Gold IRA Rules for Taxes

Gold IRA Rules for Taxes

Disclaimer: We are reader supported. We may be compensated from the links in this post, if you use products or services based on our expert recommendations.

The value of gold is well-known, and its status as a desirable object and form of currency dates back to the times of early civilizations. However, investing in gold today, particularly when considering a gold IRA, can be tricky. Each IRA, or individual retirement account, must follow strict rules, and some products, such as gold coins, will require government pre-approval. Anyone considering a gold IRA will also need to ensure that they have the correct retirement account, type of precious metal, and level of purity.

Investing in gold is often more complicated than investing in a standard IRA, especially as gold must be held in a self-directed account. People who aren’t familiar with the guidelines and regulations surrounding gold investments, IRAs, and gold IRAs, can feel overwhelmed. Luckily, many investment companies employ expert staff in just these areas who can aid in filling out paperwork, setting up the account, and following all rules. People interested in gold IRAs can also take a look at a quick breakdown of the most important tax rules regarding these accounts to get a broad sense of the requirements and steps to be taken.

One more important thing:

We understand how difficult it is to pick a company that you can trust with your hard earned savings.  This is why we research the financial sector thoroughly to offer you good and useful information to help you make the right decision.

We created a list of our highest recommended investment companies, to make comparing and choosing the company best suited to your needs as easy as possible.

Get a FREE Gold IRA Investing Guide from top ranked Gold Investment Company.  

This investing kit will tell you everything you need to know about Gold IRAs, and how to avoid penalties and taxes by following IRS rules:

Protect Your Wealth & Get Huge Tax Saving!

Our expert companies on gold IRA rules for taxes:

#1
Augusta Precious Metals

Augusta Precious Metals offers teams of experts familiar with various IRA options, including gold IRAs. The company offers a learning center on its website and frequently hosts webinars for clients who want to learn more about the investment process. Representatives are also available to answer questions as soon as you create an account. However, Augusta Precious Metals requires a minimum investment of $50,000.

98%
Trusted
#2
Goldco

With a fantastic industry reputation and the testimonials of thousands of customers, Goldco is a safe, reliable option. The company works to form connections with its clients and offers help throughout the entire IRA process. Goldco also offers unparalleled convenience, taking care of each step and offering all pertinent information in clear ways. Goldco representatives are even happy to coordinate with your depository company and custodian.

95%
Trusted
#3
American Hartford Gold

Like Augusta Precious Metals and Goldco, American Hartford Gold offers exemplary customer service, and representatives work with clients to make investing and filling out paperwork straightforward and stress-free. American Hartford Gold is also well-known for its transparency. Investors are also not required to meet a minimum investment amount, and the company offers a range of inventory depending on what’s in stock on any given day.

92%
Trusted
Gold IRA Rules for Taxes

Gold Investments

Gold is a tangible investment, something solid you can hold in your hand. It also generally increases in value over time, although the value of gold may fluctuate over the short term. For these reasons, gold is a popular investment. Gold investing has spiked twice in recent years—once during the 2008 financial collapse and again during the COVID-19 pandemic. Both spikes coincided with economic upheaval, and many investors felt that choosing gold as an investment was a stable, logical plan for those uncertain times. This makes sense, as gold can provide income even if other, less stable investments decrease in value or cease to provide passive income.

Taxation, however, is always a key consideration whenever you choose to invest in something. It’s particularly crucial that you consider the taxes for the specific investment you’re making, as various investments are subject to different taxes that can sometimes change from state to state. Unless you’re well-versed in tax law, knowing where to start when it comes to investment taxes can be daunting.

Gold IRA Rules for Taxes

Gold Investment Types and Options

When investing in gold, most people have traditionally sought out bullion. As it’s an object, it’s tangible, relatively easy to evaluate, and can be stored anywhere you like. If you decide to use your 401k retirement funds to purchase gold bullion, however, the rules regarding gold are more stringent. For example, legally, gold bought with retirement funds must be stored in an IRS-compliant storage facility instead of a personal safe or a deposit box at a bank. Fortunately, depositories are readily available, and to better protect your assets, you can also choose to store your gold at a facility with strong confidentiality or in one that is offshore.

ETFs, or exchange-traded funds, are another excellent choice for investing in gold. As their name suggests, these funds are traded on exchanges, and generally follow a specific index, such as gold. When investing in gold ETFs, you don’t own any actual gold but instead own a share of physical gold. These shares can be traded on the stock exchange, and they’re a fantastic way to diversify your portfolio while lowering your potential investment risk. CEFs, or closed-end funds, are similar to EFTs and are another option for trading gold.

Finally, instead of investing in gold or a share of gold, you can invest in the gold industry. You could purchase stock shares in a mining company, for example. There are pros and cons to investing in this manner. The risk is much greater than investing in physical gold, as share values can sharply decrease, while gold, as mentioned above, trends up in terms of value. However, shares of this nature will pay dividends, and physical gold will not.

