Gold IRA vs Gold ETF: Which is the Better Investment?

Gold IRAs and gold ETFs are both ways of gaining exposure to gold, but with some notable differences. They are generally suited for different kinds of investors and investing strategies, though one can certainly own both.

To help investors make a more informed decision, we've researched and made this comparison discussing the pros and cons of each option. You’ll find helpful information on storage costs, liquidity options, taxes, and fees associated with both investing methods and get answers to frequently asked questions about gold investments. 

So if you're interested in finding out about the difference between investing in a gold IRA vs gold ETF - keep reading!

Gold IRA VS Gold ETF - An Overview

A Gold IRA is a retirement account that allows investors to hold physical gold and other precious metal investments inside of a tax-advantaged Individual Retirement Account (IRA).

On the other hand, Gold ETFs (Exchange-Traded Funds) give you exposure to an array of gold-related stocks. They might include mining companies and other companies working with gold. They are traded on stock exchanges just like stocks, so you can buy and sell them easily. The price of a gold ETF is correlated with the price of gold, so if you think gold is going to go up in value, and want exposure to the market in general rather than trying to pick specific stocks, a gold ETF might be a good option for you.

Gold IRAs are typically self-directed Individual Retirement Accounts (SDIRAs), meaning the investor has control over what types of investments they make and can choose to invest in gold freely. 

With SDIRAs you’re often free to invest in multiple types of alternative assets, including real estate, art, cryptocurrencies like Bitcoin, and a lot more.

Types of Gold IRAs

Several different types of gold IRAs are available today, each offering unique advantages and benefits to the investor. The three main types of gold IRAs are Traditional gold IRAs, Roth gold IRAs, and SEP (Simplified Employee Pension) gold IRAs.

1. Traditional Gold IRAs

Traditional Gold IRAs are similar to traditional retirement accounts such as 401(k)s and traditional IRAs, allowing you to invest in gold, silver, and other precious metals while still receiving the tax benefits of a regular IRA. For the most part, these behave exactly like a traditional retirement account with the same benefits, restrictions, and tax advantages.

See our guide on how to rollover a 401(k) to a gold IRA here.  

2. Roth Gold IRAs

Roth Gold IRAs are a form of gold retirement account that offers more flexibility regarding contributions and withdrawals. With a Roth Gold IRA, you may make pre-tax contributions up to $6,000 annually or after-tax contributions up to $7,000 annually. Since all contributions are taxed up-front, this type of account generally results in higher distributions after retirement.

3. SEP Gold IRAs

SEP (Simplified Employee Pension) Gold IRAs are designed for self-employed individuals and small business owners who want to provide a retirement plan for their employees but lack the resources to set up a traditional 401(k) plan. With a SEP Gold IRA, the business owner can contribute to the employee's retirement account each year and offer incentives such as matching contributions.

Whatever type of gold IRA you choose, it is important to remember that investing in gold has risks and rewards, so be sure to do your research before committing to anything. That being said, with the right information and guidance, investing in gold via a tax-advanted retirement account can help create a secure financial future for yourself and your family.

Benefits of Gold IRAs

What are the benefits of a gold IRA? 

1. Potential for Safer Returns: Gold has historically outperformed the stock market, making it a smart choice for those looking to diversify and protect their retirement savings in turbulent markets. 
2. Tax Advantages: Gold IRA investments are generally exempt from taxation until a withdrawal is made and generally provide investors with several benefits as opposed to simply purchasing the metals.
3. Diversification: A gold IRA can help you diversify your retirement investments. By investing in gold, investors can gain exposure to a safe-haven asset that has traditionally preserved its value over long periods. 
4. Account options: Gold investments are easily transferable and can be moved from one retirement account to another through liquidation. This makes it easy for investors to move their gold IRA investments from one institution to another without incurring too many costs. 
5. Long-Term Stability: Gold is a safe-haven asset that has traditionally performed well over long periods, preserving the value of an investor's retirement savings in turbulent markets. With its potential for higher returns and tax advantages, Gold can provide investors with a stable and secure retirement savings option.

