Investing in a gold IRA is a great way to secure your financial future. However, there are some tax rules and regulations that you should be aware of before investing. In this blog post, we will discuss some of the gold IRA tax rules and regulations that you should be wary of.
Which Gold IRA Tax Rules Should You Always Keep In Mind?
If you’re thinking of investing in a gold IRA, you’ll need to be aware of the tax rules that apply. Here are some of the most important ones to keep in mind.
1. Only Invest In IRS Approved Precious Metals
Prior to 2002, only gold bullion could be held in an IRA.
The Taxpayer Relief Act of 1997 broadened the types of assets that could be held in an IRA, giving investors the ability to diversify their retirement portfolios.
The Internal Revenue Service (IRS) now allows Gold IRAs to hold a wide variety of precious metals, including but not limited to gold, silver, platinum, and palladium.
The main criteria that the IRS uses to determine whether a specific precious metal is eligible to be held in a Gold IRA are:
Purity and Fineness
The purity of the precious metals is determined by the content of other metals within the alloy. For:
Physical gold must have a fineness or purity of 99.5%, and can be in bullion or coins. A few types of gold coins include:
- American Gold Eagle proof coins
- American Gold Eagle bullion coins
- American Gold Buffalo uncirculated coins (no proofs allowed)
- Canadian Gold Maple Leaf coins
- Chinese Gold Panda coins
- Australian Kangaroo/Nugget coins
- Gold rounds and bars produced by a COMEX/NYMEX/approved national government mint or refinery
- Austrian Gold Philharmonic coins
All silver coins and bars must have a purity of 99.9%. A few types of silver assets include:
- Chinese Silver Panda coins
- American Silver Eagle bullion coins
- Mexican Libertad coins
- Australian Silver Kookaburra coins
- Austrian Silver Philharmonic coins
- Silver rounds and bars produced by a COMEX/NYMEX/approved national government mint or refinery
- Canadian Silver Maple Leaf coins
- American Silver Eagle proof coins
All platinum coins and bars must have a purity of 99.95%. A few types of platinum assets include:
- Canadian Platinum Maple Leaf coins
- Platinum rounds and bars produced by a COMEX/NYMEX/approved national government mint or refinery
- Isle of Man Noble coins
- American Eagle proof coins
- Australian Platinum Koala coins
- American Platinum Eagle coins
All palladium coins and bars must have a purity of 99.95%. A few types of palladium assets include:
- Canadian Palladium Maple Leaf coins
- Palladium rounds and bars produced by a COMEX/NYMEX/approved national government mint or refinery
2. Gold IRA Tax Rules For Withdrawals
Traditional Gold IRAs
- Tax-deductible contributions
- Withdrawals are taxed as regular income (not capital gains tax)
- 10% early withdrawal penalty for distributions taken before age 59 ½
- Avoid penalty to purchase your first home/ pay for medical insurance if you’re unemployed or set up an annuity based on your life expectancy
- Must start taking distributions by age 70 ½ else 50% excise tax is imposed on the amount not withdrawn
Roth Gold IRAs
- Contributions are nondeductible but always tax-free whenever withdrawn
- No minimum distributions are required at any age
- Penalties on withdrawals occur if an account is less than 5 yrs old or you’re aged under 59 ½
- Rest Roth gold IRA distributions are tax and penalty-free
3. Gold IRA Tax Rules For Bequests
You can give your loved ones a tax-free inheritance by leaving them money in an IRA, even if you are no more!
For starters, it’s important to know that:
Taxes and penalties are waived off on your remaining IRA balance when you die.
If you inherit a traditional IRA, your beneficiaries will have to pay taxes on the money/precious metals they withdraw, but if it’s a Roth, it’s tax-free.
In addition, if you inherit an IRA from someone who passes away before reaching age 59 1/2, the 10% penalty is eliminated.
The Roth IRA 5-year rule, on the other hand, remains in effect.
With an inherited IRA, you’re usually able to space out withdrawals over a few years to reduce the yearly taxes.
You have a five-year withdrawal window open to you, and depending on certain conditions such as your relationship to the deceased or the ages of people involved, that window may be longer.
Not only can the length of the withdrawal period be impacted by having beneficiaries who are entities other than individuals, but cashing in your precious metals IRA before withdrawing them is also an option.
If you choose to withdraw them directly, then the tax liability will be determined by the current fair market value of the precious metal.
4. Buy Gold IRA Only Through A Certified Custodian
The main thing you need to know about the tax rules for gold IRAs is that you can only buy gold through a certified custodian.
You cannot buy it directly from a dealer or through a private sale.
This is because the IRS rules consider gold to be a collectible, and they want to make sure that you are only buying it from a reputable source.
If you buy gold through a certified custodian, you will not have to pay any taxes on it until you retire and start taking distributions from your account.
At that point, you will pay taxes on the gains just like you would with any other retirement account.
