Gold IRA vs Physical Gold: Which is Best?

It can be said that there are opposing sides in the gold IRA vs physical gold debate, and that the debate is a common one. Each side has some good arguments as to why their preferred form of gold ownership is better.

Now, to be clear, what's placed in a precious metals IRA is physical gold bullion, not mutual funds or gold ETFs. So when you own a precious metals individual retirement account, you're also in ownership of physical gold and silver bullion. 

The IRA can be liquidated at any time, and while you may incur a penalty, you'll still get the exact bullion you had stored in the account just as if you were purchasing it directly from a retailer. Well, so long as you're working with a reputable gold IRA company that opts for segregated storage.

The discussion on the subject stems from the legal side of things. Whereas any bullion you have in a home safe is more akin to a personal gold coin collection, gold and other precious metals in an IRA are more complex. 

To take full advantage of a gold IRA’s tax benefits, there is some additional paperwork involved. Let's first get into how these IRAs work before outlining the benefits of both forms of investment.

The Gold IRA - Jumping Through Hoops for the IRS

The part that some gold buyers like the least, perhaps, is that a retirement account must strictly follow IRS guidelines. Yes, custodians, storage companies and the precious metals broker all play an important role. 

This is necessary though in order to buy and hold precious metals with retirement funds - and to do it without incurring taxes or penalties.

The IRS requires you, or more specifically the custodian, to file annual reports on what's in the traditional or Roth IRA, how much it gained and so on. After all, retirement accounts have to play by the government's rules even if they're created through what looks like a private company.

For some, this takes away from some of the luster of owning gold to begin with. The precious metal is meant to bring no counterparty risk: it's actually meant to protect you from it. So squeezing in the government between you and your gold strikes many as less than ideal.

And there's plenty of truth to this. For example, if your IRA ends up "not following the rules", the account can actually get liquidated. We might even venture to say you don't truly own that gold.

It's perhaps similar to having a bank account. Is the money in it really yours, and what happens if you get on the bank's bad side?

Still, this isn't an issue for many. The custodian really does take care of the paperwork side of things, leaving you to reap the benefits of this retirement investments vehicle without a lot of hassle on your behalf.

Again, when working with a reputable company, you don't really have to worry about things like liquidations so long as you're familiar with guidelines.

The top gold IRA companies open these accounts every day. They can set up your new account and ensure everything is done in compliance with the IRS. The process is painless and easy.

The other intermediaries between you and your gold are the custodian, the depository and the gold IRA company. Is this good or bad? Some like to have their investments taken care of by third-parties, while others are very much inclined to the opposite.

Let's cover some benefits of each to try and see why one might choose one over the other.

Related: How to Diversify Your 401(k) into Gold (Tax-Free)

Gold IRA Perk #1: Funding Through Rollovers (Tax-Advantages)

The primary method of funding a precious metals IRA comes from existing retirement plans. This can be an employer-sponsored plan, an IRA you already have or even one you've inherited. 

For that matter, the new self-directed IRA can be funded with several types of retirement plans or accounts. Generally, inactive accounts are preferred over active ones by some margin, but both are feasible in some cases as a funding method.

The IRS actually imposes limitations on how much "regular" funding, that is, direct payment, you can do annually. A “gold IRA” follows the same rules as other Traditional or Roth IRA accounts, but as you might know, most employer-sponsored plans are constrained to stocks and bonds.

So if you have a 401(k) from an old employer lying around, the decision to open a gold IRA seems fairly straightforward. It's quicker and smoother than liquidating the assets in it to then buy gold outside of an IRA. The process is streamlined by both the precious metals IRAs companies and the custodians they work with.

Of course, going in line with this, you'll sort of have taken care of your retirement in the process. The newly-created IRA is your retirement account, and depending on its size, you might not need any other action in that regard. While this point might warrant its own section, we'll nonetheless briefly mention it here before moving onto other perks that the gold IRA brings to the table.

Gold IRA Perk #2: Access to Gold & Silver Experts

Nearly every gold IRA company we've come across is going to say something along the lines of not offering financial advice, not being financial advisors and so on. This is true. They are not fiduciaries. 

When you open a gold IRA through a top company, you're assigned a representative. This person may or may not change throughout your ownership on the account, depending on changes within the company itself. However, all top companies make the same guarantee, and that is one of lifetime customer support.

