Gold IRA Rules and Taxes: 2023 Update

Gold has played a big part in humanity’s economic development for centuries, starting with ancient civilizations like the Egyptians, Greeks, and Romans, who used the precious metal to mint coins that were used as legal currency back in their day.

Meanwhile, during the 19^th and 20^th centuries, multiple countries adopted the gold standard to support the value of their currencies, and that led investors to see gold as a safe haven during times of economic distress.

Financial innovation has facilitated the process of investing in gold, and new types of investment accounts, like gold IRAs, have allowed people to incorporate precious metals into their retirement portfolios.

In this guide, we share further details about how gold IRA accounts work, the rules set forth by the US Internal Revenue Service (IRS) that investors should be aware of, and how you can take full advantage of these vehicles to diversify and strengthen your retirement fund.

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Types of Gold Investments

There are many ways to invest in gold nowadays. In this section, we discuss the key characteristics of each available alternative, including physical gold and some financial vehicles that provide exposure to the precious metal.

Physical Gold

Gold is a chemical element and a precious metal that is found primarily in mines and other similar formations in South Africa, Canada, Australia, Peru, Ghana, and the United States. It has been considered for centuries a symbol of wealth and a relatively standardized means of exchange by multiple civilizations.

Physical gold can be classified based on its purity, which is measured in karats (K). A 24K piece of gold is considered the purest of all, while 18K and 14K presentations contain both gold and some other metals.

Physical gold is the easiest and most popular way to invest in gold. It involves purchasing either coins, bars, jewelry, or some other similar presentation of the precious metal. Anyone can buy gold this way, and they can choose to store it however they like.

Gold Exchange-Traded Funds (Gold ETFs)

An exchange-traded fund (ETF) is a financial vehicle that invests in certain types of assets based on the scope and objective of the fund. In the case of Gold ETFs, the goal is typically to mimic the performance of the precious metal. They are typically structured as open-end funds whose shares can be issued as needed and redeemed by investors in the same way.

The shares of these funds can be easily bought as if they were a traditional stock. They are typically listed in large public exchanges like the New York Stock Exchange or the Nasdaq, and their price is typically low enough to guarantee a high level of liquidity.

The largest Gold ETFs by assets under management at this moment are the SPDR Gold Trust (NYSEARCA: GLD) and the iShares Gold Trues (NYSEARCA: IAU). They both provide exposure to the precious metal by mimicking its performance. They achieve this by buying physical gold with the funds that investors hand over to them. In exchange, investors pay an annual management fee to the fund for its services.

Gold Closed-End Funds 

A closed-end fund is a type of financial enterprise that invests in a specific asset or adopts a certain investment methodology. The number of shares issued by these funds is limited, and they cannot be redeemed by investors; they can only be sold to either a third party or the fund itself.

Some of these funds invest in gold only and are used by investors to get exposure to the precious metal without having to buy it physically. This helps them avoid the many risks that come with storing gold.

The most popular gold-focused closed-end funds include the Sprott Physical Gold and Silver Trust (CEF) — a Canadian fund that provides exposure to both gold and silver and that has been in business for more than six decades, and also the Sprott Physical Gold Trust (PHYS), whose objective is to provide an alternative for investors who want to hold physical gold without the inconvenience of holding physical gold bullion.

Non-Physical Gold Investments 

Aside from the alternatives discussed earlier, it is also possible to get both direct and indirect exposure to gold by using other financial assets. One option is to invest in a gold mutual fund. 

These are vehicles that function similarly to exchange-traded funds (ETFs), although their annual management fees and minimum investment required are often higher. In addition, it is possible to buy gold mining stocks, which are shares of companies that engage in this economic activity and whose performance is heavily tied to that of the precious metal.

In case investors don’t want to buy these gold mining stocks individually, they can opt to invest in a gold miners ETF such as the VanEck Gold Miners ETF (NYSEARCA: GDX) or the Sprott Gold Miners ETF (NYSEARCA: SGDM). 

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Understanding Self-Directed IRAs (SDIRAs)

Self-directed individual retirement accounts (SDIRAs) were introduced in 1974 as part of the Employee Retirement Income Security Act (ERISA) in the United States. Their purpose is to give investors more freedom over the types of assets they can opt to incorporate into their retirement portfolios.

Anyone who earns an income can open a self-directed IRA. The contribution limits set for these accounts are the same as their regular counterparts, and, as of this year, they are set at $6,500 per year for individuals younger than 50 years old and $7,500 for those who are older than that.

With SDIRAs, the funds held within the account grow tax-free unless the investor opts to withdraw some of the money before retirement age, in which case there will be both penalties and tax implications. There are, however, some exceptions to this rule.

