Lets discuss holding Gold in an IRA. Lets not discuss how Gold is not an appreciating asset or how TIPS is better inflation protection or how gold doesnt do anything. If you dislike gold as an investment, then please leave the thread free for people who do like gold to discuss IRA options. If you dislike investing in gold then this thread is not for you!
My personal belief is that depending on your asset allocation, 5 to 25% of the portfolio should be in gold. GLD is not "safe" in many people's opinion as an ETF and may collapse when you need it most. Physical gold is the way to go.
Why might one choose to store gold coins in an IRA?
1) Collectables tax is 28% regardless of your tax bracket. If gold does double or triple in value due to a spike in inflation, then it makes more sense to shelter it then equity mutual funds. [reference to Roth IRA]
2) Storing gold coins can be a hassle, and a security risk. IRA custodians store gold in large bank depositories.
3) One may be maxing out tax-sheltered space and have no room in taxable savings to buy gold with. Once tax-sheltered space is passed on [April 15th the following year], it is lost forever.
4) You can take physical possession of the bullion upon distribution.
Why might one choose not to store gold coins in an IRA and instead hold them personally?
1) Potential Gold confiscation that occured earlier in the 1900s. Without violating forum rules and strictly referring to what the government did, in fact do, within the last 100 years -- they might confiscate all gold and offer a below-market value for it. However, many intelligent people believe it is unlikely this will ever happen again.
2) One might choose to hold more tax inefficient things such as REITs and Bonds within sheltered space, if it is limited.
3) Some people like to have physical possession of their gold, or store some of it outside the country [like Harry Browne]
Considerations storing gold coins in an IRA:
1) Finding a custodian. The IRS requires that an outside IRA custodian hold your gold. My google-research shows that just about every single "Gold IRA" company stores their gold in HSBC precious metal depository in NYC.
2) Reduce fees. My research has shown that it is ridiculously expensive to hold gold in an IRA. One site wants almost $100 per year admin fee plus 0.08% storage fee (min $50 for this one) and fees to cash the gold into physical bullion. I have not yet determined the cheapest or best places to store them in.
3) Only American Eagles 99.99% gold can be stored in a US IRA. I believe it also allows Canadian Maples but Krugerrands are prohibited due to lower gold count (~ 90%)
4) I believe that the IRA custodial fees MUST come from within the IRA. Therefore suppose you want to invest $5k of your 2009 contribution into gold bullion. You would probably have to buy 5 ounces of gold at $925 (todays spot) each and then sit on $375 in cash within that IRA, probably earning nothing. I am not aware if you are able to buy fractional ounces of gold in a "pool" type account for an IRA. If the "pool" account is not possible, then you would effectively need to keep cash in the account to pay the fees. Since IRA custodial fees must be paid from within the IRA assets. So keeping "wasted" cash sitting on the sidelines could be considered another expense.
5) Rebalancing may be challenging. The ONLY way to properly use gold as an investment is to rebalance. It's true gold does nothing. It's worth the same now as it ever was. However if when gold increases in price, you sell it and buy stocks. And when gold decreases in price you sell stocks to buy gold, then you have a beneficial investment. This is the prime basis for Harry Browne's Permanent Portfolio.
It would be ignorant to be scared of inflation and buy $5k of gold in an IRA as a one time thing, then forget about it and just do your other Boglehead stock/bond contributions for the next 30 years. The only way for it to work, is to set an asset allocation, 5% to 25% IMHO, and rebalance it. Since the IRA custodian can only hold gold coins in that account, it will require rebalancing with new money. So supposing that Gold triples in value , but your new money going to stocks/bonds at Vanguard isnt enough to bring the gold allocation back down to normal, then your rebalancing failed and you may hold the gold through the bubble and watch it pop on you. I am sure you could sell some of the gold within the IRA account and roll that cash over to VG to invest in stocks/bonds, but that is going to be a huge hassle and will involve several weeks of lost market exposure during an obviously volatile time. By definition it would be volatile if gold spiked 300% in a brief period.
Perhaps one way to counteract this is to old a small portion of GLD in a brokerage IRA or physical gold outside the IRA in order to rebalance with. I do not like GLD and do not trust it, but if its less than 20% of your overall gold portfolio it should be OK for purposes of rebalancing.
Further Research Needed:
For anyone considering this, we need to find the best IRA custodians for the job. Not necessarily the cheapest, because gold is by definition our safety asset. So if the IRA custodian fails or some craziness happens, that is the time we would likely need the gold asset the most.