The Tax Implications With a Gold IRA Investment

by Mike Parker

Congress authorized individual retirement accounts to encourage people without workplace retirement plans to save for retirement on their own. Congress put some restrictions on the types of investments that can be held in an IRA, but certain gold coins and bullion are permitted.

Prohibited Investments

The Internal Revenue Service does not determine what type of investments are appropriate for your individual retirement account. But it does put some limitations on certain investments that can result in tax penalties if held in your IRA. The IRS considers any amount that you invest in certain collectible items such as works of art, alcoholic beverages, rugs, gemstones, antiques, certain precious metals including gold, coins, stamps and certain tangible personal property, to be distributed to you during the year you made the investment. This amount may be subject to taxation as ordinary income plus an additional 10 percent tax penalty, depending on the type of IRA and your age.

Acceptable Gold Investments

The IRS considers most investments in metals to be a distributed investment in a collectible, but there are some exceptions. You can invest funds from your IRA in U.S. gold coins minted by the Treasury Department in weights of one, one-half, one-quarter, or one-tenth ounce. You may also invest in certain gold, silver, palladium and platinum bullion. You can invest in these acceptable gold investments without being subject to an immediate distribution or tax penalty.

Alternative Gold Investments

There are investments that you can include in your individual retirement account that will give you an exposure to gold without making a direct investment in the metal. You may invest in the stock of gold mining companies. You may invest in gold-oriented mutual funds, which may have holdings in both gold bullion and the stocks of gold mining companies. Or you can invest in gold-related exchange-traded funds, or ETFs.

Tax Implications

You cannot contribute gold bullion, stock in a gold mining company, gold-oriented mutual fund shares or gold coins into your individual retirement account. You can only fund your IRA with cash or cash equivalents. You may be able to deduct the amount of your contribution to your IRA from your income when you file your federal income tax return, depending on whether you have a traditional or Roth IRA. You can purchase your gold investment with funds in your IRA. Any growth that results from your gold investment in your IRA is treated the same as all other investments in your IRA, regardless of whether the gains result from dividends, interest or capital appreciation. Gains are not taxed as long as the investment remains in your IRA. All amounts you withdraw from your traditional IRA will be taxed as ordinary income at your then current tax rate. Qualified withdrawals from your Roth IRA are free from federal income tax, including withdrawals of gains from gold investments.

About the Author

Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.

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