Gold IRA Tax Rules

About Gold IRA Tax Rules – In 1974, Congress passed the Employee Retirement Income Security Act encouraging individuals to invest for retirement through a tax-advantaged Individual Retirement Account (IRA).

Congress subsequently amended the law to include higher contribution limits, additional income tax benefits, and more diverse investment possibilities. The more popular IRA variations, each subject to specific limitations regarding contribution eligibility and amounts, include:

• Traditional – permits income tax-deductible contribution and tax-deferred investment growth until the later of fund withdrawal or age 70½. Standard income rates apply to withdrawn funds.
• Roth – permits after-tax contributions with earnings and withdrawals not taxed.
• Self-directed – traditional or Roth IRAs that permit alternative investments, including precious metals and real estate. A precious metals IRA is a unique version of a self-directed account subject to special gold IRA tax rules and regulations.
• Rollover – permits transfer from tax-favored IRA or employee-sponsored retirement accounts to succeeding IRA without tax consequences.

Investors seek gold in retirement portfolios for diversification and its historical reliability during economic turmoil. According to the IRS, IRAs are managed by banks, financial institutions, or authorized trust companies. They typically limit investments to stocks, bonds, mutual funds, and ETFs, following gold IRA tax rules. However, the Taxpayer Relief Act of 1997 enabled alternative investments, including precious metals and real estate.

General IRA Tax Rules and Regulations

All IRAs are subject to the same rules and regulations regarding contributions, withdrawals, and reporting:

• You need to earn income to fund an IRA of any type.
• Your contribution limits to Roth and traditional IRAs for the 2023 tax year are $6,500, or $7,500 if you're aged 50 or older. In 2024, these amounts increase to $7,000, or $8,000 if you're aged 50 or older.
• Traditional IRAs require mandatory distributions to IRA account holders by April 1 of the year following the holder reaching age 70½. There are no required distributions for a Roth IRA. Owning gold in a Traditional Gold IRA account may require distribution of physical gold held in the account when mandatory distributions begin.
• Account holders can have multiple traditional and Roth IRA accounts subject to a total maximum contribution established by the IRS each year.

The Gold IRA

A gold IRA is a self-directed individual retirement account that invests in physical gold and other precious metals. Since the financial crisis of 2008 and the resulting Great Recession, gold IRAs have become more popular.

Each Gold IRA account requires IRA trustees or custodians and an I.R.S.-approved depository to hold these assets. The trustee of a self-directed IRA is not a fiduciary nor sells investment products. They do not provide investment advisory services. They function solely as a transaction facilitator and custodian of the alternative investment assets that the IRA owner directs.

Funding a Gold IRA

Depending on the source of funds, investors who want to have gold in their retirement accounts have three options per gold ira tax rules:

1. A Traditional IRA account holder can transfer funds from their IRA account to a Gold IRA by direct transfer or through an IRA rollover account. There is no taxable event in such cases; the Gold IRA is treated as a Traditional IRA for tax purposes. Future contributions to the Gold IRA are tax-deductible, while future distributions are mandatory and taxed.
2. A Roth IRA account holder can transfer funds from an existing Roth account to a Gold IRA by direct transfer or through an IRA rollover account. Funds transferred are not taxable under the relevant transfer regulations. For tax purposes, the Gold IRA resembles a Roth IRA. Future contributions won't be tax-deductible, and distributions will incur standard-rate taxes.
3. Suppose you already have an IRA or 401(k), either regular or Roth. In that case, you can rollover some or all of its funds directly into a previously established gold IRA. Transfers between a traditional IRA to a traditional self-directed Gold IRA have no income tax consequence. This also applies in the case of a Roth IRA to a Roth self-directed Gold IRA.

Rollover Accounts

Rollovers from one IRA to another IRA must consist of the same property. For example, an IRA owner cannot take cash distributions from one IRA, purchase assets with the cash, then roll over the new assets into a new (or the same) IRA. The IRS treats cash distribution from the IRA as ordinary income in the year of the distribution. You must complete your rollovers from traditional accounts within 60 days of receiving funds.

Transfers from a Traditional IRA to a Roth IRS complicate tax consequences due to the difference between the two types. Since the former is tax-deferred while a Roth is tax-exempt, deferred income taxes due may be due and paid on the converted funds at that time. However, there is no early withdrawal penalty.

Gold IRA Investments

You'll need cash to purchase gold for you new gold IRA, probably from your rollover. On receipt of funds and the account holder's directions, an account custodian representative will confirm the proposed investment to be of legally acceptable quality. The representative then initiates the purchase and arranges its transfer to an approved depository.

You cannot add gold you already own to an IRA. A bank or I.R.S.-approved nonbank trustee must maintain possession of the gold purchased. In other words, you cannot store IRA gold at home or in a personal safety deposit box. Doing so and claiming deductions as a traditional IRA contribution nullifies the tax status of the account. This also subjects the account holder to taxes and penalties.

You must invest your gold IRA in actual gold, whether coins or bullion. Whether coins or a version of bullion (bars and rounds), the gold content must be 99.5% pure. The purity requirement limits the types of coins that you can acquire to gold, 1 oz. Australian Kangaroos, Austrian Philharmonics, and Canadian Maple Leafs.

Specific American gold American Eagle and American Buffalo coins are acceptable even though they do not meet the purity standard. Popular coins like Krugerrands and American Double Eagles do not meet the gold ira tax rules purity requirement.

Specific Gold IRA Tax Rules

The Collectibles Trap

The Taxpayer Relief Act of 1997 allowed us to add gold and precious metals to our Individual Retirement Accounts, opening the floodgates to those desperate for a tax-efficient hedge in a diversified retirement portfolio.

