Gold IRAs are individual retirement accounts designed to allow investors to hold physical gold coins or bullion as investments. Funding may come either before or after taxes and it is managed by an independent custodian.
Work with a company that offers low annual fees, reasonable storage charges and no early withdrawal penalties to avoid paying unnecessary taxes and fees.
Taxes on Investment Gains
Gold IRAs provide investors with an excellent opportunity to increase after-tax returns; however, it’s crucial that they understand all associated taxes and fees with such an investment before proceeding with one.
Physical gold falls into the collectibles category, and any gains on it are subject to the maximum collectibles tax rate of 28% compared with 15% long-term capital gains tax rate that applies to other assets and taxpayers.
Investors can purchase precious metals indirectly using an IRA to invest in shares of gold mining companies, various funds or ETFs – without incurring the 9% early withdrawal penalty or income taxes on withdrawal.
An additional advantage of investing in physical gold outside an IRA is that any growth or distributions are taxed immediately; by contrast, any tax liability for investments within an IRA doesn’t come due until retirement age is reached or RMDs must be taken.
Taxes on Distributions
When withdrawing assets from a Gold IRA, they’ll be taxed based on their fair market value – this tax also takes into account any fees paid during account life such as storage and shipping charges for physical coins and bars stored inside your IRA account.
An Individual Retirement Account (IRA) allows investors to purchase gold investments such as official coins and bullion. You can hold physical assets like gold coins or bars at home or pay a broker to store them in a bank safe deposit box.
Since 1986 when the IRS first permitted IRA investments in collectibles, investors have increasingly chosen gold ETFs instead as an IRA investment vehicle. According to 2007 IRS rulings, they don’t count as collectibles either, making these investment vehicles an even more appealing choice for owners of an IRA account.
Taxes on Withdrawals
As with any investment, opening and closing a Gold IRA requires costs. These expenses include one-time setup fees, annual custodian and storage fees and closeout charges similar to what are found with standard IRAs; but may include other expenses like shipping or insurance fees.
Gold should also be taken into consideration as it presents security risks that paper investments do not, such as theft and loss. To reduce these risks, make sure that it meets IRS fineness standards and stored at an insured, IRS-approved depository.
When cashing out your Gold IRA, its contents must be sold to an outside entity. Therefore, it’s essential that you work with a reliable dealer that does not overcharge. Furthermore, be wary of companies which attempt to manipulate prices or otherwise make liquidation difficult for your assets.
Early Withdrawal Penalties
Like other tax-favored accounts, gold IRAs must abide by certain restrictions that must be observed. All contributions should be made using pretax dollars; distributions before age 59 1/2 incur an early withdrawal penalty.
Many investors choose to include precious metals as diversification assets in their retirement portfolio for diversification purposes. Gold in particular can offer safety against more risky investments while offering stability against more volatile ones; however, gold typically does not generate high returns.
Many gold IRA companies will assist you in rolling over funds from an existing IRA or retirement account into their gold IRA in accordance with IRS rules, providing an excellent way to avoid unnecessary taxes and penalties on your investment. Be wary, however, when dealing with unfamiliar companies who claim they offer this service without first verifying if they possess all required licenses, insurance, registrations and certifications as this could be used as sales tactics to force fast decisions based on false claims of imminent economic collapse.