Gold IRA Tax Rules: Invest in Precious Metals (Tax-Free)

You’ve seen the ads on your favorite news channels touting the benefits of adding physical gold and silver to your 401(k) or IRA. These commercials typically feature a celebrity endorsing a gold IRA company along with a phone number to call and request more information.

But can you buy physical gold and silver with your retirement account? If so, what are the gold IRA tax rules for avoiding any penalties by the IRS?

Gold IRA Tax Rules

The IRS does not permit you to invest 401(k) funds into things like art or “collectibles.” Many precious metals fall under this “collectibles” umbrella, so it’s important to know what is and is not acceptable with the tax-man. For years, no gold or silver products were allowed in an IRA, but thanks to the Taxpayer Relief Act of 1997, the IRS will now allow you to safely transfer or rollover a portion of your 401(k) into certain gold and silver bars and coins. These precious metals must meet the fineness requirements in order to be held in your IRA.

IRA-Eligible Bars and Coins

Bullion bars, rounds, and coins are the most widely accepted precious metals for inclusion in your IRA. Collector value is of little consideration when it comes to the IRS and your investments. Bullion products are valued based on the spot price of the underlying metal. 

Numismatic products on the other hand, are collector coins. The markup on these coins are high, and the value is more reliant on collector sentiment, rarity of the coins, and other external factors. It would be difficult for the IRS to properly assess the value of these holdings. The value of bullion products are easier for the IRS to determine.

Here is a short list of popular bullion products that many include in their gold IRA:

• Gold American Eagles
• Canadian Maple Leaf gold coins
• Gold Buffalo coins
• Australian Gold Nuggets
• Australian Gold Kangaroos
• Credit Suisse gold bars
• PAMP Suisse gold bars
• Silver American Eagles
• Silver Australian Kookaburras
• Mexican Libertad Silver coins
• Platinum American Eagles
• Canadian Maple Leaf platinum coins
• Canadian Maple Leaf palladium coins

Proof Coins

For the most part, proof Coins are not allowed in your IRA. Proofs are considered collectible coins and do not meet the IRS fineness requirements. The IRS has however, made an exception for American Eagle coins. 

You can include gold, silver, or platinum Proof American Eagles in your self-directed IRA. Experts will argue for and against adding these proof coins to your retirement account. Some believe these coins are better long-term investments due their higher quality and appeal to collectors. 

Others believe the markup on these coins is too high and that investors will never be able to sell these coins for more than they paid (after broker fees, commissions, and delivery). You can investigate the pros and cons of investing in proof coins for your IRA and decide if they make sense for your gold IRA.

Related: Advantage Gold Review - Can You Trust the Gold Company with Your IRA Rollover?

Gold IRA Rollover

Most Americans hold their wealth inside of their 401(k) and open a gold IRA in order to diversify their retirement out of stocks, ETFs, and other “paper” assets held via the traditional banking and investment system. Precious metals are often seen as a hedge against things like stock market crashes, inflation, and other threats to the traditional system. 

Americans have the ability to transfer or “roll over” money from one qualifying retirement account into another IRA. The reason for this is that your current IRA or 401(k) custodian does not support physical precious metals.

You can’t just call your 401(k) provider and request to sell your index funds and buy American Eagle coins. They can’t support this type of transaction. 

You will have to open a self-directed IRA (SDIRA) with a custodian that allows precious metals. Once this is setup, you can roll over money from your old 401(k) account and into your new self-directed IRA. After this new self-directed IRA is funded, you can now use the funds in your account to purchase physical gold and silver.

You can never hold these precious metals in your direct possession. Your gold IRA company must have your gold, silver, platinum, or palladium purchases sent directly to an IRA approved vault storage company of your choice.

Related: Best Gold IRA Companies for 2022 - Read This Before Opening Your Gold IRA

Finding the Right Partner

If this sounds complicated, it’s really not. This is because there are hundreds of companies in the United States that deal exclusively in facilitating gold IRA rollovers. These gold IRA companies can:

• Assist in setting up your new SDIRA
• Act as a liaison between your old retirement plan’s custodian and your new SDIRA custodian and ensure the rollover or transfer of funds
• Assist in the selection of IRA-approved metals to buy for your new “gold IRA”
• Set up your secure vault storage for your gold IRA
• Ensure the safe and insured delivery your precious metals directly to your chosen storage facility

Your gold IRA ‘experts’ should also be available at any point after the account is set up to answer questions, and they should also offer to buy back your precious metals if you ever choose to liquidate your holdings for cash.

While there are many moving pieces to the puzzle, it’s important to have a trusted gold IRA provider in your corner to ensure you follow the gold IRA tax rules. Failure at any step in the process may trigger a taxable event with the IRS. These penalties are not cheap and not worth the risk!  Talk to a recommended gold IRA company and make sure you get the facts.