IRAs are tax-deferred investment vehicles for retirement savings. You can invest in precious metals using either a traditional or Roth IRA.
Investing in precious metals is a great way to diversify your portfolio and protect it against economic instability, but be wary of certain IRS regulations when investing in gold IRAs.
Taxes on Gains
Traditional retirement accounts do not incur taxes until you make a withdrawal; however, investment earnings withdrawals will generally be taxed at your ordinary income rate, regardless of whether they have appreciated in value over time or been inactive.
IRS rules restrict IRAs from investing in physical precious metal coins or bullion as it considers these investments collectible items, however Congress and the IRS have relaxed this regulation to permit IRAs to invest in precious metals provided the coins or bullion remain under the custody of an IRA trustee/custodian rather than being physically owned by their holder.
The IRA custodian oversees the physical location of your bullion within a safe deposit box at a depository and charges an annual storage fee for it. Since most precious metals do not trade actively, their physical bullion makes up an asset class suitable for taxation purposes.
Taxes on Distributions
Even though an IRA provides many tax benefits, withdrawals vary according to account type and age. Withdrawals from traditional IRAs incur income taxes while withdrawals from Roth IRAs remain tax-free.
When it comes to precious metals, the IRS typically treats them as collectibles. Therefore, an IRA that owns physical gold must store it at an approved depository; otherwise, the IRS could deem its distribution and charge taxes and penalties accordingly.
An alternative investment opportunity for an IRA is investing in shares of an exchange-traded fund that tracks the price of specific precious metals, provided they do not come under McNulty’s unfettered command and control; otherwise this would constitute a taxable distribution. In Green Hill case McNulty was found to have constructive possession of AE coins so this option is no longer permissible under IRS rules.
Taxes on Rollovers
Rule of Thumb for Retirement Distributions If you roll over any taxable retirement distribution into another eligible account within 60 days, such as an IRA or 401(k), SIMPLE and SEP IRA rollovers do not count towards gross income tax liability – including direct and indirect IRA rollovers!
Investing in physical gold or precious metal coins through an IRA may present certain tax complications. For instance, the IRS considers such purchases to be collectibles and taxes them accordingly.
Depository facilities can help you avoid this dilemma, and often charge an annual storage fee that can either be flat or weight-based. They will report back to the IRS about your holdings as well. Alternatively, consider investing in one of several precious metal exchange-traded funds (ETFs), like GLD or the gold mining ETF GDX which are taxed as securities rather than collectibles.
Taxes on Withdrawals
IRA contributions generally don’t incur taxes until they are distributed (withdrawn). Withdrawals made before age 73 must pay taxes at your marginal rate and may incur a 10% early withdrawal penalty; to avoid it altogether seek equal periodic payments over time and spread them out evenly over several years.
Gold investments held within an IRA are taxed as collectibles rather than ordinary income or short-term capital gains, even if held for over one year, as the IRS considers gold to be a “collectible.” It follows suit with how art or baseball cards would be taxed.
At age 70.5, required minimum distributions must be taken from IRAs, though an inherited Roth IRA allows you to opt-out. You also must withdraw at least the required minimum amount each year; depending on your age and tax bracket this could mean incurring significant tax liabilities when taking these withdrawals out.
