The Internal Revenue Service allows certain types of precious metals – gold, silver, platinum and palladium — to be purchased by an individual retirement account. A Gold IRA is a generic term for a self-directed IRA that holds any of the four acceptable precious metals. When an IRA is self-directed, the custodian has wide latitude to hold various types of assets in the account. Gold IRAs are usually set up with precious metal broker/dealers who can buy, sell and store your physical coins and bars. The regular rules concerning taxes and penalties on IRA withdrawals apply to Gold IRAs. Let’s take a look into the gold IRA tax rules.
In order to be compliant with gold IRA tax rules, you must limit your precious metal purchases to coins and bars acceptable to the IRS. Otherwise, you will be subject to an excise tax and your IRA may lose its status as an IRA. Normally, the precious metal must be 99.9 percent pure, although certain exceptions exist for specific coins. The only kind of coins allowed are bullion and some proofs– you can’t use your IRA to collect rare numismatic coins. Several different forms of gold and other precious metals are acceptable, including:
- American Gold Buffalo uncirculated coins (proofs not allowed)
- American Gold Eagle bullion coins
- American Gold Eagle proof coins
- Australian Kangaroo/Nugget coins
- Austrian Gold Philharmonic coins
- Canadian Gold Maple Leaf coins
- Chinese Gold Panda coins
- Gold rounds and bars produced by a COMEX- or NYMEX -approved national government mint or refinery, meeting minimum fineness requirements
- American Silver Eagle bullion coins
- American Silver Eagle proof coins
- Australian Silver Kookaburra coins
- Austrian Silver Philharmonic coins
- Canadian Silver Maple Leaf coins
- Chinese Silver Panda coins
- Mexican Libertad coins
- Silver rounds and bars produced by a COMEX- or NYMEX -approved national government mint or refinery, meeting minimum fineness requirements
- American Platinum Eagle coins
- American Platinum Eagle proof coins
- Australian Platinum Koala coins
- Canadian Platinum Maple Leaf coins
- Isle of Man Noble coins
- Platinum rounds and bars produced by a COMEX- or NYMEX -approved national government mint or refinery, meeting minimum fineness requirements
- Canadian Palladium Maple Leaf coins
- Palladium rounds and bars produced by a COMEX- or NYMEX -approved national government mint or refinery, meeting minimum fineness requirements
Withdrawal Gold IRA Tax Rules
Traditional IRA contributions are tax-deductible. However, you must pay taxes when you withdraw money or precious metals from your traditional IRA. The amount you withdraw is added to your annual gross income and is subject to ordinary income tax (not capital gains tax). You must also pay a 10 percent early withdrawal penalty for distributions you take before age 59 ½. However, you can avoid the penalty under certain circumstances, such as using the money to purchase your first home or to pay for medical insurance when you are unemployed. You can also avoid the penalty by setting up an annuity based upon your life expectancy. You must begin taking distributions by age 70 ½ or else face a 50 percent excise tax on the amount you failed to withdraw each year.
Roth IRA contributions, though not deductible, are always tax-free when withdrawn. Earnings are subject to taxation and penalties under two circumstances:
- The account is less than five years old
- You are under age 59 ½
The first condition always applies, regardless of age. The penalty arising from the second condition can be waived by the same sort of exceptions that apply to traditional IRAs. All other Roth IRA distributions are tax- and penalty-free. Unlike traditional IRAs, Roth IRAs do not require minimum distributions at age 70 ½ or any other age.
You avoid all taxes and penalties on your remaining IRA balance when you die. Your beneficiaries will have to pay taxes on the money or precious metals they withdraw from an inherited traditional IRA, although inherited Roth IRAs are tax-free. The 10 percent penalty is waived if you inherit an IRA from someone who dies before age 59 ½. However, the 5-year rule for Roth IRAs still applies.
Normally, you can space out withdrawals from an inherited IRA to reduce the annual tax bite. You always are entitled to a five-year span, and may qualify for a much longer withdrawal period depending on several factors, including:
- Your relationship to the deceased
- Your age
- The age of the oldest beneficiary
- The deceased’s age at the time of death
- Whether any of the beneficiaries is some entity other than an individual, such as a charity or trust.
You can cash in your precious metals before withdrawing them, or can withdraw them directly. In the latter case, the tax is determined by the current fair-market value of the precious metal. Make sure to consult with your accountant and work directly with a gold dealer that is familiar with the gold IRA tax rules before getting started.