Traditional Versus Precious Metal IRA – What’s the Better Investment?

Posted - January 29, 2024
traditional versus precious metal iras

Did you know that you can add gold coins and bars to your Individual Retirement Account (IRA)? Traditional IRAs are exclusively made up of stocks and bonds. Under the legacy system for opening an IRA, investors trust certified financial experts with their money. Over time, their tax-shielded gains help to build a sizable nest egg that investors can use to retire.

A growing number of investors are instead turning to precious metal IRAs to help them prepare for retirement. By opening a gold or silver IRA, investors can stack the precious metals they already love while also reaping the benefits of a Individual Retirement Account.

Is a precious metal IRA the right choice for your future? In today’s Bullion Academy guide, we’re comparing traditional and precious metal IRAs. Traditional versus precious metal IRAs – which is the best choice for your financial future? We’ve got you covered with a comprehensive guide to opening your first precious metal IRA. 

What is a Traditional IRA? 

IRAs are the most popular way to invest for retirement. When you open an IRA, or Individual Retirement Account, you’re able to invest in stocks, bonds, and other assets over time. As you build your IRA portfolio, your profits aren’t taxed. 

Instead, taxes for your contributions are only collected when you eventually withdraw money from the account. The amount of money you pay in taxes on your IRA depends on when you make your withdrawal. Withdrawals that occur before the age of 59.5 are given an additional penalty. 

Why Open an IRA?

Clearly, an IRA’s tax-advantaged status with the Internal Revenue Service (IRS) is the main reason many investors plan for retirement using this system. Because they don’t pay taxes on your profits and are only taxed when they withdraw money from the account, investors can save quite a bit of money for retirement when planning for the future using an Individual Retirement Account. 

IRAs are often managed accounts. This means that investors don’t have to worry about finding their own stocks, bonds, and other assets to add to their portfolio. Instead, most IRAs are managed by financial institutions and experts. These account managers work closely with trusted banking institutions called ‘custodians’ to keep investor assets safe and secure over the lifespan of the account. 

But there’s another type of IRA that many investors are now using to help build their portfolios prior to retirement: precious metal IRAs. Before we get into comparisons between traditional versus precious metal IRAs, let’s take a look at what these unique investment accounts look like. 

Precious Metal IRAs Explained

Also known as a gold IRA, a precious metal IRA is a unique kind of Individual Retirement Account. These accounts, unlike traditional IRAs, can be composed of gold, silver, and other precious metal products. 

Opening a precious metal IRA is a lot like starting a traditional retirement account. There are a few key differences, and we’ll cover those later in today’s guide. 

For the most part, though, a precious metal IRA looks similar to a traditional IRA. When you open your precious metal IRA, you’ll need to have a self-directed IRA managed by a custodian capable of storing and handling precious metals. 

Benefits of Opening a Precious Metal IRA

There are several benefits to opening a precious metal IRA. For the most part, these benefits closely mirror the advantages of buying gold, silver, and platinum bullion. Investing in gold or silver using a precious metal IRA can help you protect yourself against inflation, diversify your portfolio, and gain more control over your retirement savings. 

Protecting Against Inflation

All precious metals are considered safe haven assets. As safe haven assets, bullion bars, rounds, and coins can help protect investors against the effects of inflation. While fiat currency like the United States Dollar can become nearly worthless under troubling economic conditions, the intrinsic value of precious metals tends to withstand even the worst historical periods of inflation. 

When you open a precious metal IRA, you can add these assets to your portfolio and reap the benefits they offer as a bulwark against inflation. 

Diversifying Your Portfolio 

Ask any financial advisor the most important rule of investing. For most experts, the answer is easy: diversification. Your goal as a savvy investor is to prevent one key indicator from wrecking the value of your portfolio. 

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Valcambi 1 oz Gold Bar

As an example, imagine that you’ve put all of your money into one class of stock: gas and oil. Years later, you’re approaching retirement when you read online that this industry has collapsed because of renewed public interest in electric vehicles that don’t run on gas. 

In this scenario, you’d lose almost all of your retirement account’s value in an instant. 

Instead, experts recommend diversifying your portfolio using a combination of different assets. When you invest with diversified assets, your profits are less reliant on the performance of a few key industries. 

Adding precious metals to your portfolio is the ultimate form of diversification. Most precious metals are considered non-correlated assets. This means that the value of gold, silver, and platinum is likely to stay the same – or even increase – when traditional money markets struggle to keep up. 

Depending on your custodian’s policies, you might even be able to combine precious metals with more traditional investments, such as stocks, bonds, or ETFs. 

High Degree of Investor Control 

In order to add precious metals to your tax-advantaged retirement account, you’ll need a self-directed IRA. Self-directed IRAs are exactly what they sound like. These Individual Retirement Accounts allow investors to exercise a higher degree of control over which assets they add to their portfolios. 

When you think about it, this makes a lot of sense. When we compare traditional versus precious metal IRAs, one of the key differences is the degree of control a self-directed precious metal IRA gives you over your financial future. 

