With the rising inflation in mind, many people are now considering investing some of their retirement savings in assets other than stocks, bonds, and cash. Investing in gold and other precious metals through a Gold IRA is increasingly becoming popular. This is a smart way of hedging against inflation while availing of tax benefits. Do keep in mind that gold IRA is subject to detailed rules and requirements.
In this short guide, we will look at Gold IRA withdrawal rules, including penalties for early withdrawals.
Withdrawal Rules Applicable to Gold IRA
IRA withdrawal rules for precious metal IRAs are similar to any other type of IRA. The IRS imposes a 10% penalty if you withdraw from the IRA early; i.e., before the age of 59½. Retirement funds are non-taxable. They are invested from pre-tax income. If you withdraw the funds early, a penalty is levied.
You can make Gold IRA withdrawals as soon as you turn 59½ without paying any penalty. You don’t really need to touch your savings until you are 70½. You can allow your precious metals to grow in value for another 11 years. After turning 70½, you are required to make minimum withdrawals.
RMDs (Required Minimum Distributions) should start when you turn 70½; they cannot be later than December 31 on that year. The initial RMD can be postponed until April 1 of the following calendar year. You are solely responsible for withdrawing the correct RMD every year. There are stiff penalties if you fail to do so. Self-directed IRA calculates the annual RMD amount. You don’t need to worry about RMDs if you are a Roth IRA owner.
Early Withdrawal Penalties and Exceptions of Gold IRA
The IRS levies a 10% penalty in addition to the applicable taxes based on your tax bracket for any early distribution on Gold IRA. However, this rule does not have a blanket enforcement. There are several situations in which you can make an early withdrawal without having to pay the penalty and additional fees:
IRS Approved Precious Metals
All precious metals cannot be included in a Gold IRA. The IRS has strict rules on the bullion pieces that qualify. The precious metal has to meet a high minimum purity standard, too. The metal should not be considered as a highly-collectible. The coin needs to be from the US Mint or any other approved foreign mint.
Special exception is accorded to the US Mint bullion gold. In general, the IRA requires gold with a full 24-Karat purity. 22-Karat purity is allowed for American coins. This is so that the Gold American Eagle coin is purchased by investors.
Acceptable foreign bullion includes gold, silver, platinum, and palladium. The minimum purity requirements are:
Rules Regarding Gold IRA Distributions
There are more distribution options in Gold IRAs and custom precious metal IRAs than paper investments. A major difference between precious metal IRA and other standard IRA options is that you can distribute it in two ways:
In-Kind Distribution: Investors can choose to receive the precious metal as a direct distribution. The bullion coins or bars will be directly shipped to you. You can choose to do whatever you want with them upon receipt.
Standard Liquid Distribution: You can choose to receive liquid distribution in the form of ACH, wire, or check similar to any other retirement account.
Always Purchase Your Gold IRA through a Reliable Custodian
You must work with an independent custodian or trustee to add precious metals, such as gold to your IRA. The custodian will store and manage the metals. Rest assured the assets are preserved as per federal regulations when you purchase gold through an IRA custodian.
Custodians offer a convenient and simple way of owning physical precious assets. The custodian you choose will help you set up the account to purchase gold and other assets, handle the funds transfer from your bank to the dealer, store assets safely in a depository outside the local jurisdiction, and loosen the purchase of gold.
Gold IRA companies routinely work with top-tier custodians. Their services are usually offered as part of a comprehensive package. As a result, you may be able to purchase gold and other assets with funds already available in your account. It’s vital that you choose an IRA custodian that is properly insured and licensed, follows all industry regulations, and has a reputation for integrity.
Use an IRS-Approved Depository for Storing Your Gold
You should use an IRS-approved storage facility for precious metals owned through a Gold IRA. Storing coins and bars in a safety deposit box or at home is not permitted by the IRS. Many people erroneously assume that they can hand over their precious metals or gold to a friend or family member with favorable tax implications.
The IRS will consider it a distribution if you possess any IRA-eligible gold, even if it’s for a brief period. This may incur heavy taxes and penalties. Where Gold IRA is concerned, you should err on the side of caution.