Gold IRA investments in the US are soaring. Record numbers of investors are placing their faith in gold as a hedge against inflation or a step toward wealth preservation. With this development, you should be aware of a few gold IRA rules so that your account is not subject to penalties or taxes. To get the best returns, gold investments need to be done correctly. If you're considering using gold to build your IRA, here's what you need to know.

Use a Self-Directed IRA

A self-directed IRA is a retirement plan that lets you make alternative investments to build wealth and diversify your portfolio. Instead of being limited to stocks, bonds, and other similar assets, you can invest in assets like real estate and precious metals. You need to set up a self-directed IRA account if you want to purchase gold and other precious metals. Traditional self-directed IRAs offer tax-deductible contributions, with withdrawals taxed as ordinary income.

You can use your self-directed IRA to purchase precious metals like gold, silver, platinum, and palladium. Moreover, there are certain rules you must follow to ensure your IRA investments are in line with IRS rules and regulations.

Choose IRA-Eligible Gold

Certain prerequisites for gold coins and bullion apply when determining what to put in a self-directed IRA. Your IRA provider can guide you about specific coins, bars, and bullion options. The following are the requirements established by the IRS:

  •  At least 99.5% pure.
  • Coins that the US government mints including gold coins like the American Eagle and Buffalo gold coins and silver ones like the American Eagle and Silver Eagle.
  • Comes from a reputable dealer registered with the US. Treasury, so your money is protected in case something goes wrong.
  • An IRA custodian must store it in an approved depository.
  • Credit Suisse gold bars manufactured at an approved facility.
  • Silver bars & coins must be 99.9% pure.
  • Palladium and Platinum bars and coins must be 99.95% pure.

Before we continue...

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The IRS purity requirements ensure that investors are purchasing high-quality metals that will protect their wealth for generations to come.

The IRS sometimes considers IRA-eligible gold to be collectible if it has been certified by an independent organization, such as the Professional Coin Grading Service. Unfortunately, this means you can't hold it in your gold IRA. Therefore, if you want to have your gold and other precious metals professionally graded, you should wait until after you have liquidated and possess your IRA assets.

Purchase Your Gold through a Custodian

To add precious metals to your IRA, you must work with an independent trustee or custodian who can store and manage your metals. When you buy gold through a precious metals IRA custodian, you can rest assured that your assets are being preserved according to federal regulations.

Custodians offer a simple and convenient way to own physical precious metal assets. Your custodian will help you set up an account and buy gold and other precious metal assets. They will also handle the transfer of funds from your bank to the dealer, loosen the purchase of physical precious metals, and safely store your assets in a depository outside your local jurisdiction.

Because gold IRA companies generally work with top-tier custodians, they offer these services as part of a comprehensive service package. As a result, most gold IRA investors purchase gold and other precious metals with funds already in their accounts. The following are some ways to fund your IRA account:

  • Cash contributions to your account of up to $5,000 per year.
  • Rollovers from other retirement plans. You can roll over an existing IRA or 401(k) plan into a gold IRA.
  •  Transfer existing assets from a self-directed IRA to a new self-directed gold IRA account.

It’s essential to choose a gold IRA custodian that is properly licensed and insured, has a reputation for integrity, and follows all industry regulations when handling your assets. When selecting a gold IRA custodian, consider the following:

  • Is the company USA regulated?
  • Are there any restrictions on products offered by the custodian?
  • What fees does the custodian charge?
  • How long has the custodian been in business?
  • Is the custodian audited by an independent firm?
  • Does it have a good reputation among consumers and regulators?
  • Does it have an amicable customer service team?

Store Your Gold in an IRS-Approved Depository

You must keep your precious metals in an IRS-approved storage facility if you own a gold IRA. The IRS does not permit you to store coins and bars at home or in a safety deposit box. Many people mistakenly assume they can simply hand their gold and precious metals over to a family member or friend with favorable tax implications. 

If you possess the IRA-eligible gold and precious metals even for a brief period, the IRS will consider it a distribution. This would result in you paying heavy taxes and penalties. 

To ensure your gold is safe, your IRA custodian will transfer your physical metals to a secure storage facility called a depository. You may choose the depository, or your custodian can recommend one. It is vital that the depository is IRS-approved.

When choosing a depository, consider its security measures, insurance policies and storage fees. You can store it in a depository and hold it until you request the sale of your gold through a custodian. A secure delivery service will then take your gold to your home address.

Avoid contributing more than you can. The IRS sets annual contribution limits for individual retirement accounts each year. Moreover, you can contribute up to $6,000 or $7,000 per year to an IRA if you are over 50 years.

Hold the gold in your IRA until you are 59 ½

Precious metal IRAs are designed to hold gold, silver and other precious metals until you retire. With a precious metal IRA, you can defer taxes on your profits and take advantage of tax-deferred compounding growth. However, there are restrictions on when you can withdraw your IRA assets.

Following IRS regulations, distributions from a gold IRA plan must be deferred until the account owner reaches the age of 59½. At that time, you will be subject to any taxes due on the amount of your withdrawal. Only then can the metals in the account be liquidated for cash or possession without penalty.

When you invest in a gold IRA, your capital is invested in physical gold and precious metals. You can hold onto and sell them later, use them as a hedge against economic or geopolitical crises, or pass them on to the next generation. Keep in mind that if you withdraw funds from your retirement savings before the age of 59½, you must pay a 10% early withdrawal penalty and a 28% capital gains tax on any profits.

There are several exceptions to paying the 10% penalty on early withdrawals, including if an individual becomes disabled or buys a first home. A penalty can also be avoided if payments are made in the form of an annuity based on one's life expectancy.

At age 72, you must begin taking mandatory distributions from your gold IRA. If you don't, you will face a 50% excise tax each year that you do not meet the distribution requirements.

About the author Greg Lorenzo

Greg is a financial expert who has been advising his audience on loans for over 10 years. He has a wealth of knowledge and experience in the area, and he is passionate about helping people get the best possible deal on their loans. Greg is an expert in negotiating loans, and he has a proven track record of getting his clients the best possible terms. He is also a strong advocate for financial literacy, and he regularly gives workshops and seminars on the topic.

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