One of the most important aspects of a retirement account is being your boss. A self-directed gold IRA goes beyond traditional safe investments because it’s not denominated in fiat currency. Instead, it depends on the value of physical gold. This means that you don’t need to trust a financial institution with your nest egg. With the help of a trusted gold IRA company it’s in your control at all times, which maximizes the value of your savings. But how exactly does a self-directed gold IRA work?
Simply put, a gold IRA is an individual retirement account that’s not denominated in U.S. dollars or any other traditional currency. Instead, it’s backed by physical metal such as fine gold bullion.
You can easily find information about how and where to buy gold and silver bars on the internet. Before investing, it’s essential to decide which metals are best suited for your interests and needs. It won’t take long to learn how to set up a self-directed IRA. The recommended way to reinvest from an existing tax-advantaged retirement account is either a direct transfer or rollover.
The IRS won’t let you hold on to your physical gold or silver while it’s in the IRA. Make sure you understand how safe bullion storage works and what an allocated versus unallocated depositories is. It is essential to know when, why, and how to liquidate precious metal IRAs. The value of your metal investments can be taken out in various ways with different tax consequences depending on the type of account you have.
Guide to Taking Distributions from a Gold IRA
Let’s say you have purchased gold and established an IRA account, and chosen a depository. If the value of your gold IRA investment appreciates, IRA regulations dictate that any taxable gain is deferred. However, you cannot access your gold without (either) taking a distribution from the IRA (or its cash value).
What are the reasons that you might liquidate your gold position?
- The liquidation could be for an unforeseen expense
- Perhaps you are only using a small amount of your savings for retirement income, and it makes sense to derive some revenues from precious metals
You can either have the metal you own shipped to your home after distribution from your IRA (the IRS calls this an “in-kind” distribution) or instruct the depository to purchase the metal and give you cash. Having the freedom to choose an option is advantageous because it best meets your needs.
However, you should be careful! To be tax-free, a distribution must occur after you have reached 59.5 years old and attained IRA “required minimum distributions” status. Any distribution taken before you’ve reached 59.5 years old is subject to a 10% penalty for early withdrawal.
Traditional IRAs are subject to income tax when distributed. Therefore, you must take out enough money from your account to pay for the taxes associated with distributing the funds. Traditional IRAs also have RMDs, which must be taken at age 70.5, so it may eventually be necessary to liquidate your holdings either you wish or not.
Roth IRA’s don’t have required minimum distributions, and because you make contributions after taxes are paid on the entire income earned for the year, distributions won’t be subject to income tax. As a result, you won’t have to worry about liquidating more gold than desired to pay the IRS.
Whether you are an individual, a trust, or a company, it is essential that you consult with an expert before distributing your gold. Individuals and trusts who are ready to distribute their gold holdings will need to submit the proper form for processing from your gold depository. You’ll decide which of your bars or coins to take with you as a distribution and if you want them converted into cash.
Things to Note
To avoid penalties, report accurate information on your tax return. Besides, if you choose to have the gold bullion as your distribution, understand that profits will no longer be tax-deferred once they are outside the IRA.
Bottom Line
Gold IRAs are a good way to make wise investment choices; they provide many benefits toward building wealth. The IRS doesn’t allow you to hold your physical gold or silver in an IRA, but it does allow for the repayment of investment capital and potential earnings through distributions. If you plan carefully, there are no penalties, and precious metals will continue to bring you returns.
