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Gold can be a valuable part of your investment portfolio. Unlike more volatile investments (such as stocks), gold has historically maintained its value during times of economic trouble. It's a good hedge against inflation and is one way to diversify your investments, which can help balance risk and reward in your portfolio.
One of the ways you can invest in gold is with a gold IRA. IRAs are retirement accounts with attractive tax benefits. While regular IRAs hold investments such as stocks, bonds and mutual funds, gold IRAs hold — you guessed it — physical gold. This makes them an easy way to incorporate gold into your investment portfolio and also enjoy some tax benefits.
But how much money should you put in a gold IRA? In this article, we will explore the factors to weigh when determining the right amount for you.You can begin exploring your gold IRA options here.
How much should you invest in a gold IRA?
There are several things to consider when deciding how much to put in your gold IRA. Here are three of the big ones.
Contribution limits
There are three types of gold IRAs, and how much you can contribute depends on which type you have. For the tax year 2023, contribution limits are:
- Traditional gold IRA: $6,500 ($7,500 for people ages 50 and older)
- Roth gold IRA: $6,500 ($7,500 for people ages 50 and older)
- Simple Employee Pension (SEP) gold IRA: Up to 25% of your self-employment income or $66,000 (whichever is higher)
If you contribute more than the annual limit to an IRA, the IRS charges you a 6% penalty tax on the difference. For example, if you contribute $1,000 above the limit, you'll face $60 in penalty tax. So be sure to keep contribution limits in mind to maximize your savings without incurring a penalty.
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Portfolio diversification
Experts say gold should make up 5% to 10% of your portfolio. This enables you to enjoy gold's price stability while allowing room for other, potentially higher-reward investments, such as stocks. A mix of high- and low-risk assets means your portfolio won't suffer too greatly over time if one asset underperforms.
Your financial situation
To enjoy the biggest tax benefits, you should aim to max out your gold IRA contributions — in other words, to pay the full contribution limit. But your situation might not allow for that. Retirement investing is just one part of a financial plan, and you shouldn't neglect other important money goals by focusing on it alone.
For example, if you have a large amount of high-interest debt, you should work on paying it down while also contributing to your retirement savings. Otherwise, the interest you accrue could outweigh any potential earnings you get from investing. Consider the average historical returns of IRAs have been around 6% to 10%, while the average credit card APR is currently around 24%.
Don't ignore investing in your IRA while you're repaying your debt; balance the two goals to set yourself up for greater long-term success. Over time, the more debt you pay down, the more you can contribute to your IRA.
The bottom line
How much you should invest in a gold IRA depends on your investing and retirement goals and current financial situation. If you need help calculating your ideal contribution amount, reach out to a financial advisor or tax professional for customized advice.