There are some disadvantages to note as well: 

1. Gold IRAs have certain restrictions, including requiring you to purchase gold from an approved dealer (and it must be 99.5% pure) and you must work with a custodian to hold the metal in secure storage. 
2. Additionally, you may be subject to annual fees and other special taxes.
3. There are many gold IRA scams to watch out for on the market, which is why it's so important to select a reputable gold IRA company that can walk you through the process of creating an IRA-compliant SDIRA.

Gold IRAs aren't for everyone, so make sure to do your research and discuss your investment strategy with a financial advisor before starting your new IRA and purchasing precious metals.

When to Invest in a Gold IRA?

There are some important factors to consider before deciding when to invest in a gold IRA.

First, consider your overall financial goals and risk tolerance. If you're looking for a low-risk investment option with the potential for long-term growth, investing in a gold IRA could be right for you. On the other hand, if you're looking for short-term profits or are willing to take on more risk, other investments may be a better choice. 

Second, think about the amount of money you have available to invest. Gold IRAs can require a significant initial investment, so it's important to ensure you have enough saved up before investing in this type of retirement account.

Third, do your research and make sure you understand the process for setting up a gold IRA and maintaining it over time. This includes researching different gold dealers and custodians and understanding the tax implications of investing in a gold IRA. 

Finally, consider the current market conditions when investing in a gold IRA. Gold prices tend to fluctuate, so keeping an eye on the market and ensuring you're investing at the right time is important. 

What Is A Gold ETF?

Gold ETFs typically have lower fees than mutual funds and offer more liquidity because they trade like stocks. Gold ETFs are an attractive option for diversifying a portfolio and mitigating risk due to the relative stability of gold prices compared to other asset classes.

Additionally, many types of investors can benefit from using gold ETFs, including long-term investors, day traders, and those looking for a hedge against inflation.

When investing in gold ETFs, the most important thing to consider is to research the different types of funds available and understand the associated fees and risks.  

Investing in gold ETFs can greatly diversify your portfolio and reduce risk by using a relatively stable asset class. However, these ETFs are so-called paper gold, which puts off many precious metals investors. 

"Paper gold" is a term that means you only own the gold on paper, i.e., in the form of owning stocks. You don't own the physical gold.

Benefits of Gold ETFs 

Here are some of the top benefits you can experience when investing in a gold ETF: 

1. Intraday liquidity: Exchange-traded funds allow investors to enter and exit positions quickly. They are traded on an exchange and can be bought or sold at any point during market hours.
2. Easy diversification: Gold ETFs offer the same diversification that a gold IRA would, but with perhaps reduced overall complexity.
3. Low Fees: Investing in a gold ETF is often cheaper than buying physical gold. ETFs usually have lower management fees and operating costs, making them attractive for investors who want to get exposure to Gold without the hassle of storing and securing it. 
4. Tax Efficiency: Gold ETFs are considered passive investments and area sometimes taxed at lower rates than other investments, making them an attractive option for long-term investors. 
5. No storage concerns: Gold ETFs can be bought and sold without having to physically move the gold or store it somewhere. This makes the entire process more convenient and cost-effective for many investors.

Gold IRA VS Gold ETF - Which One Is Right For You?

When it comes to investing in gold, a couple of different options are available to you. You can choose to invest in a gold IRA, a gold ETF or simply buy physical precious metals.

Each option has its pros and cons that need to be considered. A gold IRA may be more expensive upfront, but it offers more protection for your investment. On the other hand, a gold ETF is less expensive and may offer better returns over time, but has more counterparty risk and doesn't give you exposure to physical gold.

Ultimately, deciding between a gold IRA and a gold ETF depends on your circumstances and what you are looking for in an investment.