Gold IRA Tax Rules: The Complete Guide

Learn how the gold IRA tax work from my in-depth guide

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Many of us are always on the hunt for new investment opportunities. We all want a security net before we get to retirement age.

Gold IRAs can help you set aside some assets to ensure you have financial stability. However, there are a few factors you have to consider.

For example, gold IRA tax rules can play a major role in your decision-making. So, let’s take a look at some of the regulations of the account and how you can get the most out of it.

Gold IRA

IRA stands for Individual Retirement Account. This service allows you to accumulate savings with tax-free growth, or deferred taxes.

Gold is a type of self-directed IRA that follows the same principle. However, the main capital comes from precious metals as well as other valuables.

To open up an account, you’ll have to visit a gold IRA company to help you set it up. After that, they’ll consult on what metals you should buy and how to use the services.

Gold IRA Types

There are four main types of gold IRAs that you can sign up for.

1. Traditional IRA

The first, and most common, type of IRA is the traditional variety. You open this account with pre-tax dollars and you pay income tax on withdrawals.

This account can offer tax-deferred growth, which can be ideal for people with high incomes.

2. Roth IRA

Next on our list is the Roth IRA, which gets funding from after-tax dollars. That means that, with every deposit you make, the bank will apply standard income taxes.

While this may make growing the IRA a little more difficult, it’ll help in the long run. This is because the account can grow tax-free.

On top of that, when you start making withdrawals, you won’t have to pay income taxes.

3. SEP IRA

Finally, the last type of gold IRA is for self-employed clients. SEP stands for Simplified Employee Pension.

It resembles the traditional IRA, but instead of individuals, a business pays the cost.

A company owner will start the SEP to make contributions to retirement plans. In addition, they can also support their own savings account.

4. SIMPLE IRA

The SEP IRA is usually better suited for larger businesses. Yet, small companies may benefit more from a SIMPLE IRA.

Both accounts function in the same way, but SIMPLE accommodates around 100 employees.

Gold IRA Tax Rules

With any savings account, it’s crucial that you pay attention to the tax regulations. This is especially true for a gold account.

If the IRA violates the Internal Revenue Service (IRS) rules, the results won’t be pleasant. The IRA owner may be subject to major deductions or asset freezing.

That even includes mistakes that the owner made inadvertently.

So, let’s jump into the restrictions the IRS set on gold IRAs.

Deposit Limitations

With a gold IRA account, you can deposit an annual contribution of $6,000. However, if you’re 50 or older, the limit goes up to $7,000.

Still, this number will depend on your filing status and income. More often than not, people will only pay their taxable compensation for the year.

Tax Returns

After you make a deposit, you may file for deductibles on your tax return.

You can subtract the full amount if you don’t have a pre-existing retirement plan. In case you do, your income will determine the deductible. The same also applies if your spouse has a retirement plan.

Yet, it’s important to note that with Roth IRAs, all contributions are non-deductible.

Finally, as long as the IRA is open, you don’t declare any losses or gains in the account on your tax returns.

Spousal Contributions

If you and your spouse want to make contributions to the same gold IRA, you can. All you have to do is file for a joint return and have taxable compensation.

The contribution limit will change to reflect the shift in earnings. Deposits may not exceed the joint taxable income of both pirates, multiplied by two.

Age Limit On Deposits

The minimum age limit for an IRA account holder is 18 years. However, since 2020, the IRS removed the maximum age for adding contributions to a gold IRA.

You may continue to make regular deposits regardless of your age. This applies to all three types of gold IRAs.

Withdrawal Limitations

Fortunately, unlike other savings accounts, you can withdraw from gold IRAs freely. There’s no limit on how much money you can take out of the account.

You can easily make transactions through the financial institution holding your account assets.

However, the withdrawals may be subject to tax charges. You should include any withdrawals you make in your taxable income.

For traditional and SEP IRAs, the tax will depend on your income. Yet, for transactions within the first two years of starting an account, the tax is usually around 25%.

The sum may also accrue an additional 10% tax if you’re under the age of 59 ½.

When account holders hit the 59 ½ mark, the IRA starts charging taxes for every withdrawal. These payments will include a 10% tax and a 28% capital gains tax on any profits.

To make a transaction, you’ll need to file Form 1040 and declare the amount of withdrawal. There’s also a chance you’ll require Form 5329.

Yet, before that, check that you don’t qualify for any tax exemptions. That may mean you won’t need to pay any additional fees at all.

