Gold IRA Rules

When it comes to creating a gold IRA or rolling over a current IRA into a gold IRA, there are a number of rules that must be followed. These rules can seem very overwhelming and you might be afraid of breaking one of these rules when you attempt to purchase gold with your IRA funds. That is why it is very important that you either learn all the rules surrounding gold IRAs or you partner with a custodian and company that is willing to help.

The Internal Revenue Service initially prohibited collectible coins and precious metals as part of Individual Retirement Accounts investments, but this changed with the Taxpayer Relief Act of 1997, which introduced changes to allow the inclusion of gold as well as several other precious metals to shore up IRAs.

However, there are still rules of the IRS that people have to abide by.

Most gold IRA companies will simply purchase the gold you ask and then make sure it is stored somewhere, a great gold IRA company will help you follow all the rules and make sure that you investment is profitable and secure. So what are these rules and how will they affect your desire to diversify your assets?

The following are the do’s and don’ts of purchasing and holding gold-backed IRA:

  • A specific exemption was allowed for IRAs to hold certain U.S. minted coins, as well as gold bullion suitable for regulated futures contracts. But do your research; some well-known gold coins are still off limits, such as the South African Krugerrand, and bullion bars that are not sufficiently pure. Buyer beware for the certain cases that may cause conflict.
  • IRA gold must be held with a qualified trustee or custodian. In other words, the investment cannot be held by the IRA owner.
  • Required Minimum Distributions (RMD) for IRAs with gold investments exist. The gold held in IRAs is generally easy to value since coins and bars often come in standard sizes and weights, and the market price of gold is readily available and makes calculating the fair market value of an in-kind distribution, or the total IRA value for purposes of calculating RMD’s (required minimum distributions), relatively easy. But, liquidation of the gold can be a challenge so you may need to take distribution “in-kind”.
  • Custodians holding physical gold in IRAs may charge higher fees than other IRA custodians to help offset costs associated with precious metal dealers, storage, insurance and security costs.
  • If gold bars and/or coins are distributed in-kind from an IRA and you want to do a rollover, you must roll the gold over to another IRA, and not cash.
  • Purchasing the stock of gold mining companies or investing in precious metals funds may provide some of the benefits of investing in gold without actually having to hold physical gold in an IRA.
  • Another option is exchange-traded funds (ETFs). These funds invest in gold and allow clients to essentially mirror the gains and losses of actual gold without holding physical gold in their IRAs.
  • Long-term capital gains on non-IRA gold mining stocks are taxed at a maximum of 15%. Long-term capital gains on non-IRA ETFs investing in precious metals, such as gold, are taxed at a maximum of 28% as a gain on collectibles. Gains on both gold-mining stocks and ETFs are deferred when held in an IRA and are taxed as ordinary income when withdrawn.
  • Although precious metals, ETFs are taxed as collectibles and collectibles are generally prohibited from being held within an IRA. However, several IRS Private Letter Rulings, as well as the conduct of custodians, provides strong indication that such ETFs will not be considered a collectible under an IRA account.

As soon as you decide to do a rollover, the contributions to your IRA account will be transferred to you. If you don’t transfer these assets to your new IRA account, the IRS is going to regard this transfer as a withdrawal. This rollover should be done within 60 days, otherwise you will have to pay tax as the IRS has regarded this transfer as a withdrawal and therefore they will tax you like you received an income. A rollover can be done once a year, but transfers are free of any such rules.

IRA Exceptions

Of course, like in any law there are exceptions, where the “no touching of IRA” assets before you are 59 and a half is void when:

  • The IRA owner is disabled for whatever reason.
  • If an IRA beneficiary starts to withdraw money after the original owner of the IRA dies.
  • If the IRA owner has to be hospitalized and has neither the money nor the insurance to cover the costs.
  • If the IRA owner is unemployed and cannot cover the cost of insurance.
  • The IRA owner or a member of his or her immediate family needs money to pay for qualified education. This rule applies not just to the study itself, but also for tuition, room and board, books and other materials.
  • If the IRA owner withdraws in an equal series of “substantially equal periodic payment” during their life expectancy.
  • The IRA owner can also use $10,000 from the IRA to buying his or her first home.

We hope this Gold IRA rules guide has been helpful to understand some of the nuances related to purchasing gold to power your IRA. One of the most important takeaways is that gold must be held in a storage facility, as the responsibility of a recognized IRA custodian.