By using this type of account, investors can add alternative assets to their retirement funds, such as real estate, private debt, hedge funds, private equity, cryptocurrencies, and precious metals.

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Types of Gold IRA Accounts

Gold IRAs are a form of self-directed IRA that are designed specifically to invest in precious metals. They are offered by companies that help investors with the paperwork and procedures required to comply with the IRS’s rules concerning these investments when they are made via tax-advantaged accounts.

There are mainly three types of Gold IRAs — Traditional, Roth, and SEP. Here we provide a summary of the most relevant characteristics of each of these subsets.

>> Read Also: How To Move 401(k) To Gold Without Penalty

Traditional Gold IRA

• Contributions to a traditional gold IRA are made on a pre-tax basis. Hence, they are deducted from the investor’s taxable income in the year they are made.
• The earnings on investments in a traditional gold IRA grow tax-deferred. This means that they are not taxed until they are withdrawn from the account.
• Withdrawals from a traditional gold IRA are taxed as ordinary income in the year they are made.
• Required Minimum Distributions (RMDs) must begin at age 72, which means that investors must withdraw a certain percentage of their account balance each year.
• Early withdrawals before age 59 1/2 may be subject to a 10% penalty in addition to being taxed as ordinary income.
• Contributions to a traditional gold IRA may be tax deductible, depending on income and participation in an employer-sponsored retirement plan.

Roth Gold IRA

• Contributions to a Roth gold IRA are made on an after-tax basis, which means that they are not tax-deductible in the year they are made.
• The earnings on investments in a Roth gold IRA grow tax-free.
• Contributions to a Roth gold IRA may be withdrawn at any time without penalty, although withdrawals of earnings before age 59 1/2 may be subject to a 10% penalty.
• There are no Required Minimum Distributions (RMDs) during the account owner’s lifetime, which means that investors can keep their money in the account for as long as they want.
• Contributions to a Roth gold IRA are not tax-deductible.

SEP Gold IRA

• A SEP gold IRA is available to self-employed individuals and small business owners.
• Employer contributions to a SEP gold IRA are made on a pre-tax basis and are tax-deductible for the employer.
• The earnings on investments in a SEP gold IRA grow tax-free.
• Withdrawals from a SEP gold IRA are taxed as ordinary income in the year they are made.
• Required Minimum Distributions (RMDs) must begin at age 72.
• Early withdrawals before age 59 1/2 may be subject to a 10% penalty.
• Contributions to a SEP gold IRA are not subject to income limits.
• Employer contributions to a SEP gold IRA must be made equally to all eligible employees.

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IRA Approved Gold

According to rules established by the Internal Revenue Service (IRS), the physical gold that can be added to a self-directed IRA has to meet a minimum purity standard and must be produced by a reputed mint or refiner.

The agency establishes that both gold coins and bars must be at least 99.5% pure to be eligible to be added as an investment within a Gold IRA. The most common gold coins used to this end include the American Gold Eagle and the Australian Gold Kangaroo. Here is a short list of IRA-approved gold coins and bars so you get an idea of what is available to investors:

• 1/10 oz, 1/4 oz, 1/2 oz, and 1 oz American Gold Eagle Coins
• 1 oz American Gold Buffalo Coins
• 1 oz Australian Gold Kangaroo Coins
• 1 oz Austrian Gold Philharmonic Coins
• 1 oz Canadian Gold Maple Leaf Coins
• 1 oz Royal Canadian Mint Gold Bars
• 1 oz UBS Gold Bars
• 50 gram Valcambi Gold CombiBars
• 1 oz Valcambi Gold Bars
• 1 oz Sunshine Mint Gold Bars
• 1 oz Credit Suisse Gold Bars
• 10 oz Credit Suisse Gold Bars
• 1 oz Johnson Matthey Gold Bars

Meanwhile, the most popular mints that produce extremely pure gold pieces for gold IRA purposes include the Royal Canadian Mint and the Perth Mint. Some of the most popular mints in the world are:

• United States Mint
• Royal Canadian Mint
• Perth Mint
• The Royal Mint
• New Zeland Mint
• Italpreziosi

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Holding Other Precious Metals in A Gold IRA

In most cases, Gold IRAs can also be used to invest in other precious metals. As per the IRS’s rules, only silver, palladium, and platinum qualify to be added to these accounts as precious metals. However, the minimum level of purity required for these metals is a bit different than gold. 

IRA Approved Silver 

• Silver coins and bullion held in an IRA must be at least 99.9% pure.
• The coins or bars must be produced by a recognized and reputable mint or refiner.
• Examples of approved silver coins include the American Silver Eagle, the Canadian Silver Maple Leaf, and the Australian Silver Kookaburra.
• Collectible or rare silver coins are generally not eligible for inclusion in an IRA, even if they meet purity standards.

