Gold IRA Tax Rules: How is Gold Taxed in an IRA?

Gold IRA Tax Rules

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Do you have questions about gold IRAs? Well, we have you covered.

Perhaps, you’re looking to establish a new IRA. Or you have questions about the viability of physical gold in an IRA.

So to answer your questions about gold IRA tax rules and tax implications for a gold IRA, I’ve created this article for your convenience.

Although IRAs have been around for nearly 50 years, the use of physical gold as an investable asset has only been in use for less than 20 years.

In 1974 the Employee Retirement Income Security Act first authorized the use of IRAs. However, initially, IRAs were limited to workers that didn’t have pension coverage, but in 1981 the Economic Recovery Act made it so all workers and spouses were eligible for IRAs.

Finally, in 1997 The Taxpayer Relief Act widened the allowable types of investments permitted in IRAs, making it so that gold and silver coins were investable assets.

Gold prices, unlike real estate, are historically very stable. Investments in gold and other physical metals can be a great insurance policy against market instability.

Read on to find out more about why you should add gold to your investment portfolio.

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What is a Gold IRA?

A gold IRA, also known as a precious metals IRA, is a type of IRA that holds physical gold or other types of precious metals (such as platinum and silver) as the IRA’s asset instead of paper assets, to the benefit of the account owner.

It’s vital to note that a gold IRA operates like a regular IRA; however, because of the difference in the type of asset, it is essential to know if there are different tax rules associated with a gold IRA.

How is Gold Taxed in an IRA?

How a gold IRA is taxed depends on the type of IRA. Since there are several different types of IRAs, knowing the differences they play when associated with gold assets is essential.

Below is a list of the various IRAs you can use physical gold as an investable asset.

Traditional IRA

When it comes to a traditional gold IRA they are tax-deferred, which means that any contributions or gains aren’t taxed immediately.

However, you pay taxes on a Traditional gold IRA when you withdraw from it; typically, the tax incurred consists of the initial investment of the gold IRA and the gains it earned.

Then, based on your tax bracket, you’re taxed at your regular income tax rate for the year of the withdrawal.

Roth IRA

When it comes to a Roth gold IRA, they are not tax-deferred. However, when you start making distributions from it during your retirement, you will not be required to pay taxes on the initial investment or gains like with a traditional gold IRA.

Essentially, you pay taxes on the gold before you deposit it into your Roth gold IRA. Like a Traditional gold IRA, the taxes you incur depends on your tax bracket and the regular income tax rate for the year of the deposit.

SEP IRA

When it comes to SEP gold IRAs, only business owners and freelancers can use them. Essentially, a SEP gold IRA acts like an elevated version of traditional IRAs.

So you can contribute more of your income annually. In addition, like a Traditional gold IRA, a SEP gold IRA is tax-deferred.

So, the taxes you incur depends on your tax bracket and the regular income tax rate for the deposit year.

Types of Gold Investments

If you’re new to the concept of gold investments or gold IRAs, then you might not be aware that there are several different types of gold investments that you can make.

So, for your convenience, we’ve included a list of gold investments and important information about each of them.

However, it is essential to note that when it comes to using physical gold as an asset in your IRA, you cannot possess it; instead, an approved intermediary must hold your gold.

Gold coins and bullions

Gold coins and bullions have long been the standard way of investing in gold. They can be purchased officially from a registered broker and can either be stored at home, kept in a safe deposit box in a bank, or held (for a fee) by the broker for the investor.

Gold exchange traded funds (ETFs)

Gold Exchange Traded Funds (ETFs) combine the investments in physical gold with a stock market value.

You can purchase shares of an ETF, and each share is equal to a real-life weight of physical gold.

Closed-end Funds (CEFs)

Closed-end Funds (CEFs) have many similarities with ETFs, the only difference being the fund’s structure.

So, CEFs are essentially trusts.

Non-physical gold investments

Non-physical gold investments include gold mining stocks, gold mutual funds, and gold mining ETFs.

They act as an access point to gold investing; however, most of the actual investing is not in physical gold or precious metals.

Instead, the change in the price of such investments directly relates to various factors, such as the price of gold, international production, borrowing cost, and trading activity.

Contribution Limits & Requirements

Just like the usual paper IRAs, gold IRAs are subject to contribution limitations based on the type of gold IRA account.

Below is a breakdown of the contribution limits and requirements for each type of gold IRA account you can open.

Traditional IRA

When it comes to a Traditional gold IRA, the contribution limit is $6,000 annually if you’re under 49 years old and $7,000 annually if you’re over 50 years old.

Roth IRA

When it comes to a Traditional gold IRA, like Traditional gold IRAs, the contribution limit is $6,000 annually if you’re under 49 years old and $7,000 annually if you’re over 50 years old.

However, with Roth gold IRAs, you should know that there are special requirements and limitations based on your specific filing status.

SEP IRA

When it comes to SEP gold IRAs, as a business owner or freelancer, you can contribute up to 25% of your income instead of the $5,500 limit of Traditional and Roth gold IRAs.

However, if that 25% exceeds $53,000, the $53,000 will become your annual contribution limit.

Distribution limits and requirements

Just like the usual paper IRAs, gold IRAs are subject to distribution limitations and requirements. It’s important to note that any distributions taken before the age of 59 1/2 are subject to a 10% early withdrawal penalty.

However, exceptions for this penalty exist, such as a first-time home purchase, medical expenses, and death, to name a few. Once you reach the minimum age of 59 1/2, you can withdraw without penalty from any IRA account, and there are no distribution limits.

Regarding a Roth gold IRA, withdrawals must be taken after a five-year holding period.

Required Minimum Distribution

As with all types of IRAs, gold IRAs have a required minimum distribution that you should know before opening a gold IRA.

In addition, starting at 72, the IRA requires you to take an RMD (required minimum distribution) annually from Traditional and SEP gold IRAs. However, Roth gold IRAs are not subject to an RMD.

Only beneficiaries that are not the original IRA owner’s spouse are subject to RMDs on a Roth gold IRA. It’s important to note that if you don’t take an RMD or don’t take one that is large enough, you will be subject to pay a 50% excise tax on the amount not distributed.

Final Thoughts

Hopefully, this article has supplied valuable insight into whether or not a gold IRA is suitable for you and your individual retirement.

Or, at the very least, answered your questions about gold IRA tax rules and exactly how gold and other precious metals are taxed. 

Remember that gold IRAs operate very similarly to paper IRAs; however, since the assets are different, the values of gold and paper investments will fluctuate as time goes on.

Therefore, when all is said and done, you only must decide what is best and what risks you are willing to take when it comes to your future.

FAQ’s

You may, after reading this article, find yourself with questions. So for your convenience, I’ve included a few common questions associated with gold investments and gold IRAs.

Whether or not gold is a long-term or short-term investment depends on how you prefer to invest. The truth of the matter is that gold’s price per ounce can fluctuate significantly.

Therefore, short-term and long-term investments have pros and cons, and you must be aware of them to make an informed decision.

Like the usual paper IRAs, a gold IRA does not require tax to be paid on it until you make a withdrawal from it. The typical gold tax rate is 28%.

You can close a gold IRA early; however, it is essential to note that doing so can incur a 10% early withdrawal penalty.

In addition, you could incur a 28% capital gains tax on any profits if your gold increased in value while holding in your gold IRA.

The fee for storage charged by your depository can range from $50 to $300 depending on the amount of gold being stored.

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When it comes to customer service, fees, safety, and overall customer satisfaction, Advantage Gold checks all of the boxes.