People have been fascinated by the allure of gold since the dawn of civilization, and it can play a role in your retirement plan, too. Gold IRA plans work differently from other individual retirement accounts in how purchases are made, how the assets are managed and how the account is cashed in when the owner reaches retirement age.
You must have a self-directed IRA to squirrel away physical gold in your retirement account. The list of IRA custodians handling such gold accounts is significantly shorter than the one for other IRA managers. After opening the account, you make a transfer request if the money is coming from another IRA. However, you would do a direct-rollover election form if the cash you are using to fund the gold IRA is coming from an employer-sponsored plan. You also need to fill out a metals-direction form, telling the IRA custodian which bullion dealer you want the custodian to buy your gold from.
The Internal Revenue Service prohibits an IRA owner from taking possession of the gold while it is part of his retirement account. The precious metal must be stored in an approved depository. The custodian of your gold IRA will send a purchase order to the gold bullion dealer you chose. When the dealer receives the order, he ships the gold coins or bars to a depository, such as HSBC Bank in New York or Diamond State Depository in Delaware. When the gold arrives there, the depository lets the IRA custodian know. The custodian then documents the gold purchase into your gold account and pays the dealer.
Approved Bars and Coins
IRS rules only allow IRAs to contain gold bars with a purity of 24 karats, or 0.995 or greater fineness. They also must be stamped by a NYMEX- or COMEX-approved refiner such as Johnson Matthey or Engelhard. The bars can be bought in a variety of sizes for an IRA. Along with 1 ounce versions, these include 10, 32, 100 and 400 ounces.
Gold coins must have a purity of 24 karats, or 0.9999 fineness, with the exception of the 22-karat gold American Eagle. Gold bars are usually sold closer to the "spot" price, or current price, of gold at the time you make a purchase. As of 2013, dealers will normally charge a premium of about $100 over the spot price for gold coins because of the cost of minting coins.
Taxes and Withdrawals
Gold IRAs are governed by the same tax rules as other IRAs. Contributions to a self-directed traditional IRA that holds gold can be deducted from federal income taxes. The precious metal also cannot be withdrawn from the account until the owner reaches 59 1/2 years old without facing a tax hit and a 10 percent penalty for the early withdrawal. Investors with gold IRA plans also must begin making mandatory minimum withdrawals at age 70 1/2 and pay taxes on the withdrawals.
If your gold IRA is a Roth account, you will be able to make withdrawals tax-free because you would have already paid taxes on the contributions. You also would not be compelled to start pulling money out at age 70 1/2. Gold IRA owners have the option of taking their withdrawals by check, bank wire or delivery of the gold itself.
You can also sock away gold in an IRA by purchasing mutual funds that invest in bullion or the stocks of gold mining companies. You could also buy individual gold stocks and gold exchange traded funds for your IRA. If you chose to fund your IRA with mutual funds, ETFs or stocks, you would not need a self-directed IRA custodian. You could open the account with any traditional brokerage firm.
- Jupiterimages/liquidlibrary/Getty Images