Holding Gold in an IRA: Taxes and Rules

As a result of current stock market valuations and historically low interest rates on fixed-income assets, some IRA owners may be tempted to move money from stocks and low-risk securities (such as Treasuries and money-market funds) to precious metals. However, there are a few tax implications to keep in mind before making a gold, silver, or platinum investment.

What Types of Investments Can You Hold in an Individual Retirement Account?

An IRA is not allowed to own all gold investments. According to the basic rule, an IRA cannot hold collectibles such as gold or silver coins or bullion since they are considered collectibles by definition. Fortunately, there are certain exceptions to the general trend when it comes to metals like gold, silver, platinum, and palladium.

IRAs can possess legal tender gold and silver coins. In addition, the coins must be 99.9 percent pure. Some state-issued bullion coins, such as the American Eagle, also qualify as legal tender. The Toronto Maple Leafs can be kept in an Individual Retirement Account (IRA). However, the exceptions include South African Krugerrands and British Sovereign coins. Coins like the Double Eagle, which were issued in the 1960s and 1970s, are not eligible either.Additionally, you are unable to move coins or bullion that you currently hold into an IRA. IRA owners aren't permitted to purchase or sell with their accounts, therefore this transaction is illegal.

Look for self-directed IRA providers on the internet by searching for terms like "gold IRAs" or "self-directed"

Precious metals in Individual Retirement Accounts (IRAs)

According to our cherished Internal Revenue Code, keeping tangible precious metal assets in an IRA is fraught with peril. Any investment in metal or coin made with an individual retirement account, according to the IRS, counts as the purchase of a collectable item. Consequently, for federal income tax reasons, the transaction is defined as a tax-free payout from the retirement account followed by a purchase of precious metals or coins by the IRA owner (that would be you). IRAs cannot invest in precious metals or coins produced from precious metals if this general restriction applies.

In spite of this, Congress carved out an essential exception to the previously stated general norm. However, there's one exception: IRAs can invest in gold, silver, platinum, and palladium bullion that fulfills purity criteria, as well as certain types of gold, silver, and platinum coins. The IRA trustee or custodian, not you as the IRA owner, must hold the coins or bullion. Traditional IRAs, Roth IRAs, SEP-IRAs, and SIMPLE-IRAs are all subject to these regulations.

Do exchange-traded funds (ETFs) distribute a significant amount of capital gains?

Mutual funds and equity ETFs are similar in that they distribute capital gains, but equity ETFs tend to distribute less of them, making them more tax-efficient.Part of this difference might be attributed to the fact that most exchange-traded funds (ETFs) follow an index rather than actively managing them themselves.

ETFs and closed-end funds that invest in physical gold

There are gold exchange-traded funds (ETFs) that trade like stocks and are an alternative to buying gold bullion. Each gold ETF share is equivalent to a tenth of an ounce of real gold. ETFs provide investors with the ability to purchase and sell gold with the same ease as they can ordinary stocks, and at a lower cost per transaction. With gold ETFs, investors do not have to worry about the storage of gold, but there is a cost of 0.25 percent to 0.4% each year. Gold exchange-traded funds (ETFs) are subject to collectable taxes, just like gold bullion.

Unlike gold ETFs, closed-end funds (CEFs) are formed as trusts but trade like stocks. An undiluted stake in the whole investment portfolio is represented by CEF shares. For CEFs, the tax treatment is more complicated, and there are both benefits and drawbacks to be considered. Long-term investments in non-US CEFs are treated as LTCGs rather as collectibles, which can boost after-tax profits. Non-U.S. CEFs have this benefit. Due to the fact that they are non-U.S. CEFs, federal tax reporting is more complicated for them. A qualified electing fund election under Sec. 1295 on Form 8621, Information Return by a Shareholder of a Passive foreign investment company or qualified electing fund, can reduce tax complexity, but that is outside the subject of this article.

What Taxes Apply to Gold Outside of an IRA?

Outside of an IRA, profits from investments in gold bullion and gold ETFs are taxed as collectibles. Investing in gold for more than a year results in gains that are taxed at the same rate as regular income, up to a maximum of 28%.

Individual retirement accounts (IRAs) that do not want to deal with the hassles of owning real precious metal coins or bullion may wish to consider investing in exchange-traded funds (ETFs) that follow the price of the metal. There was a time when buying precious metal ETF shares with an IRA may be considered as buying a collectable. As a result of this, an IRA payout would be considered taxable.

To their credit, the IRS has recently said that IRAs can acquire shares in precious metal ETFs designated as grantor investment trusts without running into these kinds of issues An IRA investment in precious metals has recently been the subject of the following Private Letter Rulings:

Decision by the Internal Revenue Service Regarding ETFs in Individual Retirement Accounts

  • A gold ETF can be purchased using IRA funds.
  • A silver ETF can be purchased using IRA funds.
  • Individual retirement accounts (IRAs) provide the option of investing in gold trusts.

According to the most recent PLR, when gold is kept by an independent trustee, the restrictions barring direct IRA investments in it do not apply. An ETF (likely an ETF) that held gold was offered to the public, including IRAs, and traded on the stock exchange was addressed by the letter ruling. Before you invest, you need to know how much a person can hold in gold.

IRA Owners Should Take Their Age into Account

The price of precious metals fluctuates a lot. Before implementing this approach, go to a financial advisor with experience in precious metals to make sure you're aware of all the risks. When you're nearing or have reached retirement age, using an IRA to invest in precious metal assets might be extremely troublesome.

A conventional IRA owner must also begin taking annual required minimum distributions (RMDs) when he or she turns 72. (Note: RMDs have been stopped until 2020 due to the CARES Act.) Traditional IRAs held by a person (including SEP-IRAs and SIMPLE IRAs) must have enough liquidity to cover required minimum distributions (RMDs). However, you are exempt from having to deduct RMDs from each individual retirement account. To qualify, you must take a lump-sum withdrawal from one or more accounts equal to at least the required total amount.

To hold gold in an IRA, regardless of whether it's in the form of coins or bullion, you'll need one of the few types of self-directed IRAs available. The IRS laws demand that the coins or bullion be in the custody of the custodian, which is why you need one. You can't acquire metals and keep them in your own IRA with IRA funds. You must use a custodian who has been approved by the Internal Revenue Service (IRS).

Related Links

In an IRA, How Is Gold Taxed?

Diversify Your American Retirement Account With Gold

Why Consider a Self-Directed IRA to Rollover Your 401(k)

Using Your Self-Directed IRA to Buy Gold


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