Gold IRA Tax Rules
Generally, the rules concerning IRA transactions for gold IRAs are the same for other kinds of IRAs. There are some rules that apply specifically to gold and other precious metals in IRAs that are not applicable to other IRAs, such as purity and storage requirements. However, this post will focus on the tax rules that apply to the most common IRA transactions.
Free Investor Kit Shows How to Rollover or Transfer Your 401(k) or IRA into Physical Gold & Silver (Tax and Penalty Free)...
Precious Metals Allowed in Your IRA
The IRS allows IRA investors to hold gold, silver, platinum and palladium within IRAs. Generally, the tax rules are the same for all four metals.
When Congress first authorized the Individual Retirement Arrangement, or IRA, in 1974, Sec. 401(m)(1) prohibited IRAs from holding any kind of collectibles. However, in 1986, Congress relaxed the rule and allowed IRAs to purchase and hold certain U.S. gold and silver coins.
In 1998, Congress changed the rules again, and now allows IRAs to invest in gold bullion (coins, bars and rounds manufactured to trade based primarily on their weight in metal, and not on collector value) that has a purity of at least 99.5%.
Click here for a listing of precious metals that the IRS allows you to hold in an IRA.
Opening a Gold IRA? Understand the #IRS rules to avoid unnecessary #taxes or penalty
You cannot make “in kind” contributions to an IRA. That is, you cannot contribute physical gold to your gold IRA. You must contribute cash to an IRA, and then use the cash in your IRA to buy gold. However, you can roll over gold you hold in one IRA to another IRA.
Taxation of Gold IRAs
Gold IRAs come in two basic types: Traditional IRAs and Roth IRAs.
Traditional IRAs generally grow tax deferred. Taxpayers who meet certain income criteria can subtract amounts contributed to traditional IRAs from their income, using an ‘above the line’ deduction. It is not necessary to itemize using Schedule A in order to make pre-tax contributions to a traditional IRA.
Any amounts held within the IRA generally grow with no capital gains tax liability, nor any tax due on interest or dividends, for as long as they are held within the account.
However, withdrawals are taxed as ordinary income, at your marginal tax rate. They do not receive the favorable long-term capital gains tax rates. Furthermore, while gains on gold held outside an IRA account is usually taxed at a special collectible rate of 28%, gold held within an IRA account is likewise generally taxed as ordinary income on the amount withdrawn.
As of 2021, you can contribute up to $6,000 in a gold IRA account. If you are age 50 or older, you can contribute an additional $1,000 in “catch up” contributions. However, to deduct contributions to traditional IRAs, you must meet specific income criteria:
- Single filers covered under a workplace retirement plan: Your allowable deduction phases out gradually starting at an income level of $66,000, and phases out completely at $76,000 (up from $65,000 to $75,000 in 2020);
- Married couples filing jointly who are covered under a workplace retirement plan: You can deduct your entire contribution if your AGI is $105,000 or less. Once you reach that threshold, your allowable deduction gradually falls, and is phased out entirely at an income level of $125,000 (up from $104,000 to $124,000 in 2020);
- Married couples not covered under a workplace retirement plan: The deduction starts to phase out at $198,000 and phases out completely at $208,000 (up from $196,000 and $206,000 in 2020);
- Married but filing a separate return, and covered under a workplace retirement plan your allowable deduction phases out gradually at income levels from $0 to $10,000.
You can still make the full contribution to a traditional gold IRA at any income level. But some or all of your contribution may be non-deductible contributions. You don’t get an immediate, current-year tax deduction for non-deductible contributions. But you still get the benefit of tax-deferred growth.
Free Investor Kit: Diversify Your Retirement with Physical Gold & Silver (Tax & Penalty Free)
Early Withdrawal Penalties
Generally, you must keep assets in your IRA until you reach age 59½. If you take one or more distributions before that age, you must pay an excise tax of 10%. For traditional IRAs, this excise tax usually applies to the entire RMD. For Roth IRAs, you must pay the 10% excise tax on the gains, only, provided the asset’s been in the Roth IRA for at least five years.
The IRS makes some exceptions to the 10% early withdrawal tax penalty for IRAs under certain ‘hardship’ conditions:
- Withdrawals to avoid eviction or foreclosure;
- Withdrawals to pay medical expenses in excess of 10% of your adjusted gross income;
- Withdrawals to pay a former spouse under a QDRO;
- Withdrawals to pay higher education expenses;
- Withdrawals for a down payment for a first-time homebuyer
- To pay health insurance premiums while unemployed.
Substantially Equal Periodic Payments
If you want to tap your IRA early, you can avoid the 10% early withdrawal tax by committing to substantially equal periodic payments over your life expectancy, as defined in IRC 72(t). You may want to consider this if you choose to retire early. See here for more information.
