How Is GLD Taxed in IRA?
Gold is an attractive asset to diversify portfolios. But investors need to understand the tax ramifications associated with holding precious metals within an IRA account.
IRS rules stipulate that Individual Retirement Accounts (IRAs) invest only in coins and bullion that comply with specific purity standards, while withdrawals may be treated like ordinary income and subject to a 10% early distribution penalty and withholding.
Taxes on GLD
When it comes to investing in precious metals inside of an individual retirement account (IRA), the IRS has stringent rules. When an IRA invests in physical gold coin or bullion, they treat it as collectibles; however, there is an exception which allows certain coins and bullion that meet certain purity standards and held by an independent trustee/custodian rather than the owner himself/herself to be purchased and held as collectibles by an IRA trustee/custodian instead. These rules apply equally well for traditional, Roth, SEP IRAs as SIMPLE-IRAs.
Under IRS rules, any acquisition of collectibles within an IRA will generally be treated as a taxable distribution and subject to 3.8% net investment income tax even if those assets are later reinvested within another IRA account.
To avoid this problem, many IRA owners prefer purchasing shares of an exchange-traded fund (ETF) that tracks the price of precious metals rather than direct purchases of physical coins or bullion directly. ETFs are regulated as grantor trusts by the IRS and do not qualify as collectibles – among the popular options are GLD and its rivals such as SGGDX and GDXJ; gold mining common stock equities like symbols ABX and GG; UBG and TBAR also represent options.
Advantageous to these strategies is that when selling precious metals from your IRA, any taxable gain would be treated the same way as short-term capital gains (STCG) realized by other qualified accounts – this distinction being especially crucial as IRS taxes collectibles at much higher rates than IRAs and qualified accounts.
One important consideration when investing in precious metals is interest rates. Low rates reduce opportunity costs of non-yielding assets like gold and silver, making them more appealing investments; conversely when interest rates increase demand drops for these precious metals leading to decreased prices over time.
Finally, a word about required minimum distributions (RMDs). As soon as an IRA holder reaches age 72, federal law mandates they take annual RMDs starting April after their 71st birthday. Although self-directed IRAs do not need to comply with this legislation, it’s wise to bear it in mind when creating your retirement portfolio.
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