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If you’re thinking about diversifying your savings by opening a gold individual retirement account (IRA), you probably want to know how the rules differ for a gold IRA compared to a standard retirement account.
Gold and standard IRAs are the same in many ways, but there are a few differences. In this guide, we compiled the most common questions about IRS regulations for gold IRAs, including details about contribution limits, withdrawal penalties, taxes, and distributions.
Common Questions About IRS Regulations for Gold IRAs
While regular IRAs only allow you to hold stocks, mutual funds, and other traditional investments, a gold IRA is a self-directed account that enables you to purchase IRS-approved precious metals, including gold, silver, and platinum.
To set up a gold IRA, you’ll need help from a custodian or firm specializing in precious metals retirement accounts. You’ll also need to consider factors unique to gold IRAs, detailed below.
Types of Gold Allowed in a Gold IRA
You can’t hold just any type of gold in your IRA; it must be an IRS-approved gold product. You can purchase gold bullion, including bars and coins, but they must be at least 99.5% pure gold. The exception to this rule is the American Gold Eagle, which is 91.67% pure.
Your gold IRA provider can help you find the best gold products and ensure they meet IRS requirements.
Can You Store the Physical Gold From Your Gold IRA at Home?
No, the IRS doesn’t allow gold IRA holders to store gold in their homes or safety deposit box. When you buy gold for your IRA, your custodian will handle the precious metal and store it in an IRS-approved facility or depository.
Whether your custodian recommends a depository or you choose one yourself, consider the security, insurance policies, and storage fees before deciding where to store your physical gold.
What Are the Contribution Limits for a Gold IRA?
In 2023, the contribution limit for a gold IRA is $6,500, but you can add another $1,000 if you’re over 50 years old, giving you a limit of $7,500. If you are at all familiar with how IRAs work, you will notice the contribution limit for a gold IRA is the same as for any other IRA, as is the penalty if you overpay.
If your IRA contribution goes over the limit, you’ll have to pay a penalty of 6% of the difference. So, if your contribution goes $500 over the limit, the penalty will be $30.
Can You Transfer or Roll Over Funds From an Existing IRA or 401(k) Into a Gold IRA?
Yes, you can roll over funds from a 401(k) or IRA after opening your gold retirement account. The process involves moving the funds from the previous account to your gold IRA, which you can do in one of two ways:
- Direct: the funds transfer directly from one account to the other
- Indirect: you withdraw the funds and then deposit them in your new account
With an indirect transfer, you must transfer the funds to the gold IRA within 60 days, or they become a taxable withdrawal, including applicable penalties.
What Happens to the Gold in Your IRA if You Pass Away?
When you first open your account, you’ll have to appoint beneficiaries to inherit the gold IRA in the event you pass away. Your spouse is automatically the primary beneficiary, but you may also name contingent beneficiaries. These can be individuals, such as family members, or entities, including trusts and charities.
Depending on who inherits the gold IRA, their options for acquiring the asset include:
- Transfer the funds to their IRA (spouse only)
- Take over the gold IRA as their own (spouse only)
- Open an inherited IRA and receive the required minimum distributions
- Liquidate the account and take the distribution as a lump sum
Are There Any Penalties or Taxes Associated With Gold IRAs?
Like regular individual retirement accounts, gold IRAs enable you to build retirement savings with tax benefits, depending on which type of IRA you hold.
Are There Any Penalties for Early Withdrawals From a Gold IRA?
If you have a Roth IRA, you pay taxes when you add funds to your account. Therefore, you won’t have to deal with penalties for early withdrawals. However, a traditional gold IRA has a 10% penalty if you withdraw funds before the age of 59 and a half because you don’t pay taxes until you start taking distributions.
How Are Distributions From a Gold IRA Taxed?
Whether you have a Roth or traditional gold IRA, here’s what to expect regarding taxes for both types:
- Traditional IRA: You fund the account with pre-tax dollars, meaning you don’t pay taxes on your contributions but do pay taxes for distributions at your income tax rate. Your IRA contributions could be tax-deductible, lowering the taxes you owe for that year.
- Roth IRA: You fund the IRA with after-tax dollars, where you pay taxes on the funds you contribute (at your income tax rate) but don’t pay taxes on withdrawals. Roth IRA contributions aren’t tax-deductible.
Another caveat for traditional gold IRAs is that if you withdraw your funds early, you might have to pay a 28% capital gains tax on your profits if the gold’s value increases in your account.
What Are the Reporting Requirements for Gold IRAs?
For deductible contributions, such as the funds you add to a traditional gold IRA, you should enter the deduction amount on Form 1040, line 20. However, if you aren’t able to deduct your contribution because of income limits or having a retirement plan at work, you must file it as a nondeductible contribution on Form 8606.
Can You Make Contributions to a Gold IRA if You Already Have a Traditional IRA?
Yes, you can purchase gold with your self-directed IRA even if you have another retirement account, whether a traditional IRA, Roth IRA, or 401(k) with your employer.
Can You Have Both a Traditional IRA and a Gold IRA?
Yes, you can have separate retirement accounts. Your gold IRA can be a tax-deferred, traditional IRA or a Roth IRA, giving you retirement tax benefits.
Are There Any Restrictions on Selling Gold in a Gold IRA?
You can sell the gold in your IRA account without paying penalties or taxes, but you must pay the applicable fees if you take the cash out of your retirement account. If you have a Roth gold IRA, however, you won’t have to pay taxes on your cash withdrawal.
Can You Sell the Gold in a Gold IRA at Any Time?
Yes, you can sell the physical gold in your gold IRA whenever you want without worrying about fines or taxes.
Schedule a Call To Learn More About Gold IRAs
We’ve answered the most common questions about IRS regulations for gold IRAs, but there’s still a lot to know when investing in gold with a self-directed retirement account.
At Oxford Gold Group, we help individuals safeguard their savings by walking them through opening up a gold IRA. Our knowledgeable account managers can then assist you with purchasing IRS-qualified precious metals, including gold and silver coins.
Schedule your call with Oxford Gold Group today.