Also, there are a few things you’ll want to keep in mind when choosing a good gold IRA custodian.
- First, you’ll want to make sure that the company is USA-regulated
- Second, there are also restrictions on what kinds of products can be offered by a custodian – so be sure to check on that before making your final selection
- Third, fees vary from custodian to custodian, so that’s something else you’ll want to take into account
- And finally, it’s always a good idea to choose a company that has been in business for a while and has a good reputation
If you keep all of these things in mind, you’re sure to choose the best gold IRA custodian for your needs.
5. Prefer Only IRS-Approved Depository For Storage
You should only use an IRS-approved depository for storage.
This will ensure that you don’t have to pay any taxes on the gold when you withdraw it later.
A few secure and IRS-approved depositories include:
- Brinks Global Services USA Inc.,
- CNT Depository Inc.,
- Delaware Depositories LLC, and
- Equinox International Corporation, etc.
When entrusting your gold to a depository, check its security protocols, insurance coverage, and storage fees.
You can opt to have your gold stored until you request a sale through a custodian.
A secure delivery service will transport your gold from the seller to your depository.
Lastly, don’t over-invest.
The IRS establishes annual IRA contribution limits each year.
Furthermore, if you are 50 or older, you may contribute up to $6,000 or $7,000 per year to an IRA.
6. Contributing To Your Gold IRA
You have 3 options when it comes to funding your gold IRA.
6.1. IRA Rollover
If you have an existing IRA, 401(k), or another retirement account with funds in it, you can roll those over into a gold IRA.
To do an IRA rollover, simply contact the administrator of your current retirement account and let them know you want to do a direct rollover into a gold IRA.
They will then work with the custodian of your choice to complete the transfer.
6.2. IRA Transfer
A transfer is similar to a rollover in that it allows you to move funds from existing individual retirement accounts into a gold IRA.
The main difference is that with a transfer, you have the option of moving funds from one custodian directly to another, without first taking possession of the funds yourself (else it becomes taxable).
This can be helpful if, for example, you want to move funds from a 401(k) with your previous employer to an IRA with a new custodian.
6.3. Cash Contributions
You can also fund your Gold IRA through annual contributions.
For 2019, the IRS allows you to contribute up to $6,000 ($7,000 if you’re age 50 or older).
If you’re married and file taxes jointly, both you and your spouse can contribute up to $6,000/year.
7. Prefer Investing In Precious Metals Only Through A Self Directed IRA
If you’re looking for a way to invest in physical precious metals like gold, it’s important to choose a self-directed IRA so that you can stay compliant with gold IRA rules and regulations.
With a self-directed IRA, you’ll have more control over your gold investments, and you’ll be able to keep an eye on the market trends to make sure that your investment is performing well.
Additionally, self-directed IRAs offer more flexibility when it comes to making withdrawals, so you can access your money if you need to without having to pay a penalty.
Ultimately, investing in gold and other precious metals through a self-directed IRA is the best way to ensure that you’re compliant with gold IR rules and regulations.
8. Don’t Withdraw Your Precious Metals From Your IRA Until You Are 59 ½
You should hold precious metals till you are 59 ½ years old else you will be subject to taxes and penalties.
If you withdraw your gold before you are 59 ½ years old, you will be subject to a 10% early withdrawal penalty.
In addition, you will have to pay taxes on the withdrawal at your normal income tax rate.
There are some exceptions to the rule that you cannot withdraw your gold from your IRA before you are 59 ½ years old.
For example, if you become disabled or if you need the money for medical expenses, you may be able to withdraw your gold early without paying the 10% penalty.
However, you would still have to pay taxes on the withdrawal at your normal income tax rate.
Gold IRA Tax Rules & Regulations FAQs
Gold held in an IRA is not taxed until it is withdrawn from the account.
The amount of tax you will pay depends on how long the gold has been held in the account. If it has been held for less than five years, you will pay ordinary income tax on any gains.
If it has been held for more than five years, you will pay a long-term capital gains tax rate, which is currently lower than the ordinary income tax rate.
Yes, you are allowed to take physical possession of the gold in your IRA.
However, you must follow the specific rules and regulations set forth by the IRS regarding gold IRAs.
For example, you must store the gold in a specific type of repository approved by the IRS.
Related: Gold IRA vs Physical Gold: Which is Better for You?
There is no such thing as a tax-free gold IRA.
However, you may be able to take a deduction for your contributions to a gold IRA. For more information, consult your tax advisor.
Yes, you can hold gold in an IRA, but there are specific rules that must be followed.
For example, the gold must be stored by a qualified depository.
Now that you know the basics of how gold IRAs are taxed, you can start planning for retirement with peace of mind.
If you have any more questions about gold IRA taxes, feel free to consult a financial expert or directly connect with your custodian. They’ll definitely help you with it.