How is GLD Taxed in IRA?
IRAs allow you to defer taxes until distributions are taken, with certain regulations from the IRS imposed to protect your assets.
Emma, 60 years old and with annual taxable income of $398,500 is looking to invest $10,000 in gold coins or an ETF using either traditional or Roth IRA accounts which both offer tax benefits.
Income
Most people understand that distributions from traditional IRAs, 401(k) plans, and similar retirement accounts and tax-deferred annuities must be included as income upon being received – this applies both to human beneficiaries as well as trusts that receive them after your death.
Early withdrawals from traditional IRAs carry with them a 10% penalty and ordinary income tax on nondeductible contributions and earnings, unless an exception applies.
At least 70 1/2, and making a qualified charitable distribution (QCD) from your IRA to a 501(c)(3) organization qualifies as an exception and counts towards fulfilling your required minimum distribution (RMD).
Capital Gains
Taxable withdrawals from an Individual Retirement Account (IRA) are taxed at their marginal income tax rate, though an exception allows physical gold coins and bullion meeting purity standards to be invested within such an IRA account.
Investors may also invest in precious metal exchange traded funds (ETFs), which consist of physical holdings of precious metals but trade on the stock market and are not considered collectibles for tax purposes. Gains from such investments don’t qualify for lower long-term capital gains tax rates – in this example we compare how Emma and Lucas, two middle-income taxpayers, may tax their returns from various investment choices if held within either a traditional or SEP IRA account.
Required Minimum Distributions
The required minimum distribution rule for IRAs was created to prevent individuals from leaving too much money in their retirement account and then passing it down tax-free to heirs. An RMD is determined by dividing your account balance at year’s end by an IRS table derived life expectancy divisor.
The most basic RMD calculation involves dividing your age as of December 31st by your life expectancy divisor, as determined by IRS tables. Your life expectancy divisor decreases if there are survivors, minor children or chronically ill persons involved, such as an ex-spouse, dependent children under majority or disabled or chronically ill individuals in your life expectancy divisor calculations.
Even though GLD doesn’t represent physical gold bullion, investors still find GLD attractive due to its ease of trading and ability to give investors access to global assets without incurring international shipping costs or storage charges. A gold IRA provider cautions that owning physically-backed precious metals such as American Eagle coins or Austrian Vienna Philharmonic coins would still offer unique opportunities.
Excise Tax
GLD is an exchange-traded fund backed by physical bullion bars stored at HSBC’s vault in London. Investors flock to GLD due to its supposedly secure backing; yet its physical nature has attracted critics who question its existence.
Excise taxes may be levied on businesses, but they also impact consumers indirectly – including those making excess contributions to retirement accounts. Taxpayers contributing more than what qualifies as tax-deductible contributions may be subject to an excise tax of 6% on any amount over.
IRA owners can trade GLD shares like stocks, so they can profit from a rising gold price or suffer financial losses when its price declines. Since GLD shares correlate directly to gold (less expenses of the fund), their value may diminish over time as more gold represents each share than before.
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