Note that this may be difficult to execute with gold IRAs, unless you are able to sell metals to raise cash for the payments.
Required Minimum Distributions
You can’t take advantage of the tax-deferred growth of a traditional IRA forever. Starting by April 1st of the year after the year in which you turn age 72 (70 ½ if you reach 70 ½ before January 1, 2020), you must begin taking assets out of the IRA – and paying income taxes on them. These mandatory withdrawals are called required minimum distributions, or RMDs.
- These are minimum distributions, not maximums. You can withdraw more than the minimum required amount.
- Your withdrawals will be included in your taxable income except for any part that was taxed before (your basis). For example, if you made contributions to your traditional IRA on a non-deductible basis, you will receive credit for any taxes you paid.
Unlike traditional IRAs, Roth IRAs are not subject to required minimum distributions.
Free Investor Kit: Buy Physical Precious Metals with Your IRA - Without Taxes or Penalties From the IRS...
Calculating RMDs on Traditional Gold IRAs
To figure your required minimum distributions, divide the balance as of December 31 by an IRS-designated life expectancy factor. The IRS publishes these factors in Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).
There are three tables available. Use the table that fits your circumstance:
- Joint and Last Survivor Table – If your spouse is more than 10 years younger than you and your spouse is the sole beneficiary of the account.
- Uniform Lifetime Table - Use this if your spouse is not your sole beneficiary or your spouse is not more than 10 years younger than you,
- Single Life Expectancy Table – Use this table if you are calculating RMDs for an inherited IRA.
You must calculate your RMD separately from each traditional IRA account. But you can take the total amount from one traditional IRA or more. This rule is different from the rules governing 401(k)s, 403(b)s and other types of retirement accounts. With these you must take the RMDs from each account. Only the IRA gives you the flexibility to allocate RMDs.
If you fail to meet the RMD requirement by the deadline, the IRS assesses a stiff penalty of 50% on the amount not withdrawn. However, the IRS may waive the penalty if you can show that the shortfall was due to reasonable error, and that you took reasonable steps to remedy it. To apply for a waiver, file Form 5329 PDF, and attach a letter of explanation. See the instructions to Form 5329.
RMD Note for Gold IRAs
Be sure to plan ahead for your RMDs – especially if you have assets in gold IRAs or IRAs. Since gold doesn’t kick off interest or a cash dividend, you will need to sell the gold to take the RMD, or take the RMD “in kind.” That is, take the asset out of the account entirely. If your gold IRA consists of a single large gold bar, you may get pushed into a corner and forced to take a bigger distribution than you want to.
Plan ahead, and consider selling the large bar or bars, so you can sell a much smaller piece of gold for the RMD, or take a smaller piece as an in-kind distribution. This preserves the advantage of tax deferral for as much of the gold IRA as possible.
Alternatively, you can take distributions from other IRAs first, and maintain the tax deferral in the gold IRA account.
Tax Rules for Roth IRAs
Assets in Roth IRAs – to include Roth gold IRAs – generally grow tax free, provided the assets remain within the Roth IRA for at least five years.
Contributions. You can contribute up to $6,000 to a Roth IRA in any given year, provided your income falls under the IRS income threshold for the year. As of 2021, your modified adjusted gross income must fall below $125,000 for single taxpayers, or $198,000 for married taxpayers. Above those levels, your allowable contribution falls off gradually and reaches zero at MAGI of $140,000 and $208,000, respectively.
Since Roth IRA contributions are made with after-tax dollars, you do not have to RMDs from Roth IRA accounts.
Prior to 2020, the IRS allowed those who inherited non-spousal IRAs to spread out distributions over their entire remaining life expectancy. However, the SECURE Act revoked that favorable arrangement. Now, those who inherit IRAs, including gold IRAs, must empty the entire account within 10 years of the original owners’ death. There are just a few exceptions to the rule:
- The deceased IRA owner’s surviving spouse;
- The employee’s children (not grandchildren) who are under the age of majority (age 21). Once they reach the age of majority, they are no longer exempt, and the 10-Year Rule kicks in from that point.
- Disabled beneficiaries;
- Chronically ill beneficiaries;
- Individuals not more than ten years younger than the decedent.
Are the gold IRA tax rules and regulations overwhelming? Get in touch with a specialist that focuses specifically on gold and silver IRAs. Review some of the top precious metals IRA dealers, request more information, and get your tax related questions answered.
A trusted gold dealer can review your specific situation and advise your next step.
We've compiled a list of top rated gold IRA dealers along with links to verified independent client review sites, to make vetting a reputable gold IRA company simple...