An Individual Retirement Account, or IRA, is an excellent way to diversify investments and save for retirement. But there are certain rules and regulations you must abide by in order to take full advantage of this investment vehicle.
Physical gold IRAs must be stored at an IRS-approved depository that adheres to stringent security and insurance standards, while investors can also invest in precious metal ETFs.
Taxes on Withdrawals
Gold IRAs follow the same rules as traditional retirement accounts and come in the form of Roth pre-tax, traditional pre-tax or SEP accounts. Contribution limits, early withdrawal penalties and minimum distribution requirements all remain the same for these types of IRAs.
Investors may use their IRA funds to purchase physical gold coins or bullion or exchange-traded funds that track precious metal prices; any gains on such investments are taxed in accordance with long-term capital gains tax rules.
However, investing in precious metals-backed retirement accounts requires several important considerations. Investors must work with at least three entities–a precious-metals dealer, custodian and approved depository–to comply with IRS rules. Each may charge fees for its services; investors should carefully evaluate these against potential benefits of having such an account. Reputable and experienced companies can assist investors with setting up such an account, selecting their precious metals of choice and purchasing and storing them over time.
Taxes on Contributions
As with other IRA accounts, investing indirectly in gold through mining companies or exchange-traded funds (ETFs) may allow you to diversify your portfolio with tax advantages similar to investing directly. Any gains accrued are subject to regular taxes as would any other investment.
Gold Roth IRAs offer you the ability to invest in physical precious metals such as silver, platinum and palladium. Working with an independent custodian, you’ll set up the account, purchase metals from them and complete IRS reporting requirements.
These accounts require one-time setup fees and ongoing custodian fees that vary among institutions, storage fees to store your precious metals safely, dealer markups to sell them and dealer markup fees that could significantly decrease your after-tax returns – all costs that should be carefully considered before investing in a gold Roth IRA. It should also be remembered that historically these assets have not offered protection from economic downturns or stock market volatility.
Taxes on Rollovers
Investments in precious metals through an IRA can boost after-tax returns, though gains are taxed differently than other long-term investments. Physical gold is considered a collectible by the IRS and therefore subject to higher collectible rates up to 28%; by comparison, gold stocks, ETFs and futures investments are taxed like any capital gain investment.
Investors looking to purchase physical gold should carefully consider the associated fees, such as storage and insurance fees; these expenses can quickly add up. They should also factor in dealer markup rates which may differ significantly.
An optimal strategy for investing IRA funds in gold should involve gold mutual funds or shares of mining corporations that own physical gold assets, rather than buying physical bullion or coins directly. Unfortunately, certain types of precious metals such as rare and collectible coins as well as non-99.5 pure bullion cannot be directly owned within an IRA due to IRS restrictions on direct IRA investments in such precious metals.
Taxes on Inheritance
Individuals wishing to give Roth IRA funds directly to non-spouse heirs will need to follow the distribution rule applicable for non-spouse beneficiaries. Failing to abide by this regulation could incur taxes and an additional 10% penalty.
Physical gold investments are classified as collectibles for tax purposes and subject to ordinary income rates; their maximum collectibles tax rate stands at 28% – significantly higher than the 15% long-term capital gains tax rate that most assets and taxpayers face.
Investors should work with a precious metals dealer and custodian who is familiar with IRS rules when setting up and managing a physical metals IRA, including any fees such as storage, transaction or delivery charges which can add up over time. They should weigh the potential benefits against potential expenses when making their decision about an IRA account.
