A primary component of a diversified retirement portfolio can be physical gold in the form of bullion bars or coins. Investors as account owners of self-directed accounts are responsible for research to gain insight into stringent rules and regulations stipulated by the IRS for holding precious metals in these IRAs.
The advantages gold bars in an IRA can provide, including the tax breaks, won’t be fully realized without total compliance with the guidelines. That includes using a custodial service or trust specialized in self-directed accounts holding gold to administer the account.
A conventional individual retirement account is restricted to traditional assets like stocks, mutual funds, and bonds. Self-directed IRAs are required for alternative investments, including precious metals. The consequences of noncompliance with IRS regulations are tax penalties.
That defeats the purpose of investors seeking IRAs to save for retirement without the concern of taxes. While that’s not the sole purpose for choosing gold-backed IRAs, it is vital to recognize how they work to realize the full benefits. Let’s look at a few IRS rules so you can make a more informed investment decision.
What Are IRS Rules On Gold Bullion Bars And Coins Held In An IRA
A self-directed individual retirement account holds alternative investments, including precious metals like gold. The conventional IRA cannot hold gold; it’s restricted to securities like stocks and other “paper” assets.
The IRS keeps close tabs on gold-backed IRAs overseeing stringent regulations that must be followed to avoid tax penalties. It’s in your best interest, as an investor, considering the asset, to educate on the ins and outs of owning the precious metal in an IRA before committing.
In this way, you’ll be able to take full advantage of the tax breaks and other benefits the metal brings to the portfolio. A wise decision would be to consult a tax counselor or advisor to strategize and make the most informed decision. For the time being, the following IRS rules apply to gold-backed IRAs.
● The government agency has approved specific bullion bars, coins, and rounds as IRA-eligible
Some people will argue that a South African Krugerrand coin is an exception to the IRS guidelines and can be included as IRA-eligible. The only exception is the American Eagle gold coins with a lesser purity than is otherwise required.
These are reasons to become educated on the facts in order to properly comply with the IRS guidelines. The minimum fineness requirement for IRA-eligible metals is .995, and production needs to be through a national government mint or accredited manufacturer or assayer/refiner.
The only exception, as mentioned, with the purity rules are the American Eagle “gold bullion and proof coins” with “.9167 purity.” The eligible metals, according to regulations, include:
- 1 oz and 10 oz bars (Perth Mint)
- 1 oz coin (Canadian Maple)
- 1 oz coin (Austrian Philharmonic
- Coins (Australian Kangaroo)
- 1 oz and 10 oz coin (Pearl Harbor)
- 1 oz coin (American Buffalo)
- Coins proof (American Eagle)
- Bullion coins (American Eagle)
When coins are graded by a designated coin grading service to specify conditions, including the ones listed here, these are viewed by the IRS as collectibles and are not IRA-eligible. Once you retire and take possession, you can then treat them in this capacity if you choose. Read here for details on putting gold in an IRA.
● Gold that you already have possession of can’t be added to a self-directed IRA
Suppose you own any of the listed IRA-eligible coins. In any case, these can’t be added to a self-directed individual retirement account despite meeting the guidelines issued by the Internal Revenue Code.
The process for adding gold involves funding the newly opening self-directed account through an assigned approved custodial service. The custodian will then purchase IRA-eligible products through a dealer or broker on your behalf.
The contribution to your account can be made via transfer or rollover between custodians on each retirement account or through cash, check, or wire transfer deposit into the new account.
Regardless of the funding method, the custodial service will make the appropriate purchase on your behalf and hold the precious metals in a third-party approved storage depository.
That doesn’t diminish your control as the account owner over the IRA-eligible gold or the IRS-approved depository if you prefer to select where the products are stored.
● Once the account is mature or at age 59.5, you can take possession
You can take possession of your precious metal after the age of 60 or when the account matures. That can mean liquidating the gold without concern of a penalty or the option of a “distribution in kind.”
That essentially means that you can walk away with a physical precious metal asset in your possession to do with as you wish. You can hold onto it to sell down the road, use it in economic crises as a trade or a form of money, or place it on hold for an inheritance.
A priority is to have a safe place to keep the metal if you choose to keep the physical commodity to avoid the potential for theft.
As account owners, investors are responsible for educating on the rules and regulations that pertain to gold IRAs. That includes understanding what forms of precious metals can be held in a self-directed account.
The IRS stipulates bullion bars, coins, and rounds are eligible with at least .995 fineness. The only exception is the proof coin American Eagle at .9167. You cannot add existing gold to a new self-directed IRA despite potentially having eligible products in your possession. Nor can you have the ones you buy graded.
After maturity, you can take possession of the precious metals and do with them as you wish. That can include getting them graded, setting up an inheritance, or selling the products later. If you want to sell, it’s a good idea to check with the broker who sold them to see if they have a “buyback” program.