Are Taxes Due When Inheriting a Precious Metals IRA?

An investment retirement account is a great way to save your hard-earned cash for that rainy day, and a gold IRA is becoming increasingly popular. Investing in precious metals is seen as a safer option these days, as many are unsure about the economy. However, what happens when you pass away, and your loved ones inherit your gold IRA? Will they have to pay taxes when inheriting a gold IRA? The answer depends on a lot of factors.

Spouse Beneficiaries

Most of the time, gold IRA holders name their husband or wife to inherit the account when they pass away. In general, anyone inherits a gold IRA will only pay tax when they start to withdraw funds from the account. However, a spouse isn’t required to withdraw anything from the gold IRA until they reach 70 years. At this point, there is a minimum amount required to be withdrawn, and therefore tax charged on these withdrawals. However, the rate of this tax is the marginal rate.

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Beneficiaries who are not spouses

Again, the IRS states that anyone inheriting a gold IRA must pay taxes on any withdrawals made. However, the beneficiary doesn’t need to withdraw the gold right away. Most beneficiaries will not withdraw the entire fund right away, as their tax bill will be rather large and painful. Instead, they spread the withdrawals over five years.

Once again, though, things are not so straightforward. There is not always just a standard five-year period from which you can withdraw money from the gold IRA. The length of time depends on a few factors.

The age of the beneficiary can affect some things; if they are under 59 years old, they will pay tax on any withdrawals they make, but they will also pay a 10% penalty. The age of the deceased also plays a part; if they die before the magic age of 59, then the 10% penalty is waived.

Things can also get confusing when there is more than one beneficiary. Things are calculated by the age of the oldest beneficiary. Then, if the beneficiaries are not all individuals, the matter complicates more. However, the time span is always a minimum of five years.

How is the value of the gold determined?

Whenever a gold IRA is inherited, the value of the gold in the IRA is determined by the market value of the metal at the time of death of the account holder.

Other Facts to Consider

Even after you have inherited a gold IRA and are lucky not to have any outstanding taxes, it is still important that you play by the book to ensure you do not run afoul of the law with effect that you have to face massive taxations and other penalties. In this regard, there are certain pitfalls to avoid. Some of them include the following;

  • Ensuring you do not engage in excess contributions or prohibited investments.
  • Avoiding all premature withdrawals and ensuring you withdraw within the defined limits. You may also want to check the frequency of your withdrawals to ensure you are not in contravention of this as well.
  • Treading with caution in estate planning by ensuring you designate your gold IRA beneficiaries with care to avoid any future problems.