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

Gold IRA Tax Rules
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For hundreds of years, gold has been sought after for its monetary value and physical beauty. However, it’s more expensive to hold physical gold because you will have to pay more taxes if the gold in which you invested increases in value. 

Receiving gains on gold investment in an IRA are subject to marginal tax rates and not the usual highest 28% tax rate like if you had invested in physical gold. In the year 2007, gold in an IRA was no longer classified as a collectible like physical gold or gold ETFs. Hence, investors go to invest gold in an IRA because it is subject to lesser taxes. 

Even though the traditional way to invest in gold continues to be people purchasing gold coins and bullion and having a broker store them for a fee, the new modern way of gold investment is having it in an IRA account. 

Considering gold CEFs and ETFs other ways to differentiate your gold investment portfolio. 

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Gold CEFs vs. ETFs

Besides gold IRA investment and physical gold investments, there are also gold CEFs and gold ETFs in which you can invest. According to BMOGAM Viewpoints, CEFs and ETFs are somewhat similar, but they also have their differences. 

CEFs allow you to invest in gold without having to possess physical gold itself. You can choose from investing in gold mining stocks or ETFs or even gold mutual funds and treat the CEF as a sort of a trust fund. 

EFTs are a little like CEFs in the respect that you can purchase something like a gold mining stock. However, you purchase your desired physical weight in gold and then purchase ETF shares related to said gold’s value based on weight.  

No matter the type of gold investment that you choose, you should be privy to the probability of gold lowering in value and affecting your investment’s original value as well as any taxes on gold involved for each investment type.

The Basic Gold IRA Tax Rules

Any of the contributions you make to your traditional IRA is considered tax-deductible. If you sell a precious metal such as gold from your IRA account for cash earnings, you will have to pay regular income tax on that earned amount. 

If you are younger than 59 and a half and request a withdrawal of gold from your traditional IRA, you may be subject to a 10% fee for withdrawing before you are eligible for retirement.

Hence, it’s best to wait until after this time to not experience any losses in your gold investment.  As for Roth IRAs, they are not deductible like traditional IRAs, which means there is no tax to pay on the withdrawals that you may make. 

You will have to pay extra fees if you decide to withdraw before the account hits age 5 and if you decide to withdraw before you hit 59 and a half. 

Is There a Way to Not Pay Taxes on Gold in an IRA?

If you do not want to pay capital gains taxes on gold in your IRA, you can utilize a 1031 exchange by reinvesting the earnings from your gold to purchase more of it and skip having to pay taxes on your earnings. 

If you had sold that gold to get cash out of your IRA account, then the IRS would subject you to pay taxes. However, as long as you used the earnings to buy more gold, and the IRS deems you eligible for the tax break, you would not have to pay taxes on that money you used to buy more gold for your IRA.

The Extra Costs Involved Investing in Gold

Besides investing in gold itself, there will be some fees that you have to pay to get your investment secured.  The main fees that you will have to pay to store your gold and/or purchase gold stocks and other investments include:

  • A gold storage fee. 
  • A brokerage fee for the shares that you purchase for gold mining stocks, gold CEFs, gold ETFs, and the like. 
  • Selling fees if you decide to give up your gold investment. 
  • Insurance policy to cover your gold if you decide to store it in your home, so the insurance can protect against theft or loss from a fire. 

Once you get through paying the initial fees and let the gold in your IRA account sit and increase in value over time, you may receive a great return on your investment as long as you are patient.

Final Thoughts

The gold IRA tax rules should be heeded so that you do not face any extra monetary penalties for withdrawing gold from your IRA account too early.

Continue reinvesting the money you make from your gold investment by purchasing more gold for your IRA account so that you can avoid taxes each year. 

If you need to start withdrawing gold from your IRA account, reassure it accumulates until after you hit 59 and a half and then you can start enjoying the fruits of your investment labors by withdrawing it when needed.

Gold IRA Tax FAQ's

What are the benefits of a gold IRA?

You won't be taxed for moving funds from your traditional IRA to a gold IRA. Plus, you will be diversifying your retirement investment portfolio to add more value to it over time.

Why do I have to wait until I am 59 and a half to withdraw from my IRA?

All IRA holders must wait to withdraw from their accounts until they're 59 and a half unless you're ready and willing to pay a 10% early withdrawal fee. This is a rule set by almost all finance companies. 

However, there is an exception to this usual rule. The 72(T) rule allows an IRA holder younger than 59 and a half to receive equal payments of their IRA benefits over 5 years.

If you skip a year of this equal payment, the 10% fee will be incurred.

If I gained money off of selling gold, how would I report that to the IRS?

If you earned money from selling gold from your IRA account, you can utilize Form 1040, Schedule D to report your earnings. 

Goldco

Goldco is one of the leading provider of precious metals IRA's. They pride themselves in customer service and the ability to help individuals diversify their retirement accounts.

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