Unfortunately, gold as a collectible does not have long-term capital gains (LTCG) status. This means that gains from these investments are taxed as ordinary income, but with a maximum tax rate cap of 28%. Given today’s stock market valuations and historically low interest rates for fixed-income investments, some IRA owners may be interested in switching some funds from low-risk stocks and securities (such as government bonds and money market funds) to precious metals. However, before you invest in gold, silver, or platinum, you should consider some aspects of federal income tax.
Precious metal assets stored in your IRA. When it comes to IRA investments in gold, you don’t have to pay the 28% recoverable tax rate. They are subject to the marginal tax rate. This rule also means you’ll pay taxes of over 28% if you fall in a high-income tax bracket.
Physical stocks of precious metals such as gold, silver, platinum, palladium, and titanium are considered fixed assets by the Internal Revenue Service (IRS), which are specifically classified as collectibles. Stocks of these metals, regardless of their shape, such as investment coins, precious bars, rare coins or bars, are subject to capital gains tax. Capital gains tax is only due after the sale of such investments and if the investments have been held for more than one year. The exception states that IRAs can invest in certain gold, silver, and platinum coins, as well as gold, silver, platinum, and palladium bars that meet applicable purity standards.
Ideally, keep your gold and other precious metals in your Gold IRA until you retire, as these accounts are designed for that. In the situation addressed in the written decision, shares of a gold fund (presumably an ETF) were sold to the public, including IRAs, and were traded on a stock exchange. This column covers the details of using IRAs for direct investments in actual precious metal coins and bars, as well as indirect investments in the form of precious metal ETFs (Exchange Traded Funds) and mining stocks, as well as the effects of federal income tax. One of the key benefits of IRAs was that investments were taxed when the investor withdrew them from their IRA.
For many years, investors have been looking for alternative ways to invest their money in gold to lower their tax bills and boost their bottom line. For this reason, your IRA Gold custodian bank will allow you to transfer your physical metals to a secure warehouse, a so-called depot. The big practical problem is finding an IRA trustee who is willing to set up a self-directed IRA and facilitate the physical transfer and storage of precious metals assets. Thankfully, the IRS now states that IRAs can buy shares in precious metals ETFs classified as grantor investment trusts without such problems.
In general, an IRA investment in a metal or coin is considered an acquisition of a collectible item. If you want to have your gold valued, it’s usually better to wait until you’ve liquidated your IRA assets and taken possession of your metals. Of course, nothing prevents you from keeping gold bars, valuable coins, or precious metal bars in your safe deposit box. Therefore, the transaction is characterized as a taxable distribution by the IRA, followed by a purchase of the metal or coin by the IRA owner (you).