For thousands of years, the fascination with precious metals has been a staple of human civilization. Metals like gold and silver acted as currency in the form of coins, and the rarest of metals ended up as status symbols in the form of jewelry and decorations. Not that long ago, most of the world’s economies relied on the Gold Standard as the foundation of their currency value.
While those days are gone, gold remains relevant today. It is one of the most commonly traded commodities in the world and serves as an alternative form of investment for many. The price of gold skyrocketed in the early 2000s, attracting many potential investors with annual returns easily outperforming the stock market. The trend flipped in the 2010s, and most of the investors during that period lost money by investing in gold.
Still, gold remains an attractive option for many investors looking to diversify their investment portfolios. When it comes to investments, annual returns are just a part of the story. What most investors crave is to maximize their after-tax returns. This puts taxation at the center of every investment decision you will make.
This blog will cover the most common gold investment types, how Is gold taxed in an IRA, and how you can lower the gold tax rate.
Traditionally, if you wanted to invest in gold, you would purchase either coins or gold bars and hang on to them until it is time to sell them at a profit. Nowadays, various gold investment vehicles are available to potential investors.
Regardless of which type of investment you choose, you should know they all come with potential benefits and risks. An investor needs to research all investment options and make an informed decision on which option will yield the highest return at an acceptable risk.
Before we get into details about gold taxation, it is important to say a few words about which other costs are present when you invest in gold. Great annual returns quickly disappear once dozens of fees and expenses pile up. Keeping a check on the cost of investing in gold will improve your bottom line and minimize the risk of a loss.
You are thinking about investing in gold. You have to decide which type of gold investment will yield substantial returns without producing a huge tax bill. To better understand gold taxation, it is essential to look at tax treatment and gold classification.
The IRS considers gold investments as investments in collectibles. Practically, by investing in gold, you are receiving the same treatment as those investing in art, baseball cards, or comic books. That comes with its own set of challenges, including a somewhat unfavorable tax rate.
There are two main scenarios when it comes to those who invest in gold. In the first scenario, an investor purchases gold, holds onto it for less than a year, and sells it. These transactions have the same tax treatment as ordinary income or short-term capital gains (STCGs). The second scenario includes an investor purchasing gold and hanging onto it for more than a year before selling it. Unfortunately, as a collectible, gold does not have the status of a long-term capital gain (LTCG). This means that gains from those investments are taxed as ordinary income, but with a 28% maximum tax rate cap.
This is a massive tax hit for most gold investors, and for years investors sought alternative vehicles for investing in gold to lower the tax bills and improve the after-tax returns on their investments. Currently, the most popular and affordable option is to invest in gold through an individual retirement account (IRA). In the next section, we will cover the details of gold IRAs and how you can improve your after-tax returns by choosing to invest in one.
IRAs burst onto the scene in 1974, offering individuals a long-term investment vehicle for retirement. The major advantage of IRAs was that investments made in the IRA are taxable upon withdrawal by the investor. It is an excellent opportunity for investors to delay the payment of taxes and lower their capital gains for that year.
In the beginning, IRAs did not allow collectibles as a form of investment. This began to change in 1986 when the IRS allowed investment in US gold and silver coins. The IRS expanded that in 1998 to include bullion with the purity of at least 99.5%. The major shift came in 2007 when the IRS announced that IRA investments in gold ETFs are not considered investments in collectibles. Investors started taking advantage of this option, and it remains popular today.
There are certain restrictions that IRS places on investors who use IRAs to invest in gold. The most significant one is that investors must not have possession of any physical gold they are investing in. The gold has to be in storage at a registered intermediary during the investment. Intermediaries charge investors an annual fee for administration and storage. Regardless of those restrictions, gold IRAs remain a viable investment vehicle for gold.
If you decide to open an IRA for investing in gold, these are the main factors you should keep in mind:
Have you considered adding gold to your investment portfolio? Gold IRAs offer an excellent combination of investment flexibility and better after-tax returns than other gold investment vehicles. If you would like to know more about your gold IRA options, check out our site. At Oxford Gold Group, we provide resources and information to potential investors who would like to diversify their portfolios and invest in gold. Finding a gold IRA partner has never been easier.
INSIDE THIS INVESTMENT GUIDE YOU WILL LEARN:
• How Gold & Silver can protect your savings & retirement accounts
• Types of Gold & Silver products available for Home Delivery
• How a Gold & Silver IRA can protect your Retirement account