Gold IRA Rules for Taxes

Gold Investments and Taxes

Gold is classified as a collectible item by the U.S. government, so purchasing it for investment is classed and taxed in the same way purchases of fine art might be. When and how you sell your gold, however, changes how you will be taxed. For example, some people purchase gold and then sell it again within the year. In this scenario, you would report the sale of the gold as normal income on your tax return, and you’ll be taxed the same way you would on any other income.

However, if you purchase gold and keep it for more than a year, how you’re taxed when you finally sell it changes. You’ll still report it as income, but you can only pay a maximum of 28%, which can be more or less than you might have paid, depending on the tax laws where you live and your tax bracket. For most people, holding gold for more than a year before selling helps them save money.

To save a maximum amount of money and pay as low a tax rate as possible, though, using retirement funds to invest in gold is often the best option. Using retirement money is also a logical choice, as retirement money is generally a much higher amount of investment capital than most people would normally have access to.

Gold IRA Rules for Taxes

Gold IRAs and Taxes

The IRA was first created in 1974 and was designed to help people pay for retirement. People with IRAs would be able to invest money and gain wealth, and taxes on this money would be delayed until money was taken from the account. Because taxes are delayed, people with an IRA can lower their overall tax rate. There are many rules regarding what you can invest IRA income in, however, and gold bullion or coins were not allowed until the 1980s. In 2007, the rules regarding ETF investments using retirement funds changed as well, and the government decided that ETFs would not be considered collectible investments.

All of this information can seem complicated, but what it boils down to is that gold bullion purchased with retirement funds is not subject to the same high taxes as other income, and most people will pay only a marginal tax rate. Gold ETFs bought with retirement funds are subject to even lower tax rates.

Because their tax rates are so much lower, ETFs are one of the most popular investment options. However, physical gold, such as coins or bullion, offers a more secure investment that is less likely to fluctuate over time. You’re also free from the whims of other shareholders, as, with physical gold, you’re the sole owner.

Physical gold can present other issues, though, especially when purchased with retirement money. As mentioned above, it must be stored in an IRA-compliant facility, and you will need to pay an annual fee for this storage. You may also need to pay an account custodian. You’re also at risk of losing your investment if either the storage company or your custodian goes bankrupt.

Gold IRA Rules for Taxes

Traditional and Roth IRAs

Both Roth and traditional IRAs can be used to invest in gold. However, traditional IRAs are the most popular option, as they offer more advantages. For example, taxes will not need to be paid on a traditional IRA until you begin taking distributions. With a Roth IRA, you’ll pay income taxes in return for not having to pay taxes when the money is distributed.

Because of how taxes work with a Roth IRA, these IRA types are usually used for high-risk, high-reward investments. Traditional IRAs support organic growth and increase in value over time, which aligns more with gold investments.

Taxes Differences in Roth and Traditional IRAs

If you’ve used your retirement funds to invest in a self-directed gold IRA, you’ll be taxed similarly to how you’d be taxed with a traditional IRA. After your investment has matured and you’re ready to sell, you’ll liquidate the gold and be taxed on what you gain. What tax bracket you’re in will determine exactly what percentage you’ll pay in taxes. While many people pay less than the collectible investment cap of 28%, people in higher tax brackets may be required to pay more.

If you choose to sell your gold at a loss, you can write that loss off on your taxes, and you won’t need to pay anything.

When you decide to take distributions can also affect how much you earn and what you’ll need to pay. You can begin to take distributions just before age 60, but you can leave your funds in place, letting them grow, until you’re 70. At age 70, you must take distributions. You can also take distributions before age 60, but you’ll be subject to a penalty as well as taxes. These penalty fees are usually 10%.

Gold IRA Rules for Taxes

What We Recommend

Generally, the easiest, most straightforward way to invest in gold is to purchase bullion using a self-directed traditional IRA. You’ll need to pay for storage and maintenance, and you’ll also be required to pay more taxes than you would if you invest in an EFT. However, your investment will be much more secure, nearly guaranteeing that you’ll see a solid return on investment.

If you’re new to investing, working with a gold dealership that has extensive experience with self-directed IRAs, including the investment process, government regulations, and filing paperwork, can be invaluable. Many of these companies also have access to depository or storage company connections, and they may be able to waive or reduce some of your startup expenses.

Finding these dealerships, of course, can also be challenging, so we offer three of our top recommendations below.

In Summary

Investing in a gold IRA can seem like a daunting task, especially if you’re unfamiliar with many of the finer details of IRAs, investing, or the associated taxes. Things are made even more complicated, thanks to the necessity of a self-directed account. You’ll need to choose your own investments, and these decisions can seem overwhelming.

Learning as much as possible about both gold investments and various IRA options can help. Although ETFs are often a strong choice for gold investing, we suggest gold bullion investments. Working with an experienced, customer-oriented company can help to make the process even simpler. Our suggestions are Augusta Precious Metals, Goldco, and American Hartford Gold. Each company offers exceptional customer service and will walk you through every step of the investment process, including paperwork and connecting with a custodian and depository.