Can You Contribute Gold Coins to an IRA?
An investment in gold-backed IRAs can provide an excellent way to diversify your retirement portfolio, but there are certain key points you should keep in mind before purchasing precious metals for such an account.
The IRS stipulates that for gold to qualify as an investment option in an IRA, it must satisfy certain minimum fineness standards and come from either a national government mint or accredited refiner/assayer/manufacturer.
Minimum fineness requirements
While investments in collectibles are usually prohibited in IRAs, the IRS has made an exception for precious metal coins and bullion that meet certain purity standards. To take advantage of this exception, however, an IRA owner must not physically possess these precious metals themselves; so working with a reliable gold IRA company that offers secure storage is key.
An IRA-eligible gold coin must be produced by a national government mint and meet certain minimum fineness requirements to meet IRA standards and ensure impurities do not enter. Furthermore, coins must be marked by an accredited refiner or assayer. Finally, investors should pay storage and insurance fees.
IRS rules stipulate that gold eligible for storage in an Individual Retirement Account (IRA) should be placed with a trustee or custodian, however many IRA holders take advantage of what they perceive as a loophole and store precious metals themselves at home – this poses risks, as the IRS could treat this act as an early distribution and apply taxes and penalties accordingly.
Requirements for custodians
Many investors are turning to gold IRAs in order to diversify their retirement portfolio and protect against inflation. Although considered safer than stocks or bonds, gold does come with its own set of risks which must be understood prior to investing.
There are various forms of gold that can be stored in an Individual Retirement Account (IRA), including coins, bars and rounds. The IRS allows these products to be included as self-directed IRA investments as long as they meet certain criteria – for instance gold coins must come from national government mints with minimum fineness levels of 99.5% while similar rules apply for bullion bars and rounds.
Gold that qualifies for an IRA must be stored with an authorized custodian or depository. Storing precious metals at home would constitute an illegal distribution and subject you to taxes and penalties; to avoid this hassle, use a gold IRA custodian, which purchases precious metals on your behalf and arranges their storage at an IRS-approved depository.
Taxes on distributions
Precious metals offer long-term, steady returns; however, their investment costs can add up quickly. Storage fees, insurance costs (to protect against theft of gold at an approved depository), transaction and custodian maintenance fees all can quickly add up; in addition, many companies charge markup when selling to IRAs, further decreasing your profit potential.
Gold IRAs are unique retirement accounts that enable investors to invest in physical precious metals. Both traditional and Roth IRAs can be funded using pretax dollars; Roth IRAs allow after-tax funds. Distributions from Roth IRAs may be subject to taxes upon retirement; IRS regulations only permit certain coins and bars that meet minimum fineness standards from accredited refiners, assayers or manufacturers into an IRA account; collectible coins are not eligible; bullion coins should instead be invested in instead.
Early withdrawal penalties
Investment in precious metals can provide your retirement portfolio with much-needed diversification. However, it is essential to be aware of all fees involved with purchasing and maintaining an IRA-eligible gold investment – these fees include one-time account setup and maintenance charges as well as seller markup costs, storage and insurance fees (for protecting investments at depository), cash out fees and cash in fees.
To avoid fees associated with storage and purchase of precious metals, it is crucial to select an IRS-approved self-directed IRA custodian who enables purchases and storage. The IRS stipulates that any gold coins or bullion approved for IRA must be stored with an official custodian such as a bank, credit union or nonbank trustee; additionally the minimum fineness requirements include coins produced at national government mints as well as bars with minimum fineness of at least 999.999% (such as popular coins like American Gold Eagle as well as South African Krugerrands or British Sovereigns; verification by manufacturers refiners or assayers).