Understanding Gold IRAs These accounts must be kept separate from normal IRAs. Gold IRAs are also known as precious metal IRAs. They can be set up either with pre-tax funds or as a Roth IRA, which is purchased with after-tax funds. Unlike other IRAs, these accounts require the purchase and storage of physical gold.
One way to invest in gold is with a gold IRA. An IRA is a retirement account that offers tax benefits. While a regular IRA allows you to hold stocks, bonds, and mutual funds, a gold IRA holds physical gold. It allows you to add gold to your portfolio while taking advantage of the tax benefits that IRAs offer.
At first glance, our beloved Internal Revenue Code appears to be stalling the idea of holding physical precious metals in an IRA. It states that an IRA investment in a metal or coin is generally considered an acquisition of a collectible. Therefore, for federal income tax purposes, the transaction is marked as a taxable distribution by the IRA, followed by a purchase of the metal or coin by the IRA owner (that would be you). In fact, this general rule prohibits IRAs from investing in precious metals or coins made from precious metals.
If you withdraw gold from your IRA before you’re 59½ years old, you’ll be charged income tax on the value of that gold plus a 10% penalty for an early withdrawal from a retirement account. For example, you could have an IRA that invests in precious metals and an IRA that invests in liquid assets such as listed stocks and mutual funds. To avoid the prospect of missing out on the rollover cutoff, many people choose to have their Gold IRA company coordinate the rollover through a direct transfer from institution to institution. If that doesn’t matter to you, there are other ways to add exposure to precious metals to your retirement portfolio, such as. B. the purchase of shares in gold mining companies.
To avoid running afoul of tax rules for proprietary transactions, self-governing IRAs, including gold IRAs, must have an IRS-approved custodian. In a regular IRA, you can’t own physical gold, although you can invest in a wide variety of assets that are invested in gold, such as gold stocks or gold ETFs. Since IRA owners are required to accept distributions when they are 73 years old, they could be forced to sell gold at a lower price than they would like. If gold seems like a solid choice for you, Sentell suggests investing no more than a third of your retirement savings in a gold IRA.
It’s important to be aware of all costs and expenses before you buy physical gold to keep in an IRA. A gold IRA also has similar tax benefits to a normal IRA, allowing interest to accrue tax-free until the owner is ready to retire. For a gold IRA, you need a broker to buy the gold and a custodian to create and manage the account. One important rule to know about storing physical gold in an IRA is that your precious metals MUST be stored at an approved depository institution such as the Delaware Depository Service Company or Brink’s Global Services, not in your home or in a safe.
While you can gain exposure to gold in a normal retirement account by owning stocks or funds, you can’t hold the physical asset in an IRA or 401 (k). IRS rules allow funding a Gold IRA with funds from another IRA, 401 (k), 403 (b), 457 (b), or Thrift Savings Plan. You don’t want to fund a gold IRA with cash because you’ve already paid taxes on that money, and the point of using an IRA as an investment tool is to take advantage of the tax advantage that comes with using pre-tax dollars.