Whether on the first day, a year or a decade after opening the account, you can talk to this representative and others regarding your investments, the precious metals market and so on. This person will be plenty knowledgeable on things like precious metals investments, IRA-eligible bars and coins, and the like.

It’s common for many stock market investors to rely on a trusted advisor or portfolio manager. While the gold IRA company's representative isn't a portfolio manager or financial advisor, they can answer questions regarding your gold and silver investments.

Having someone with knowledge and experience offer tailored support regarding your investments can be valuable more often than not. Some who open a gold IRA are completely new to precious metals investment and don't even know where to start: others have knowledge, but might still enjoy some kind of support.

Related: Investing in Platinum - Ultimate Beginner's Guide

Gold IRA Perk #3: A Hands-Off Approach

Here's the thing about retirement accounts in general: plenty who have them don't actually care about learning the ins and outs of finance, the markets and so on. They just want a steady source of income after their retirement. 

If this is you, the hands-off approach that gold IRA companies offer will come in handy. But even if not, managing your retirement can be more difficult than you've envisioned, especially if you're making changes to the portfolio later on.

Even though the precious metals IRA company isn't supposed to offer advice and so on, they can help guide your investment decisions. They can even pick the metals for you, if you so choose. Some companies offer pre-selected packages so that you don’t have to select each individual bar or coin for your account.

The inventories of gold IRA companies are either tailored for IRAs completely or have special sections for them. If you are totally unfamiliar with precious metals, the company can assist you with getting a good portfolio that will serve you well in the long-term.

The hands-off approach extends past just the choice of investments, of course. Where's the metal stored? It's something you can pay attention to when having a gold IRA, but don't really have to. 

Precious metals companies work with some of the biggest and most reputable depositories in the industry: the kind that are used by big names in finance just as much as they are by individual investors. Not only are the precious metals stored safely, but they're also insured.

It’s important to note that your metals are stored in private (non-bank) depositories. 

Then there's the whole paperwork side of things. While you are asked to provide some paperwork initially and perhaps a little down the line, most of the IRA management is taken care of by other parties. To drive the point further, you even get annual reports on the returns on your IRA from the custodian.

This might not appeal all that much to those who are familiar with precious metals investment, but it might. Those that are, however, are far more likely to give "home storage" physical gold consideration over an IRA. So let's go over the benefits of this kind of bullion ownership to see how they compare.

Related: IRS "Loophole" to Buy Gold & Silver (Tax-Free) with Your IRA

Gold IRA Perk #4: Safe and Secure Storage

Yes, many investors want “gold you can hold” in your hands and store in your home safe. The idea of pulling your collection out of storage to admire or show friends and family is a benefit. But what many don’t discuss is the safety issues with holding your physical gold at home.

Do you have a security system in your home? If word gets out about your valuable home collection, does it put your family at risk of robbery? With a gold IRA, your metals are fully insured, and held in state-of-the-art facilities. You can rest assured that nobody is going to steal your investments.

If you must see your gold and silver up close, speak with your IRA custodian. Some depositories will facilitate a tour in which you can visit and see your metals for yourself. The large gold IRA storage providers have locations across the U.S. and should be able to hold your metals near your home or preferred city or state.

Physical Gold Perk #1: No Counterparty Risk

The easiest and most obvious benefit to single out when talking about individual gold ownership, to be sure. The gold you've purchased outside of an IRA brings with it all the benefits that you might see gold IRA companies advertise, but don't necessarily apply to gold IRAs fully.

These include a lack of counterparty risk, which is one of the main reasons to invest in gold to begin with. The gold you've bought will be truly in your possession and free from scrutiny. There isn't anyone to report it to, it's not part of an account that needs to be managed by a third party and is easily available to you in most cases.

Gold investment is meant to bring freedom, and having your physical precious metals bound to what is really a government account can be a deterrent for quite a few people. Some don't trust the government altogether: others have simply seen how central banks, a branch of the government, act when it comes to money and weren't too happy about it.

This is where the debate can spring up. Whom does the gold in your IRA truly belong to? Officially, to our knowledge, there isn't a clause that says the government is the real owner. But it's easy to see how one might come to that conclusion if IRAs are a government investment vehicle. Assurances only go so far, and all that. And when we remember Roosevelt's seizure of gold, well... it's not exactly faith-instilling.

