Precious metals have long been seen as safe-haven assets during times of political or economic unease, so GLD provides investors with exposure to this asset class without the hassle of owning physical metal.
However, it is essential to realize that gains from precious metal IRA investments are subject to taxation at the same rate as other types of IRA accounts.
Capital Gains
IRAs are long-term savings accounts that enable taxpayers to defer taxes until they withdraw them, which means avoiding income and capital gains taxes on investments until you withdraw them. They come in various forms – traditional pre-tax IRAs and Roth IRAs are two options available – and may even be tailored towards specific goals, like first time home purchases, qualified higher education expenses or major medical costs.
Gains on investments held within an IRA are taxed at the taxpayer’s marginal tax rate when they are withdrawn, as opposed to investing directly with companies where dividends may be subject to ordinary income tax at their marginal tax rates.
Gold investments do not produce cash flows like stock investments do; therefore they are valued by their price at any given point rather than the yield they generate. Therefore, their value in an IRA may fluctuate with changes in interest rates and currency exchange rates; however, due to low correlation with stocks it could help hold its own against other assets within an IRA account.
Dividends
Gold does not offer investors any underlying cash flows, so appreciation comes through price movements rather than dividends.
Investors can also invest in precious metals through exchange-traded funds (ETFs). These investments track the price of gold and other precious metals without the storage and security issues that come with physical bullion or coins.
IRS has recently authorized IRAs to invest in ETFs that track gold, silver and platinum prices – offering investors who wish to diversify their portfolios without risking storage and security with physical bullion a solution for increasing diversification without incurring physical storage risks.
These accounts, like traditional pre-tax IRAs, Roth IRAs and SEP IRAs, have contribution limits, early withdrawal penalties and required minimum distributions (RMDs) after age 72. Emma and Lucas, two hypothetical 60-year-old taxpayers with similar incomes who are considering similar gold investments as investments are considering how their taxes would be affected.
Withdrawals
Gold is considered an investment with low market volatility and economic uncertainty; during times of market instability or economic unpredictability, its value may actually increase; this explains why so many investors use precious metals as diversifiers in their portfolios.
Individual Retirement Account (IRA) owners have two ways of investing in precious metals directly or through a bullion trust: purchasing physical precious metals directly and investing in one. Unfortunately, however, the IRS typically treats IRA investments in precious metals like collectibles and taxes them at ordinary income tax rates when they are withdrawn from an IRA account.
To calculate the taxable amount of withdrawals from an Individual Retirement Account (IRA), multiplying its previous Dec 31 balance with the life expectancy factor from IRS Publication 590-B and adding up all applicable life expectancies factors. Your IRA custodian will provide both you and the IRS with a Form 1099-R to document any distributions considered taxable distributions.
Withdrawals from Traditional IRAs will be taxed as ordinary income if taken before age 59 1/2 and could incur an early withdrawal penalty of 10% in addition to federal income taxes. Roth IRAs allow withdrawals at any time without penalty and don’t require RMDs.
Taxes
Tax rules surrounding your retirement account depend on its type. Traditional IRAs offer tax benefits when contributions are made pre-tax; however, withdrawals are taxed as ordinary income rates apply. Roth IRAs can potentially offer tax-free distributions if certain rules are observed for several years prior to distributions being made; self-employed workers can set up solo or SEP IRAs to save for retirement.
An individual retirement account (IRA) generally does not permit investments in collectibles; however, an IRS letter ruling allows investors to invest directly in gold (Letter Ruling 200732026). You must use an intermediary who meets the definition of trustee under law when investing.
Withdrawals from an IRA may incur income taxes and an early withdrawal penalty of 10% if funds are withdrawn prior to turning 59 1/2, with these rules intended to encourage you to keep the account active for its intended use – retirement planning.
