How is GLD Taxed in an IRA?
Holding precious metals in an IRA comes in various forms, from investing directly in gold coins and bullion coins directly or through ETFs to holding precious-metal ETFs with varied tax implications.
The IRS has decided that an IRA may invest in ETFs that track specific precious metals’ prices such as GLD. However, they prohibit taking physical possession of such securities within their account.
Taxes on Long-Term Gains
IRA investments held for more than one year typically attract tax rates that are much lower than ordinary income tax rates, such as stocks, mutual funds or other assets held in either a traditional or Roth IRA.
However, there is one major exception to this general rule. Under the Tax Code, individual retirement accounts (IRAs) may invest in precious metal coins and bullion that meet specific purity standards.
McNulty took advantage of this exception by setting up a self-directed IRA at Kingdom Trust Co. as custodian and creating Green Hill Holdings LLC with Kingdom Trust Co. as initial member and her and her husband as managers; she used LLC funds to purchase AE coins from Miles Franklin Ltd, acting both as agent for and purchaser on behalf of her IRA – both invoices and shipping labels displayed either Green Hill Holdings or her IRA as the purchasers.
Taxes on Short-Term Gains
IRAs are generally prohibited by the IRS from investing in collectibles like artwork, rugs, antiques, stamps and coins; however, in 1986 the tax code was amended to permit investments in precious metal coins and bullion meeting certain purity standards.
IRS taxes capital gains on these investments at ordinary income tax rates (provided distributions are taken after age 59 1/2 or qualify for one of several exceptions; otherwise an early withdrawal penalty applies), however if using a self-directed IRA to purchase gold or other precious metals there are ways to mitigate their tax consequences.
Custodians that facilitate IRA-directed metals transactions typically provide you with a list of dealers from which you can select one – this allows you to avoid being fined for engaging in transactions that violate regulations (McNulty v. IRS, 119 T.C. 135 (2002) for instance).
Taxes on Withdrawals
Typically, when withdrawing funds from an IRA prior to turning age 59 1/2, the IRS adds an extra 10% tax charge. There may be exceptions if your withdrawals are for unreimbursed medical expenses, purchasing your first home or other specific costs; you can also make changes in how your payments from your IRA are calculated without incurring further taxes.
IRAs offer investors several ways to invest in precious metal coins and bullion directly or indirectly via precision metal ETFs (exchange traded funds) or mining stocks, each with unique benefits and drawbacks that should be discussed with your financial adviser. Sales within an IRA are tax-exempt but brokerage fees must still be paid on each buy/sell order placed; traditional, Roth and SEP IRAs for small business owners as well as holding precious metals taxable account are all options if precious metals are your choice of investment firm are all suitable options when holding precious metals investments are.
Taxes on Options
As stocks reach record heights and safe bonds such as Treasuries and money market funds provide close to no interest, some IRA owners may consider investing some of their assets in precious metal coins or bullion. Although life insurance and certain collectibles are banned from being purchased via an IRA account, the IRS allows these accounts to invest in coins or bullion of precious metal.
One way of investing in gold ETFs, such as SPDR Gold Trust GLD (+0.98%) or the iShares Silver Trust SLV (+2.21%), would be through purchasing shares in them; however, IRS has also determined in Private Letter Ruling 200732026 that an IRA may also purchase common stock shares of mining companies that produce precious metals.
An alternative strategy is purchasing physical metals such as American Eagle coins minted by the U.S. Treasury and eligible for tax-code exemption, enabling IRAs to hold them directly without custodian and storage fees. As this practice may come under IRS scrutiny, it is wise to work with reputable coin dealers that have been cleared by them.