Gold IRAs have a great track record, for the most part. There are companies that have administered them for decades, and there hasn't been any kind of Roosevelt-type black swan event that would diminish faith in them. That still leaves some wanting, though.

And if you're in that category, you're going to find self-administered physical gold ownership a lot more appealing. This sort of brings us to the second point, and they are indeed intrinsically tied.

Related: Physical Gold Vs Paper Gold - Which is a Better Investment?

Physical Gold Perk #2: Self-Storage

There is some debate surrounding home storage pertaining to IRAs. It's generally viewed as not allowed, but some companies claim to facilitate it. Still, for all intents and purposes, you can expect that the precious metals in your IRA will have to be stored inside a third-party vault. The annual fees are kind of negligible compared to the feeling of unease one might get from not being around their bullion.

Of course, storing your gold in an approved depository comes with its own set of benefits as mentioned above. It can actually be considered better from quite a few viewpoints. Here's the thing about physical gold and other precious metals outside of an IRA, however: you can still opt to store it inside a third-party depository if you want to, just as if it was in a retirement account.

But if not, there are many kinds of home storage options to choose from. You can go for a regular home safe or even have something larger depending on how much bullion you have. 

You don't need a safe to begin with: believe it or not, a lot of people bury their precious metals, while some go for a compromise in terms of an underground vault. And if you do have your own vault, you can store many other things in it besides precious metals.

Obviously, on one hand, it won't be nearly as secure as an approved depository. And there's the question of insurance, which is a huge factor to consider. But precious metals investment, in many ways, is about having choices. And the choice to store your bullion privately can be an important consideration. As for other choices...

Physical Gold Perk #3: More Choices of Bullion

Most gold IRA companies let you invest in things like gold, silver, platinum, or palladium coins, bars and rounds of different kinds. However, the choices are limited. The limits are imposed by the IRS, which dictates that IRA-approved precious metals must have a specific purity minimum. But that's not all: they also disallow collectibles of any kind, which can cause some confusion when trying to discern between bullion and proof coins.

None of this is really a consideration when talking about home storage of physical gold, or any kind of individual storage. You can buy bullion coins, proof coins, numismatics or even gold of a more exotic variety, such as jewelry. All of this can be part of your portfolio without having to worry about what is and isn't allowed.

If you see a physical gold item you like, you can add it to your portfolio whenever. The same isn't really true for gold IRA accounts. You have to make sure it's IRA-eligible, and this point tends to be more complicated than some would like. 

The gold in an IRA generally needs to be sold by the precious metals broker through which you've opened an account, meaning you can't add bullion from other sources.

This is yet another major detriment for many. It's not without reason that gold IRA companies often sell plenty of numismatics coins, with 19th and 20th century U.S. coins such as the Gaudens being found in many inventories of retirement-oriented firms. 

Even though these coins can't make it into an IRA, they're very popular among gold investors, to the point of essentially causing these companies to branch away and expand their offering.

As an individual gold investor, you are neither limited to a single bullion dealer nor a specific set of bullion pieces. You can compare prices all day long and find a retailer that works better for you, and you can add a wide variety of gold and other precious metals that wouldn't even be in the conversation when it comes to a gold or silver IRA. And you might be surprised by how exotic some forms of physical precious metals can be.

Gold IRA vs Physical Gold: Which Investment is Best?

Given that we've outlined three perks of each kind of gold investment, we can go ahead and sum up the questions you should ask yourself in three points:

·        What is your preferred method of funding the purchase of gold bullion, and do you expect to considerably increase the amount of metal you own down the line?

·        Do you trust third parties to manage your gold bullion?

·        Do you want to invest in numismatics or other, more exotic forms of physical gold?

How you answer these questions will probably decide the best type of gold investment for you. Of course, let us not forget that one doesn't eliminate the other: you can both have a home safe with gold in it and have a gold IRA. And many do. If possible, we'd advise you to go for this, as it will give you exposure to the best of both worlds.

If not, assess your options based on your individual preferences. Gold IRAs aren't for everyone, precious metals investors or otherwise. Likewise, storing gold by yourself and constantly worrying about it also isn't for everyone and is undoubtedly a liability you take on when opting for ownership out of an IRA. Either way, always keep in mind that gold investment is about long-term safety, and that investment decisions surrounding it should be made accordingly.