IRA Approved Palladium 

• Palladium coins and bullion held in an IRA must be at least 99.95% pure.
• The coins or bars must be produced by a recognized and reputable mint or refiner.
• Examples of approved palladium coins include the Canadian Palladium Maple Leaf and the American Palladium Eagle.
• Collectible or rare palladium coins are generally not eligible for inclusion in an IRA, even if they meet purity standards.

IRA Approved Platinum 

• Platinum coins and bullion held in an IRA must be at least 99.95% pure.
• The coins or bars must be produced by a recognized and reputable mint or refiner.
• Examples of approved platinum coins include the American Platinum Eagle, the Canadian Platinum Maple Leaf, and the Australian Platinum Koala.
• Collectible or rare platinum coins are generally not eligible for inclusion in an IRA, even if they meet purity standards.

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IRS-Approved Depositories for Gold IRAs

IRS-approved depositories are secure storage facilities that are authorized by the Internal Revenue Service (IRS) to hold precious metals that are held in IRA accounts. These depositories are required to meet strict security and reporting standards to ensure the safety of the assets held within them.

The fees that IRS-approved depositories charge can vary depending on a variety of factors, including the size of the account, the type of metals being stored, and the level of security required. Some depositories charge a flat fee based on the size of the account, while others charge a percentage of the value of the assets being stored.

IRS-approved depositories are considered safe because they must meet strict security standards set by the IRS. These standards include requirements for 24/7 security monitoring, armed guards, and secure storage vaults. Depositories must also provide regular reports to the IRS and the account holder to ensure that the assets are being held securely.

Here are the five most popular IRS-approved depositories:

• Brink’s Global Services: Brink’s is one of the largest and most reputable security companies in the world. They offer secure storage solutions for precious metals and other valuable assets.
• Delaware Depository: Delaware Depository is a full-service depository that offers secure storage for a variety of precious metals, including gold, silver, platinum, and palladium.
• International Depository Services: International Depository Services is a privately-owned depository that has been in business for over 30 years. They offer secure storage solutions for a variety of precious metals and other valuable assets.
• CNT Depository: CNT Depository is a subsidiary of the precious metals refining company, Elemetal. They offer secure storage solutions for gold, silver, platinum, and palladium.
• HSBC Bank USA: HSBC is one of the largest banks in the world, and they offer secure storage solutions for a variety of precious metals and other valuable assets.

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Gold IRA Custodians

The role of a custodian is to ensure that the investments made via a Gold IRA comply with the IRS’s rules and to make all the necessary arrangements so investors can easily buy, sell, and store the precious metal as needed.

The IRS provides a list of approved custodians that can be appointed for a Gold IRA. Keep in mind that the company that offers the Gold IRA will not necessarily be your custodian. Some of these firms, however, offer to put you in contact and set up an account with IRS-vetted trustees as part of their onboarding process.

Custodians charge annual management fees for their service and may also require a one-time setup fee when opening an account.

>> Read Also: Best Gold IRA Companies

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Storage Requirements for Gold IRAs

The IRS has strict rules for storing precious metals that are held in a gold IRA. Here are some of the key rules:

1. Use a qualified custodian or administrator: Precious metals held in a gold IRA must be held by a qualified custodian or administrator. This means that the custodian or administrator must be a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS.
2. Store the metals in an approved depository: The metals must be stored in an approved depository, which is a secure storage facility that meets the IRS’s strict security and reporting standards.
3. The metals must meet IRS standards: The IRS has specific guidelines for the types of metals that are eligible for inclusion in a gold IRA. The metals must meet minimum purity standards and be produced by a recognized and reputable mint or refiner.
4. Keep accurate records: The custodian or administrator is responsible for keeping accurate records of the metals held in the account, including their value, weight, and purity.
5. Reporting requirements: The custodian or administrator must provide regular reports to the IRS and the account holder to ensure that the assets are being held securely and to report any transactions or changes to the account.
6. Prohibited transactions: The IRS prohibits certain transactions involving precious metals held in a gold IRA. For example, the account holder cannot borrow money from the account, and he or she cannot use the metals for personal use.

Commingled Storage

Commingled storage refers to the practice of keeping the precious metals owned by a customer in a shared vault that contains assets that belong to others.

Although the assets of each customer are typically identified and segregated appropriately within the container, it could be hard to identify which assets belong to who in the case of a natural disaster or a large-scale theft. However, it is often cheaper to store precious metals this way.

Segregated Storage

Segregated storage lets investors store their assets in a separate container, such as a vault or a safety deposit box. By doing this, it is easier to identify who the assets belong to, and they can also be withdrawn more rapidly, which is why it is typically considered the most liquid alternative of the two. That said, segregated storage is more expensive.

