If you are looking to take advantage of the tax benefits of investing in gold, you've probably wondered about the tax rules that govern this type of investment. Gold IRAs are taxable as ordinary income, so early withdrawals are subject to penalties. However, the rules regarding self-directed gold IRAs are much more favorable to investors who wish to own the physical metal themselves. Here are the main points that you should know about IRA gold tax rules.
IRA gold withdrawals are taxed as ordinary income
Withdrawals from an IRA for gold are taxed as ordinary income if the metal is less than 99% pure. However, some types of precious metals are acceptable for IRAs. You can purchase American Gold Eagle coins or Canadian gold Maple Leaf coins. Gold or silver bars or coins must be more than 99.5% pure to be included. The IRS has specific rules regarding the taxation of precious metals in IRAs.
Early withdrawals are subject to penalties
Early withdrawals from gold IRAs are subject to penalties, and are typically taxed at 10%. The early withdrawal penalty applies to funds withdrawn before the age of 70 1/2, which is when you are required to begin making withdrawals from your account. You can make up to a year's worth of withdrawals before incurring the penalty. The IRS assesses the penalty based on the number of withdrawals.
IRA gold must be sold before age of 70 1/2
IRA rules state that precious metals in an account must be stored by a custodian in an IRS-approved depositary. While some proponents claim that there are exceptions to this rule, the IRS has not expressly endorsed physical possession of precious metals. A custodian can provide you with purchase receipts and tell you where your bullion is stored. Some custodians will charge annual fees for storage and insurance.
Early withdrawals are tax-free
The good news for people who own gold is that they can withdraw the money tax-free. Withdrawals can be made before the normal retirement age, or they can roll over the funds into a new account. Early withdrawals aren't necessarily tax-free, however, since you have to deposit the money within 60 days. Otherwise, you could end up paying a 10% early withdrawal penalty and even paying taxes on the distribution.
Roth IRAs still apply
While many IRAs allow investors to invest in various forms of precious metals, one type of gold IRA is specifically excluded from the rules. Although it is not allowed to withdraw from a Roth IRA until it reaches a certain age, you can make a contribution of up to $5,000 to a gold IRA. Roth IRA tax rules for gold IRAs still apply, so you should do some research before you invest.
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