Designed to be relatively simple to operate and set up, the gold IRA is an immensely popular vehicle, but there are still a number of potential pitfalls for the unwary in buying retirement gold.

As is typical with the IRS – this apparent simplicity can at times hide complicated rules and restrictive clauses in an otherwise perfect retirement plan.

As take-up of previously restricted asset classes, notably hard assets like gold and silver becomes widespread, these hidden rules and exceptions have begun to catch out more and more investors.

Adding to the problem – there's a huge amount of misinformation online and it's not unknown for unscrupulous dealers to take advantage, knowingly selling high mark-up coins as suitable for an IRA when they're absolutely not.

Collectible Coins and Section 408(m) of the Internal Revenue Code

When most people think of collectibles they tend to think of art, antiques and ornaments – so it's often a surprise when they realize a huge part of the precious metals market is classified as collectibles.

The simple mistake of buying the wrong gold coins for your IRA can result in a huge and unexpected tax bill.

For example, if you invest $15,000 of your IRA funds in collectible coins, the IRS considers it a $15,000 distribution. This requires reporting it as part of your gross income and subjecting it to income tax at your standard rate.

It gets worse. In addition to being hit for tax on the $15,000 there's an additional 10% penalty tax if you're younger than 59.5.

But it doesn't end there. You've already paid tax on the distribution and a penalty on the price when you mistakenly added the collectibles. But fast forward to the eventual selling of these collectible coins and the proceeds of the sale being distributed to the IRA owner or beneficiaries.

This sale, a prohibited transaction, adds to gross income for the distribution year. It incurs an additional tax liability with no credit for prior penalties. Effectively double taxation.

What is a collectible coin?

With the exception of a few special US coins*, if a coin is sold on the basis of any special merit over and above the value of it's precious metal content, then it's a collectible.

Rare coins, miss-strikes, antique coins, proof coins, slabbed coins, specially graded coins, limited edition coins, enameled coins, coins in presentation cases – are typically collectibles and therefore not allowed in a gold IRA.

Play safe. Stick to buying standard bullion coins and rounds of sufficient purity, from mints recognized by the IRS. We list them here.

You'll know a coin is effectively standard bullion by it's price. Standard bullion coins and rounds sell at the spot price, plus a small premium of 5-20%. To be extra safe, only buy coins listed as being definitively suitable for an IRA. Not coins that should be suitable or may be suitable.

Gold IRA Tax Rules Exception: Gold and Silver American Eagle Proofs in an IRA

Despite being very obviously “collectibles”, there are gold and silver proof coins that can be added to a gold IRA. However, they must be American Eagle proofs.

Proofs are beautiful coins. The gleam with a true mirror finish and when looked at next to a regular bullion coin, the regular coin seems almost disappointing. Extra care goes into a proof coin's production, and they tend to be sold in display cases – adding to their overall beauty.

It's this beauty that commands higher premiums and greater dealer markups and commission. Is that beauty worth an extra 20%, 30% 50%, even 100% to you?

Will it be worth that same premium when you come to sell? Our experience says no.

A quick test – if you are looking to buy proof coins from a dealer, phone them and say you have say 20 gold proof eagles you're looking to sell. See what you're offered and compare it to their sale price.

Do the math and ask yourself if you want to take that kind of hit on your account for the sake of owning some slightly more shiny coins held in a distant vault.

Beware “Collectibles” that are not collectible

Numismatic coins can make good investments outside of an IRA, but for the purposes of a gold IRA, remember all you're really interested in is the weight of precious metals in your account.

As we've mentioned before dealer margins on regular bullion coins and rounds are pretty low especially if you shop around.

So some dealers, will take steps to increase their margins. They sell common bullion coins as special, claiming unique qualities like being last, or first, or limited production of 10,000.

They can make a very convincing argument and it's easy to believe what these “experts” are saying if you're new to precious metals investing.

And these coins WILL be suitable for your IRA, despite being collectible.

Why? Because they're not collectible, or rare, or limited – or at least not in a sense that will give them a resale value over their basic intrinsic metal content.

But the dealer will have made a nice profit from you.

Gold IRA Tax Rules Do Not Allow Home Storage

Gold in an IRA must remain with your custodian or trustee at an approved depository.

You can take a distribution from your IRA, however this will be taxable and may carry additional fees and penalties.

In recent years some IRA companies have started promoting “Home Storage”, “Check Book” IRAs or “LLC” IRAs as a loophole to this rule, where the IRA holder forms a Limited Liability Company. The LLC acquires gold coins (exclusively American Eagle Gold Coins in this scheme) and can store them at the new LLC company HQ, typically the IRA holder's home.

However IRS Publication 590 specifies that for all IRAs, “The trustee or custodian must be a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS to act as trustee or custodian.”

Again the IRS website states This rule [Gold in an IRA should be held at a bank etc.] also applies to an indirect acquisition, such as having an IRA-owned Limited Liability Company (LLC) buy the bullion. [These] IRA investments… run the risk of disqualifying the IRA because of the prohibited transaction rules against self-dealing.

Thus, storing Gold IRA products at home or in a safe deposit box, with the owner's access, violates IRS rules. IRS regulations mandate holding tax-advantaged IRA assets separately, without personal control, until retirement or early distribution. This ensures compliance with the Internal Revenue Code.

Swanson v. Commissioner 1996

Home Storage IRA companies cite the Swanson v. Commissioner case from 1996. They claim IRS and Department of Labor recognition for the CheckBook IRA. However, the Self-Storage IRA lacks IRS approval and is now explicitly disallowed.

In short, don't do it.

The One Rollover per Year Rule

As mentioned above, from January 1, 2015, you are only permitted to make one rollover from one IRA to another IRA in any 12-month period, regardless of the number of IRAs you own.