>> Read Also: Home Storage Gold IRA

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Gold IRA Tax Rules

Gold IRAs are subject to specific tax rules, which investors must understand to avoid penalties and maximize the benefits of their investments. Here is a summary of the tax rules associated with Gold IRAs.

Gold IRA Contributions

The maximum contribution limit for a Gold IRA is the same as for any other IRA account. For last year’s tax season, the contribution limit is $6,500 for individuals under 50 and $7,500 for those over 50.

Contributions to a Gold IRA must be made in cash. It is not possible to contribute gold or other precious metals directly to the IRA account.

If an investor exceeds the contribution limit, he or she may be subject to a penalty tax of 6% of the excess contribution amount for each year the excess remains in the account.

Required Minimum Distribution (RMD) For Gold IRAs

Traditional Gold IRAs are subject to RMD rules, which require account holders to begin taking distributions from their accounts starting at age 72. Failure to take the required distributions can result in significant tax penalties.

Roth Gold IRAs are not subject to RMD rules, as contributions to these accounts are made with after-tax dollars.

Gold IRA Withdrawal Rules

Withdrawals from a Gold IRA are subject to the same tax rules as withdrawals from any other IRA account. If the account holder is under age 59 ½ at the time of the withdrawal, the amount withdrawn is subject to income tax and an additional 10% early withdrawal penalty unless an exception applies.

Exceptions to the early withdrawal penalty include certain medical expenses, higher education expenses, and first-time home purchases.

Investors can withdraw the contributions they make to a Roth Gold IRA without tax implications or penalties involved, as they were made with after-tax dollars.

Taxes On Capital Gains For Gold IRAs

Any gains earned on investments held within a Gold IRA account are not subject to capital gains taxes as long as the funds remain within the account.

If the account holder takes a distribution of gold or other precious metals from the account and sells them for a profit, the gains may be subject to capital gains taxes.

Collectibles Tax Rate For Gold IRAs

Even though the precious metals that are incorporated in a Gold IRA are considered collectibles by the agency, rare coins whose value is derived primarily from their historical significance or other similar characteristics are, in general, not eligible to be added to this type of account.

In summary, the gold pieces that the IRS allows investors to add to a Gold IRA must comply with the following requirements: 

• They must be minted by a national government or a recognized authority.
• They must have a minimum fineness of 0.995.
• Their market value must be primarily derived from their gold content rather than their rarity or historical significance.

Hence, the 28% collectibles tax rate does not apply to these coins or bars as they are treated as regular investments rather than collectible (rare) items as long as they complied with the above-mentioned criteria.

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Costs Associated with Gold IRAs

Gold IRAs hold unique assets, and as a result, they operate differently than regular IRAs. This results in higher fees and costs associated with opening, funding, and maintaining such accounts. Below is a rundown of typical expenses to consider when opening a Gold IRA.

Setup Fees

When opening an account, some Gold IRA providers may charge a one-time setup fee to cover the paperwork involved in transferring assets between accounts. The fees range from $50 to $500.

Custodian Fees

A custodian is appointed to execute all procedures necessary to purchase and sell assets within the Gold IRA. Annual management fees for custodian services range from $100 to $300.

Storage Fees

Storage fees are charged by depositories that hold valuable assets for account holders. The fees depend on the type of storage selected – commingled or segregated – and the size of the account. Storage fees range from $100 to $150 per year, and depositories may also charge a one-time set-up fee.

Seller’s Fees

Mints and refiners that produce coins and bars for Gold IRAs may charge a markup or fee for every purchase, which is a percentage or fixed amount added to the original selling price.

Cash-Out Fees

If an investor wants to close the Gold IRA, they will be charged a one-time cash-out fee, which is typically a flat fee ranging from $50 to $250.

Other Fees

Investors may also encounter additional fees, such as shipping fees for all precious metal purchases, wire transfer fees for depositing money, and insurance fees charged by depositories or shipping companies.

The total cost of opening and maintaining a Gold IRA, excluding shipping costs, is estimated to range between $300 and $500 per year.

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Final Thoughts

Understanding the tax rules associated with Gold IRAs is essential to avoid penalties and maximize the benefits of the investments made by using these accounts. As shown in the article, there are specific rules concerning contributions, withdrawals, RMDs, and capital gains taxes. 

Additionally, fees and costs associated with opening and maintaining a Gold IRA can be higher than traditional IRAs. Therefore, it is crucial to work with a reputable custodian or administrator and seek the advice of a tax professional before opening a Gold IRA. 

By doing so, beginner investors can make informed decisions and ensure that their investments are managed in compliance with IRS regulations.