold, but it’s stored in a secure depository rather than kept at home. 

Here’s how a Gold IRA generally works: Account owners can choose between different structures, such as a Traditional Gold IRA, Roth Gold IRA, SEP Gold IRA, or SIMPLE Gold IRA. Each type of IRA has its own set of rules regarding contributions, withdrawals, and taxation. Along with gold, these same rules apply to any asset class that an account holder might purchase for their IRA.

With a Gold IRA, you can diversify your savings by adding physical gold to your retirement portfolio without worrying about physically storing it at home. As with any asset purchased for placement in an IRA, you can also benefit from potential tax advantages while still gaining exposure to investing in precious metals. This allows you to incorporate gold into your financial plan while maintaining compliance with IRS regulations regarding retirement accounts. 

You can also buy gold with a 401(k) by initiating a 401(k) to IRA rollover, where your 401(k) funds are transferred to your SDIRA, which can then be used to purchase alternative assets like gold. 

Benefits of a Gold IRA

A Gold IRA gives you a variety of potential benefits that can improve your retirement savings strategy. From tax advantages to retirement savings diversification, here are a few reasons why a Gold IRA might be a good addition to your savings: 

  • Tax advantages: Depending on the type of IRA chosen, contributions may be tax-deductible, or withdrawals may be tax-free in retirement. This can help you maximize your savings and minimize your tax liabilities. 
  • Access to professional help: With a Gold IRA, you have access to precious metals specialists, such as a Birch Gold Group Precious Metals Specialist, who can help facilitate transactions. Additionally, your custodian can provide help with administrative tasks, such as ensuring IRA compliance and completing the necessary paperwork, while your chosen depository will safeguard your assets. 
  • Retirement savings diversification: A Gold IRA is an effective way to diversify retirement savings. By adding physical gold to a retirement plan, you can reduce your exposure to more volatile assets.
List comparing the benefits and drawbacks of gold IRA


Drawbacks of a Gold IRA

While a Gold IRA can offer several benefits, it’s important to consider potential drawbacks before making a decision. Considerations of a Gold IRA to keep in mind include: 

  • Regulatory constraints: All IRAs, including Gold IRAs, are subject to contribution limits and eligibility requirements set by the IRS, that can restrict the amount you can contribute to your account. 
  • Custodian fees: Managing a Gold IRA, along with any type of retirement account, incurs custodian fees, which are fees your custodian charges to manage your account. 
  • Purity requirements: Gold placed in a self-directed IRA must meet purity requirements with a minimum fineness of .995. This is true for all gold except for the American Eagle coin. Overall, this can limit the types of gold that can be held in the account. 

Gold IRA vs. Buying Gold for Physical Possession: Key Differences

When considering the differences between a Gold IRA vs. physical gold, one of the primary distinctions is how the gold is stored. With a Gold IRA, you purchase physical gold that you own, but it’s securely stored at a depository. This storage arrangement is mandated by the IRS and comes with protections like insurance, surveillance, and other security measures. Let’s take a look at a few of the most important differences between a Gold IRA vs. physical gold: 

Chart comparing the differences in storage, fees, taxes, and liquidity between Gold IRAs and physical gold


Gold IRA vs. Physical Gold: Storage

When possessing your physical gold, you can decide where and how it’s stored, such as keeping it at home in a safe. However, with a Gold IRA, the IRS requires that the gold must be stored at an approved depository. 

precious metals IRA depository offers a range of safeguards, including insurance coverage, advanced surveillance systems, and stringent security measures. While this arrangement ensures the safety and protection of the gold, it also means giving up direct physical possession of the asset. 

Gold IRA vs. Physical Gold: Fees

When purchasing physical gold, whether through a Gold IRA or for physical possession, metals are marked up over wholesale costs. Additionally, with a Gold IRA, there are additional fees to be aware of, such as one-time account setup fees and wire transfer fees for funding the account, along with custodian fees that are used to cover administrative costs.

Additionally, account holders are subject to annual fees like storage and insurance fees for maintaining the gold in the depository and management fees for professional oversight of the IRA. These fees can impact returns and should always be considered when deciding between a Gold IRA vs. physical gold. 

Gold IRA vs. Physical Gold: Taxes

The tax implications of owning gold are different from those of a Gold IRA and physical gold. Gold IRAs come with tax benefits that depend on the structure chosen. For example, with a Gold Roth IRA, growth is tax-free, meaning withdrawals in retirement are not subject to taxation. 

In contrast, Traditional Gold IRAs provide tax-deferred growth, allowing you to postpone taxes on earnings until you make retirement withdrawals. 

However, physical gold outside of an IRA doesn’t come with these tax advantages and is typically subject to capital gains tax when sold. Depending on the holding period, capital gains tax rates can reach as high as 28%, significantly impacting overall returns. 

Gold IRA vs. Physical Gold: Liquidity

Liquidity is how easily an asset can be purchased or sold. Owning physical gold outside of an IRA offers greater liquidity, as the gold is in your physical possession, so you can sell it whenever you choose. Transactions can be executed quickly, providing flexibility in responding to market conditions or personal financial needs. 

On the other hand, gold in a Gold IRA is held in a depository and requires coordination with the custodian. Additionally, if gold is purchased through a Gold IRA, early withdrawal penalties may apply if funds are accessed before the age of 59 1/2. These penalties can erode potential returns and should always be considered when evaluating the liquidity of a Gold IRA compared to physical gold. 

Wrapping Up: Should You Choose a Gold IRA or Physical Gold?

The decision between a physical Gold IRA and making a cash purchase for the physical possession of gold depends on your personal preferences, financial goals, and risk tolerance. Both options offer unique advantages and considerations you should weigh carefully. While a cash purchase of physical gold provides the satisfaction of direct ownership and immediate access, purchasing physical gold to place in a Gold IRA offers added protections that may appeal to some investors, such as a level of security and peace of mind that is difficult to achieve when you have physical possession of gold. 

If you’re considering diversifying your retirement savings with gold, Birch Gold Group is here to help. Our experienced team can guide you through the process of opening a Gold IRA and selecting the right strategy to meet your financial goals. Contact us today to find out how we can help you secure your financial future with gold, or read our guide to investing in gold to learn more about your options.