It’s important to note that most of these taxes aren’t applicable to a Roth gold IRA.

Forms of Withdrawals

When you plan on retrieving some of your assets from a gold IRA, there are a couple of ways you can go about it.

Typically, most account holders prefer standard liquid distribution. That means that they want their gold in the form of a check, wire, or ACH money transfer.

You convert your precious metals to cash and withdraw them as you see fit. The only issue with this method is that holders may lose out on capital depending on the exchange rate.

Other than that, you can also opt for an in-kind distribution. So, you’ll receive the precious metals just as you bought them, in the form of coins or gold bars.

Minimum Withdrawals

After the age of 70, account holders have Required Minimum Distributions (RMD). That means you must withdraw certain amounts from your IRA every year.

The exact sum will depend on the gold IRA balance. On the last day of the year, December 31st, you take stock of the exact figure in the account.

Then, the IRS will divide it by your life expectancy or applicable withdrawal period. This will give you the total RMD for the year.

As you can imagine, this number changes on a yearly basis.

Charitable Withdrawals

Most of us know that charitable donations can qualify for tax deductions. The same applies to gold IRA distributions.

An account holder over the age of 70 ½ may be eligible for tax breaks when they make a sizable donation.

Yet, they have to pay the charitable withdrawal to a qualified charity directly. That means if the money goes through an intermediary, additional charges may apply.

On top of that, the transactions will go toward your annual RMD. For example, if your RMD is $1,000 and you make a $100 donation, you only have to withdraw an extra $900.

All you have to do is declare the charitable withdrawal on Forms 1040 and 1099-R. With traditional and Roth IRAs, you’ll also have to file Form 8606.

Rollovers

A rollover is when you transfer the remainder of one balance to start a new one.

Luckily, that means you can roll over the contents of an IRA to start different retirement plans.

On top of that, there’s the option to open up an IRA with another pre-existing plan. However, there are a few accounts that don’t qualify for this rollover.

This includes loans, hardship distributions, charitable donations, and dividends.

Still, there are conditions that you have to meet for the rollover to apply. First off, the deposit has to happen within two months of receiving the distribution.

That means once you withdraw an amount from one account, you have 60 days to start a new IRA.

Sticking to these stipulations may mean you’re eligible for a tax waiver. So, you might not have to pay the 10% additional withdrawal fees.

Loans

While placing most of your money in gold is a good idea for the future, it may affect financial liquidity. In that case, you may need to apply for a loan.

Unfortunately, the IRS doesn’t permit loans from IRAs. You can only apply for an overdraft with a 401 (a), or other accounts with governmental plans.

Taking out a loan on an IRA may have severe repercussions. The account will revert to a regular savings account and be subject to income tax.

Converting IRAs

Both traditional and Roth IRAs have their benefits and drawbacks. So, it can be a little tricky to decide which one is best for you.

The good news is that you can decide to convert your account type. At any point, you may roll over one IRA for another.

You have the option of starting a new account with the same financial institution or a different one. But keep in mind that switching banks may mean a lot of extra paperwork.

Still, you have to remember that you start a traditional IRA with pre-tax dollars. For that reason, the conversion may accrue additional tax.

Investments

Other than regular withdrawals, gold IRA holders can also invest with their accounts. This may be in the form of real estate or other business ventures.

Yet, the IRS doesn’t permit IRAs to invest in life insurance and other similar services. This also includes the purchase of certain collectibles.

For example, IRAs can’t fund artworks, antiques, jewelry, and stamps.

Custodians

Custodians are financial officers that help you manage and maintain your IRA assets. Since they’ll have access to all of your funds, it’s crucial to vet them out.

First off, you need to ensure they’re IRS-approved. They should be able to provide certification to verify that. Once that’s taken care of, you can discuss the IRA terms. This will be different for every financial institution.

You can talk about storage fees and account management. Some custodians also offer buyback programs, where they offer to purchase your gold.

Other than that, it’s a good idea to check out their client reviews. This will give you a better understanding of how the custodian operates.

Fees

When it comes to starting up an IRA, there are quite a few fees that come with the process. As you apply for the account, you’ll most likely have to pay account setup costs.

After that, the financial institution will also charge a seller’s fee. That means that each time you purchase precious metals, it’s subject to a markup.

Other than that, there are routine maintenance and storage fees. These include keeping your assets safe and ready whenever you need them.

Finally, there are usually shipping fees for transporting the precious metals around. So, every time you buy gold or withdraw it, you pay a small cost.