Many investors love the idea of being able to choose from a variety of traditional and non-traditional investment options for their retirement accounts. This is one core benefit of precious metal IRAs. These unique investment accounts allow you to maximize the amount of personal control you have over your financial future. 

Traditional Versus Precious Metals: Which IRA is Better? 

So which IRA model is better for you, a traditional versus precious metal IRA? To make up your mind, there’s a couple of things you need to consider. Tax considerations and the complexity of your investment strategy both play significant roles in helping you determine which IRA model works best for your investment objectives. 

Tax Considerations 

Tax benefits are one of the main reasons why people invest in Individual Retirement Accounts. Over time, these unique investment vehicles allow you to avoid paying taxes on your gains. As long as you allow your IRA to mature until you reach the age of 59.5, you’ll pay only a fraction of the taxes you’d normally pay when you withdraw your investments at retirement time. 

This is true for both precious metal and traditional IRAs. Under both models, you’ll be allowed to defer your capital gains taxes until you finally withdraw the money once the account reaches maturity at the age of 59.5. 

Still, there are unique tax implications associated with the purchase and sale of gold, silver, and other precious metals. We recommend speaking with a financial advisor to figure out the tax-oriented differences between traditional versus precious metal IRAs. 

Complexity of Investing 

Investing in a self-directed precious metal IRA gives you more control over the types of investments you include in your portfolio. This can be a great asset for gold stackers who want to determine the exact coins, bars, and other products that they add to their investment account. 

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But not all investors are interested in having this degree of control over their Individual Retirement Account. For decades, the traditional IRA model has kept a solid reputation as an easy way to store wealth and prepare for retirement. In a way, a good IRA managed by trusted advisors and custodians can allow you to make profit over time without having to stress about the particulars of investing. 

For investors who like to throw their money into an account and forget about it until retirement approaches, traditional IRAs may be a better choice than self-directed precious metal IRAs. 

How to Open a Gold IRA

There are four main steps to opening a gold IRA. To start adding precious metals like gold and silver to your retirement account, you’ll need to open a self-directed IRA and identify a trusted custodian. After you’ve managed these two steps, all you have to do is fund your account with cash and choose the right precious metals for your retirement account! 

Step One: Opening a Self Directed Individual Retirement Account 

According to the Internal Revenue Service, precious metals can only be added to retirement accounts with a special “self-directed” classification. These accounts aren’t exclusively used by gold stackers. Instead, people open self-directed IRAs in order to fill their retirement portfolios with a wide range of non-traditional assets. 

But if your dream is to stack kilos of gold, silver, platinum, and palladium in your retirement account, you’ll first need to open a self-directed IRA. 

Remember: not all investment organizations and custodians offer self-directed accounts. To start investing in precious metals for retirement, your first step is to open a self-directed IRA with a licensed financial service provider. 

Step Two: Finding a Trusted IRA Custodian 

A custodian is the person or entity who will keep your investments safe and secure. Regardless of whether you go with a traditional IRA or a self-directed precious metal IRA, you’ll need to identify a custodian. 

Precious metal IRA custodians need to be able to store and manage a large volume of precious metals. If you work with a certified IRA manager, they should be able to help you choose an acceptable custodian to watch over your investments. 

Step Three: Funding Your Account 

As you probably already know, a core part of opening and managing an IRA is funding. Over time, you’ll give your account manager cash assets, which will be converted into suitable investments for your portfolio. 

Traditional Versus Precious Metal IRA - What's the Better Investment?
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This process is the same for self-directed precious metal IRAs, but there’s also a small twist. Because precious metal IRAs are self-directed, you’ll also consult with your account manager to determine the specific coins and bars you’d like to add to your collection. 

Step Four: Choosing Your Precious Metals 

This is the final step in the process for opening and managing your precious metal IRA. To fill your account, you’ll need to choose precious metal products, which will be purchased by your account manager using the funds you add to your account. 

These coins and bars will then be managed and protected by your account custodian, whose job is to keep your investments safe and secure. Over time, the value of your portfolio will grow – but you don’t pay taxes on your gains until you eventually retire and withdraw your funds! 

Should You Open a Precious Metals IRA? 

Opening a precious metal IRA is a serious financial decision. We recommend that readers consult their financial advisors before investing in a self-directed precious metal Individual Retirement Account, or IRA. 

We recommend considering a precious metal IRA if you’re interested in protecting your portfolio from the effects of inflation. Additionally, many investors find that precious metal IRAs make it easier for them to exert full control over their retirement accounts. 

Ultimately, our advice is to carefully consider your risk tolerance, time horizon, and overall investment strategy before putting your money into a gold IRA. 

Final Thoughts: Comparing Traditional Versus Precious Metal IRAs

Both traditional and precious metal IRAs come with benefits – and downsides. While precious metal IRAs are an increasingly popular way for investors to plan for retirement and avoid the ravages of inflation, they also require savvy gold stackers to put a bit more work into setting up their retirement savings accounts. 

Is opening a precious metal IRA the right move for you? 

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About The Author

Michael Roets is a writer and journalist for Hero Bullion. His work explores precious metals news, guides, and commentary.