Countless men and women today are looking to diversify their investment portfolios. They worry about fluctuations in the stock market and are putting off real estate purchases because of high-interest rates. Precious metals are a great investment for these individuals.
Precious metals serve as a hedge against inflation. In fact, countless people include them as part of a diversified portfolio for this reason. A gold IRA also offers tax benefits, but the investor must adhere to certain rules and guidelines. The following guide provides an overview of gold IRA tax rules today.
Self-Directed IRAs
Individuals wanting to invest in precious metals will need a self-directed IRA to do so. It allows for more investment opportunities. The investor may purchase gold, silver, palladium, and platinum for inclusion in this IRA. However, the IRS has put other rules into place dictating which coins and bullion may be used for this purpose.
Eligible Metals
To be included in a gold IRA, coins or bullion must be 99.5 percent pure or fine. Coins and bars that meet these criteria include American Buffalo and Australian Kangaroo coins. Credit Suisse bars can be included in the IRA if they are made at a facility approved by the IRS. One exception is American Eagle coins. While they are only 91.67 percent pure, the IRS allows them in gold IRAs.
Silver products must have a purity of 99.9 percent. For palladium and platinum bars and coins, the IRS requires a purity of 99.95 percent. These requirements ensure the metals will hold their value over time.
The investor cannot hold these metals. They must be kept in a secure depository under the control of an IRA custodian. Furthermore, any gold graded by a certified organization is not eligible for inclusion in the IRA.
Purchase Requirements
Only metals purchased through a custodian can be included in the IRA. This account may be funded with cash, by transferring IRA assets, or by rolling over an existing IRA. However, all steps must be completed through an IRS-approved custodian.
Precious Metal Storage
Once purchased, the precious metal must be stored in a depository approved by the IRS. If the investor has possession of the physical metals at any time, they may face penalties and taxes. The IRS considers this a distribution and treats it as such.
Annual Limits
The IRS limits contributions to a gold IRA. Currently, an investor may only contribute $6,000 if they are 49 or younger. The limits raises to $7,000 a year for those 50 and older.
Early Withdrawals
Early withdrawals come with heavy penalties. Income taxes are due when the precious metals are withdrawn. If a person takes the metals out early, they will also pay an early withdrawal penalty and a capital gains tax if applicable.
The IRS does allow for a few exceptions when it comes to the early withdrawal penalty. Speak with a financial advisor for more information on these exceptions. Distributions become mandatory when a person reaches the age of 72. Failing to make these withdrawals could lead to a hefty excise tax each year.
Diversifying one’s investment portfolio is always a wise move. Many people find precious metals are ideal for their needs. However, it is always best to work with an experienced financial advisor to ensure this is the right move. The more a person knows, the easier it becomes to make decisions that are beneficial to their financial future.
