Gold IRA Tax Rules

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In 1997, the United States Congress passed the Taxpayer Relief Act of 1997. Among many other things, this opened up the options of types of investments that you were allowed to hold in a tax-protected Individual Retirement Account (IRA).

This is what allowed the creation of gold IRAs, also known as precious metals IRAs.  

Gold IRA and Precious Metals IRA are the same things. You are allowed to hold gold, platinum, silver, and palladium in these accounts. The important rule to know here is that your metals must meet a certain purity grade of 99.5%, to qualify for your account.

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Short History of Investing in Gold

Gold used to be illegal to own in the United States of America believe it or not. This is because FDR made it illegal. This started in 1933 and remained in place until 1975. Wild but true.  

IRAs were first created in 1974 because the model of everyone having a pension was breaking down and the government wanted to encourage individuals to create their saving instruments for their retirement years.

At first, you were not allowed to own gold which was still considered a collectible, in these accounts.  

1986 was a watershed year for precious metals investors when the IRS finally allowed US gold and silver coins to be held in these tax-advantaged accounts.

1988 saw a further expansion of precious metals investment options when bullion was allowed in IRAs as long as it was at least 99.5% pure.  

Since gold has been viewed as money for 5,000 years, it only made sense to be able to hold your retirement “money” in a tax-advantaged account.

Tax Implications on Gold Investing

Why should you consider investing in gold with an IRA?

Well, the IRS considers investments in physical gold, whether bullion, coins, or jewelry, to be a collectible.

Why is that bad? Well, the IRS taxes collectibles at the maximum rate of 28%. That is atrocious. That is nearly double the long-term capital gains rate.  

This suppresses the amount of compounding you get with your precious metals investments. This is where gold or precious metals IRA’s come in to save the day.

If you hold a bar of gold bullion for 10 years outside of a tax-advantaged account, like in a safe in your house, and you go and sell it, you’ll get hit with a 28% tax on your gains.  

If you hold the same bar of gold bullion for 10 years in a gold IRA and you go to sell it, you’ll only have to pay the capital gains tax rate of 15% because your gold bullion in the IRA account is considered a capital asset instead of a collectible.  

We have used gold as an example here because it is the most popular for precious metals investors but the same tax rates apply to silver, platinum, and palladium.  

Knowing how taxes affect your precious metals investments is the difference between making a profitable smart investment, and an unprofitable investment that only benefits the government.  

To create a gold IRA, first, you have to set up a self-directed IRA, then you have to have your metals stored at a qualified custodian. This is the same standard practice an investor has to follow with traditional IRAs, Roth IRAs, SEP-IRAs, and SIMPLE-IRAs.  

Similar to all IRAs, the gains from your precious metals investments are not taxed until money is distributed to you. The percentage of tax depends on what your marginal tax rate is at the time you take the disbursement.  

These are the IRS rules that are important to follow. Nearly everyone that has tried to set up a home storage gold IRA has failed and was met with disastrous tax consequences. Don’t make that mistake.  

The easiest and also the best way to start this process is to set up your Gold IRA with a precious metals dealer that specializes in these investment vehicles.

Not only can they set these up correctly, and coordinate with your custodian, they are also the same people that you will buy and sell your metals with, while your custodian is where they will be held.

IRS Allowed Precious Metals

So what exactly is allowed in your IRA?

The first is bullion. Bullion is metal that has been refined to extreme standards, in this case, the bullion must be 99.5% to qualify. Some coins are allowed, but some are not.

The ones that are allowed meet the purity requirements of bullion, the ones that are not allowed fall into the category the IRS calls collectibles.

Some investors prefer to invest in coins because they are a smaller, more divisible product compared to bullion. Although some investors like a mix of both bullion and coins it makes sense that it is easier to make transactions such as distributions with coins because the bars are a much larger transaction.

Be careful not to put numismatic coins in your IRA. Numismatic coins are coins that are collectibles and rare, so the value of these coins far exceeds the melt value or spot price of bullion. If you have these in your account the IRS considers these collectibles, and you get hammered with taxes which defeats the entire purpose of your IRA.

The reason the IRS requires you to have bullion-grade coins is that they more accurately reflect the spot price of their metal, so they are easier to tax. Whereas with a numismatic coin, you could claim the value is low to pay less tax, but then sell it on the market for much higher but not have to pay the tax on the difference.

The IRS always wants their cut so it’s best to just avoid numismatic coins for this account.

These are some of the types of coins that the government allows:

Gold

  • American Gold Eagle bullion coins
  • American Gold Eagle proof coins
  • British Gold Britannia coins (from 2013)
  • British The Queen’s Beasts (coin)
  • British gold Lunar Series (coin)
  • Canadian Gold Maple Leaf coins
  • Austrian Gold Philharmonic coins
  • Australian Kangaroo/Nugget coins
  • Chinese Gold Panda coins
  • American Gold Buffalo uncirculated coins (proofs not allowed)

Silver

  • American Silver Eagle bullion coins
  • American Silver Eagle proof coins
  • British Silver Britannia coins (from 2013)
  • British The Queen’s Beasts (coin)
  • British silver Lunar Series (coin)
  • Canadian Silver Maple Leaf coins
  • Austrian Silver Philharmonic coins
  • Australian Silver Kookaburra coins
  • Chinese Silver Panda coins
  • Mexican Libertad coins

Platinum

  • American Platinum Eagle coins
  • American Platinum Eagle proof coins
  • British The Queen’s Beasts (coin)
  • British Britannia (coin) (from 2018)
  • Canadian Platinum Maple Leaf coins
  • Isle of Man Noble coins
  • Australian Platinum Koala coins

Palladium

  • American Palladium Eagle bullion coins
  • Canadian Palladium Maple Leaf coins

How Much Can You Contribute to Your Gold IRA?

The IRS is constantly changing these numbers, but here are the most recent amounts. From 2019 – to 2022 the annual contribution max was $6,000 for 49-year-olds and younger. For 50-year-olds and up the max contribution was $7,000 for this same period.  

From 2015 – to 2018 the annual contribution max was $5,500 for 49-year-olds and younger. For 50-year-olds and up the max contribution was $6,500 for this same period.

Required Minimum Distributions

When you reach the age of 72 is when you are legally required to start taking required minimum distributions (RMDs) from your IRA. Now, if you have multiple IRAs you can take your RMD from one or all of them. The amount you take out only has to add up to your annual RMD, you don’t have to take an RMD from each account.

If you happen to have a Roth IRA, that is invested in more liquid assets like stocks, you can all or part of your RMD from that account and leave the bullion in your precious metals IRA, which may be less liquid, untouched. There is some flexibility in the required distribution rules.

Early Withdrawal Penalty

The good news is you can take your money out of your precious metals IRA before you age 72 years old. The bad news is you get hit with an extra 10% penalty.

If you receive a distribution from your account before the age of 52 1/2 years old, your distribution will be added to your taxable income, and then the IRS applies an additional 10% on top.   

And there are no exemptions for any type of hardship to avoid this extra 10% haircut. Avoid early withdrawals if at all possible.

Conclusion

Hopefully, you found this guide useful. We created this article from some of the most common questions we get asked about precious metals investing and tax implications.  

While helpful, we recommend consulting with a company that specializes in gold and precious metals IRAs. There are a few great companies that have helped protect the savings of their clients that we have written about extensively on this website.

You can get a Free Gold Investors Guide from our top gold and precious metals company recommendation by clicking the link above or you can read our article of the top companies we reviewed this year:

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