It shouldn’t really shock anyone to learn that the IRS imposes a number of specific yet stringent rules for precious metals individual retirement accounts. You should feel lucky regarding the fact that they let us store precious metals within our tax free or tax-deferred retirement account to begin with.
Previously, before the Taxpayer Relief Act of 1997, Congress forbade investors from owning collectible coins or precious metals as part of their self-directed IRA accounts. Things have changed for the better since then, but it’s important to understand the rules and regulations enforced by the IRS in regards to gold IRA accounts.
Administrator Rules from the Internal Revenue Service
If you’re going to possess a gold IRA account, the first step is to find and open an account with an administrator approved by the IRS. The United States is filled with a wide range of administrators at this point, and they operate in businesses including retirement companies, banks, and insurance companies. It’s absolutely necessary to remember that some of these administrators are eligible to handle precious metals IRA accounts while others aren’t. And when it comes to the administrators that do qualify, their further requirements might mean that you must open a self-directed IRA in order to have an account.
From a critical standpoint, you aren’t personally granted the right or privilege to buy precious metals like gold and silver within your IRA account as the person initiating the transaction. According to the IRS rules, the administrator of your gold IRA account must complete all transactions on your personal behalf. You direct the IRA custodian regarding your precious metals purchase orders. They’ll handle all of the arrangements from there, while taking care of things like insurance, shipping, and each step of the transaction.
Storage Rules from the Internal Revenue Service
After you’ve purchased new precious metals, according to guidelines set forth by the IRS, they need to be stored in a certain storage facility. Your custodian will have to facilitate this process on your behalf.
In fact, the custodian of your self-directed IRA is of the utmost importance, since investors themselves aren’t allowed to personally store precious metals like coins, bars, or rounds in their own personal possession. In fact, you can’t purchase gold of any kind and give it to your custodian or administrator in an effort to put it in your retirement account. It just doesn’t work that way.
Even worse, if you do take possession of your metals even for five minutes, the IRS will look at this as a distribution – most likely an early distribution – and you’ll have to pay taxes and potential penalties as well.
Your gold IRA custodian will receive shipment of your precious metals on your behalf. From there, they will take your precious metals and safely store them in a depository sanctioned by the IRS. You can choose the depository to store your metals, or allow your account administrator to pick the storage facility that they regularly do business with. Your precious metals will be safeguarded and inventoried for you until you explicitly tell the administrator to provide you with the distribution or sell your gold on the open market. When distributions are made, the custodian or administrator will mail them to your home address via insured delivery.
Depositories with approval by the IRS were specifically set up to store precious metals from account holders with self-directed IRAs. You’ll have to pay a yearly storage fee that will be taken directly from your individual retirement account. The precious metals themselves will stay put where they are in your vault until you either ask for a distribution or have your account administrator sell them. Precious metals storage vaults keep your metals safe in an aggregated vault by default, which means they will store your metals in the same vault with their other clients. For your protection, it’s best to request segregated storage, but it’s possible you’ll have to pay higher storage fees for this additional convenience. But with segregated storage, your precious metals are safely stored in your own personal safe deposit box.
Contribution Limits & Tax Regulations from the Internal Revenue Service
As you finally start to make contributions, you should ask your administrator or look personally into your self-directed IRA annual contribution limits. This limit increases from time to time and once you reach the age of 50 it will increase even more. Precious metals IRA account funding can happen by directly sending a check to your administrator or having your account administrator or initiate a retirement account rollover from your 401(k), 403(b), or other retirement account. You are never allowed to buy precious metals, mail them to your administrator, and add them to your account, so please keep this in mind.
As an example, let’s say you decide to take a distribution of your gold. When this happens, you will have to handle the tax consequences. After you take physical possession of your precious metals, you’ll have to pay the entire amount of income tax owed on the value of the metals after they are withdrawn. If you’re taking a distribution before reaching retirement age, you’ll also have to pay an additional tax penalty worth 10% of the withdrawn precious metal’s value. You’ll also have to pay capital gains tax assessed by the IRS at 28% on any capital gains that you realize from the distribution of your holdings.
Retirement Age Limits Set by the Internal Revenue Service
There are also age limits set forth by the IRS as to when you can legally begin taking distributions from your IRA account. Unless you want to pay a penalty, you aren’t allowed to take distributions until you reach the age of 59 ½. But this is voluntary at this point. If you wait until you are 70 years old, the IRS forces you to begin taking distributions from your retirement account.
Penalty Exceptions and Early Withdrawal Penalties from the Internal Revenue Service
The IRS levies a penalty in the amount of 10%, but they aren’t completely unforgiving when enforcing this rule. There are certain early withdrawal situations that exist where you can take money before 59 ½ years old without suffering from a penalty. Those situations include:
- Account holder suffers from a disability
- Hospitalizations/use the money to pay medical bills when you don’t have insurance
- Account holder passes away and beneficiary receives the funds
- Account holder engages in the process known as Substantially Equal Periodic Payments
- Payments used for school tuition, books, room and board and other college related expenses
- Account holder can take up to $10,000 toward the purchase of their first home
Approved Precious Metals from the Internal Revenue Service
Just because precious metals exist, it doesn’t mean that every type is accepted within a gold IRA account. The IRS has enforced very strict rules on certain types of bullion that qualify for this account. All in all, the standard of purity must hold up under strict scrutiny set forth by the IRS. You aren’t purchasing coins with value as collectibles. These coins must be released by the US Mint or other acceptable foreign mints.
For the most part, the IRS is looking for 24 karats of purity of gold from foreign entities. The US American Eagle gold coin is acceptable at 22 karats of purity. Other purity levels include:
- Gold – 99.5% purity
- Silver – 99.9% purity
- Platinum – 99.95% purity
- Palladium – 99.95% purity
On the other hand, the IRS has already approved specific precious metals coins and bars that can be purchased within a self-directed gold IRA. These metals include:
IRA Approved Gold
- Gold American Eagles
- Gold Australian Kangaroos
- Gold Australian Nuggets
- Gold Austrian Philharmonics
- Gold Canadian Maple Leafs
- Gold Credit Suisse PAMO Suisse Bars .999
- Uncirculated Gold US Buffaloes
- Accepted Gold Rounds and Bars
IRA Approved Silver
- Silver American Eagles
- Silver Australian Kookaburras
- Silver Austrian Philharmonics
- Silver Canadian Maple Leafs
- Silver Mexican Libertads
- Accepted Silver Rounds and Bars
IRA Approved Platinum
- Platinum American Eagles
- Platinum Australian Koalas
- Platinum Canadian Maple Leafs
- Platinum Isle Of Man Nobles
- Accepted Platinum Rounds and Bars
IRA Approved Palladium
- Accepted Palladium Rounds and Bars