Funding

To start a gold IRA, you have to fund the account using precious metals. There are four types of elements that are eligible for this type of holding:

  1. Gold
  2. Platinum
  3. Palladium
  4. Silver

Still, even with these metals, there are regulations for the specifications.

For gold, the element must be at least 99.5% pure, like the American Buffalo coins. It also has to come from a national government mint or accredited manufacturer.

Moving on to silver, this metal needs to be about 99.9% pure to qualify for the IRA. Platinum and palladium need to be even more refined, with a minimum of 99.95%.

Acquiring Precious Metals

While you can buy precious metals anywhere, not all of them will qualify. That’s why it’s usually best to purchase your gold through custodians.

These are financial institutions that are in charge of protecting your IRA assets.

The custodian should be able to help you secure your fund and find precious metal dealers. On top of that, they’ll facilitate the transportation and storage of the gold.

Purchasing Precious Metals

Once you find a source for your precious metals, it’s time to pay for them. There are a few ways you can go about this.

The most common involves depositing cash directly into your IRA. This will allow your custodian to purchase the gold for you.

You can also transfer assets from other IRAs or accounts.

Storing Precious Metals

When people invest precious metals in an IRA, there are certain rules for the storage of the gold. For starters, the metals may not reside on private property.

That includes the owner’s home and safety deposit box. In fact, most owners won’t physically handle the gold at all while the IRA is open.

More often than not, the custodian will acquire it from the dealer and deliver it to the depository. This is a storage facility with IRS certification for IRA asset handling.

These spaces are usually highly secure and charge quite a pretty penny. Yet, many of them also offer insurance policies to ensure the safety of your precious metals.

Once the gold enters the depository, it only leaves with a distribution. The IRS deems removing any precious metals from their storage, even for a day, a withdrawal.

Watch this video to learn more about how is gold taxed in an IRA:

Gold IRA Tax Benefits

There are quite a few benefits to opening up a gold IRA. You get a stable retirement plan and most of the time, gold prices hold strong.

Still, some of the account’s major benefits involve tax breaks. Let’s take a look at what a gold IRA can do for you.

1. Tax Deferment Breaks

With a traditional IRA, you don’t pay taxes on any of your deposits. Yet, you have to pay taxes when you withdraw the assets.

This may lead you to believe that the payments will even themselves out. However, that’s not the case.

To begin with, when you deposit a sum pre-tax, your IRA can grow much faster. That means, for as long as the account stays intact, you’ll have a 100% return on all of your contributions.

This is especially useful for people in a high-income bracket. You get to keep all of your hard-earned money in a safe account. Then, as you retire, and your income bracket drops, so will the overall tax payments.

The only issue with this is that inflation is unpredictable. So, if for any reason taxes increase, IRA holders may take a slight hit.

2. Inheritance Tax Breaks

One of the major issues with large inheritances is the massive taxes that accompany them. Yet, with gold IRAs, this isn’t as much of a problem.

Following a holder’s passing, banks will transfer IRA assets to their next of kin.

This process is usually tax-free, which can impact the overall size of the inheritance.

3. Saver’s Credit Tax Breaks

When you open up a gold IRA, you may be eligible for the saver’s credit breaks.

Every time you make a deposit in the account, the IRS offers tax deductions. This is an incentive to contribute more precious metals to your retirement account.

These deductions can be quite enticing. For example, some financial institutions offer 50% returns on every deposit.

Learn more about the cons of gold IRA by watching this video:

Gold IRA Precautions

When you sign up for a gold IRA, you have to be aware of the risk you’re taking. Even though precious metals maintain their worth, their prices fluctuate constantly.

That means that you may not be able to predict exactly how much the account will be worth in a while. This is particularly true for IRAs since you only have tax-free access to the account years later.

Besides this, it may be difficult to negotiate a good deal with a custodian. That’s why it’s crucial to have an attorney present in all meetings.

The lawyer will be able to explain any legal jargon and walk you through any contracts. This gives you the best chance of getting a good deal on your account.

Wrapping Up

When looking through gold IRA tax rules, there are a few aspects you should be aware of. First off, decide between the different types of IRA depending on your preferences.

After that, consider all the deposit and withdrawal charges of each variety. It’s also a good idea to have an understanding of rollovers, investments, and loan tax laws.

Finally, you have to match certain specifications for the precious metal funding. Gold should be at least 99% pure, while silver needs to be 99.9%, and platinum and palladium 99.95%.