Gold IRA Tax Rules Explained

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When it comes to the world of investing, most people are familiar with how and what to invest in when it comes to the stock market. However, there are several individuals that are not aware about investing in gold IRA nor about the gold IRA tax rules. Anytime someone considers buying gold it is not a requirement to have a gold IRA, but it’s important for him or her to fully understand all aspects should they decide to hold their gold in an IRA. This article is going to further explain what a gold IRA is about and the tax implications of holding gold in your IRA.

What is a Gold IRA?

By definition, a gold IRA is a type of self-directed individual retirement account that allows people to invest in gold bullion. Although one cannot own real gold in a typical IRA, he or she can invest in a variety of gold-related assets, such as gold mining equities or gold exchange-traded funds also known as ETFs. Whether conventional or Roth, it’s important to understand that gold IRA’s follow the same regulations as ordinary IRA’s when it comes to tax benefits, contribution limitations, and withdrawal criteria. In addition, a self-directed IRA allows you to invest in alternative assets such as real estate, tangible precious metals, and cryptocurrencies. Over the years the IRS has required additional reporting and record keeping for these IRA’s because of more complicated assets they possess. 

What type of Gold can you invest with a Gold IRA and are there any fees?

 As everyone should already know, the IRS has great input on which form of gold you can and cannot invest in. Since brokerage firms do not offer gold IRAs it’s ideal to work alongside experts known as custodians who distribute them. Custodians serve as a guide in ensuring that people have the proper paperwork and tax reporting to meet IRS requirements. In addition, they make it easy for people to store their gold at approved facilities like trusted banks, national depository, or a third-party trustee accepted by the IRS. No matter what there should always be communication with the custodian regarding the gold IRA in order to avoid small penalties from the IRS and if a person decides to take personal control of the physical gold in the IRA they can be subject to taxation and a close of their account.

Of the type of gold that can be owned in a self-directed gold IRA an individual has limited options that include gold bars as well as certain gold coins. There must be at least 99.5% in purity for gold bars to be accepted by the IRS, otherwise they will get rejected. Furthermore, the only gold coins that are suitable are American Gold Eagle, the American Buffalo, the Canadian Maple Leaf, and the Australian Gold Nugget or Kangaroo Coins. South African Krugerrand and the United Kingdom Sovereign would be considered coins that are not accepted nor can a person invest in gold collectibles with an IRA. Sometimes improper transactions are made and when this happens it counts as a withdrawal and a person will owe income tax on the value of the item. If at any point there is any uncertainty one should always consult with their custodian.

After a person fully establishes their gold IRA account, they can then deposit cash into the account each year following the annual IRA contribution limits or convert an existing retirement account without owing taxes. This will allow people to purchase gold for their gold IRA. There are also several additional costs associated with having a gold IRA which are linked to the custodian. As a new customer, some custodians are more lenient to waiving fees initially if there is a large account balance. Typically people would not see these fees on an ordinary IRA account.

Custodians may charge a fee upfront to open an account and generally ranges from $50 to a few hundred dollars to get started. There are also annual maintenance fees involved which covers any administrative work that deals with handling paperwork or overseeing the account. Depending on market conditions there may also be a seller fee that a seller charges as a markup when people buy physical gold for their IRA, which may also include commissions and transaction fees. Insurance and storage fees are usually lumped together and the cost of these two fees are based on how much gold a person owns. When sending or receiving money by wire or closing out the account, keep in mind that the custodian can charge a fee of $25 per wire and around $250 to close the account.

When is a gold IRA taxed, and what happens if you close it prematurely?

It’s important to keep in mind that gold IRA’s have similar tax rules to regular IRA’s so therefore there is a limit to how much a person can invest per year. Being that IRA’s are just another form of investing, investors look for the best returns upon paying all their fees and taxes. They will always be taxed when gains are made from their gold IRA’s but the good thing is that it stops at a certain percentage. When investors decide to close their accounts early they may be responsible for paying fees that can be quite expensive on top of paying taxes. These consequences are always based on the agreement signed before the account was opened.

Gold IRA Conclusion

No matter what investors should always consider their age when investing in a gold IRA. Anytime someone is near the retirement age or has already reached it, there could be some complications so it’s important to know all the risks based on age before considering a gold IRA. Again, it’s not necessary to have a gold IRA to invest in gold as there are more simple ways to save for retirement. Investors can invest in shares of gold mining and royalty companies or by buying gold mutual funds and ETFs. If someone considers this to be a better route, then it would be better for him or her to open a normal brokerage IRA which cuts down on extra cost, however, if an investor owns the physical metal itself then a self-directed gold IRA is by far the way to go.

Doing research is a very important step before investing in anything and there is never too much information that a person can gain especially when there are a growing number of scams on the market. To avoid these scams, always pick a custodian with a solid track record and only deal with accredited gold sellers. The more information a person knows the more likely they are to be a successful investor.


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