Taxes on Precious Metals: Self-Directed IRA Tax Rules

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While the 2023 tax filing season has ended, it’s not too early to start thinking about next year’s filing. And since tax strategies are part of financial planning, it makes sense to consider your retirement savings in parallel.

Depending on your financial situation, you might be reallocating your savings or even considering early withdrawals from your IRAs. Thinking ahead for your future, you may be prioritizing building a nest egg more than ever before. If you’re in a position to contribute to retirement savings, you’ll want to leverage maximum tax benefits as well.

Many people’s financial situations are rapidly evolving. It’s important you know which deadlines and other tax considerations could affect you, especially if you already own or have been thinking about opening a retirement savings account. This can help you allocate your funds wisely, choose the right type of retirement account to align with your goals, and make the best long-term decisions for your retirement.

The long-term goal of trying to keep your retirement savings “safe” from the volatility of fiat currency may have led you to a Precious Metals IRA, where you can buy gold, silver, palladium, or platinum while enjoying the same tax benefits as other IRAs. Precious Metals IRAs are, in fact, self-directed IRAs (SDIRAs), which are retirement savings accounts where you can hold any assets not excluded by the IRS. Since these are still IRAs, they follow the same deadlines this tax season as their conventional IRA counterparts.

There are four types of IRAs: Traditional, Roth, SEP, and SIMPLE. Each comes with its own unique set of rules and limits when it comes to tax filing, usually reflecting the very same characteristics that make it unique.

Before we proceed: this piece is intended for general education, not as tax advice. For the latter, consult with a certified tax professional who can review your particular situation and give you the best personalized advice.

What Is a Precious Metals IRA?

A precious metals IRA gives you the opportunity to invest in precious metals, traditionally considered to be commodities that offer stability during times of economic uncertainty. Gold, silver, palladium, and platinum are the primary investments for precious metals IRAs, with the former being the most heavily favored due to gold’s advantage as an investment safe-haven.

Precious metals that have utility in the increasingly expanding technology industry are becoming particular favorites for those looking to hedge against inflation. With paper-based economies around the world seeing prices for everyday goods steadily rise, there are many reasons to buy gold in 2023.

Now you may be wondering why you would want precious metals in an IRA when you can go buy gold and other metals directly.  A precious metals IRA combines the investment advantages of precious metals with the tax benefits of an IRA.  Depending on your particular financial situation, using an IRA to invest in gold or other metals can provide a great amount of tax savings compared to buying precious metals outside an IRA.

Let's look at the four main types of IRAs and what benefits and limitations they come with:

Self-Directed IRA Tax Rules for Traditional, Roth, SEP, and SIMPLE IRAs

The four key types of IRAs share many similarities come tax time, but they also diverge slightly in some important ways. For each type, we review the contribution limits that you need to keep in mind.

One important, overarching note to keep in mind is the tax filing deadline. For filing 2023’s taxes, the deadline is April 15, 2024.

Traditional IRAs

The contribution limit for Traditional IRAs for 2023 is $6,500, which is an increase of $500 over the previous year. If you are over the age of 50, you can contribute an additional $1,000.

If you plan to open a Traditional IRA this year, be sure to have your IRA application postmarked by midnight of the tax filing deadline.

Roth IRAs

The deadline for Roth IRAs are the same as for Traditional IRAs. Contribution limits are identical as well, as long as your 2023 adjusted gross income was less than $153,000 as a single filer or $228,000 as a married joint-filer. The IRS has published further information on the AGI limits for Roth contributions.

Tax consequences, however, are much different for Roth IRAs. The way they work is almost the direct opposite of other types of retirement accounts. Roth contributions are taxed upfront, right when you make them, while Traditional IRA contributions are tax-deferred. As a result, distributions during retirement from a Roth IRA are tax-free.

This makes Roth IRAs ideal for a range of situations, including if you expect to be in a higher tax bracket when you start taking distributions than when you make your contributions.

SEP IRAs

While Traditional IRAs and Roth IRAs share a fair number of deadline similarities, SEP IRAs are where we start to run into some differences. These differences likely stem from how SEP IRAs are employer-sponsored and can be opened by business owners with at least one employee, as well as freelancers. Traditional IRAs and Roth IRAs, on the other hand, are opened by individuals (not employers), who are also the ones making contributions.

For contributions, the SEP IRA deadlines are the same as for Traditional and Roth IRAs: tax filing day for that filing year. But when establishing a new SEP IRA, that deadline depends on your employer’s tax filing date: it might be the standard tax filing date, or they may receive a filing extension—generally to October 15—which also applies to SEP contributions.

Contributions limits are also vastly different for SEP IRAs. The IRS allows SEP contributions of the lesser of either 25% of your compensation or $66,000 for 2023.

SIMPLE IRAs

Like SEP IRAs, SIMPLE IRAs are employee-sponsored; individuals cannot go and sign up for one like they could a Traditional or Roth IRA. Employees can opt for salary reduction contributions, while employers have a couple of options for how they make their contributions.

For reference, contributions to SIMPLE IRAs can be made up until December 31 of that tax year (i.e., by December 31, 2023 for a 2024 filing). Furthermore, these accounts must be established by October 1 of that same tax year.

The contribution limit for SIMPLE IRAs is $15,500 for the 2023 tax year. They also allow an additional $3,500 in catch-up contributions if you are over 50 years of age.

Precious Metals IRA FAQs

In addition to the differences between each type of IRA, there are also some major differences between buying precious metals inside of an IRA as opposed to purchasing them outside of one.

What types of precious metals can be held in an IRA?

There is a limited set of precious metals products that may be purchased within an IRA and enjoy the tax benefits that this type of retirement account brings, based on IRS guidelines.  Additionally, the IRA custodian handling the paperwork for your transactions and the depository securely transporting and storing your precious metals both help maintain the tax benefits of your account. Because they do not enter your physical possession, the IRS allows qualified precious metals to be bought and sold within your IRA while enjoying the tax benefits—and subject to the rules of—that particular type of IRA.

How do you avoid taxes on gold?

For physical gold, you'll need to pay capital gains taxes on your gold when you sell it and make a profit, or you'll be taxed at a general rate at 28% for collectibles. Income does come into play here. If you are single, you'll pay no capital gains tax if your income is under $44,625 for 2023, or if you're married filing jointly, the income limit is $89,250.

Outside of that, precious metals IRAs are the best option for avoiding or lowering taxes on gold.

What are the benefits of a precious metals IRA?

There are numerous self-directed IRA tax benefits to keep in mind:

  • IRA contributions are tax-deferred. In most cases, you contribute a portion of your annual compensation as cash into purchasing precious metals within an IRA just as you would any other retirement account. That contribution is tax-deferred (with the exception of a Roth IRA as outlined above).
  • Precious metal IRAa are the same as mutual funds in how they function. While your contributions are made in cash, they are then used to buy physical metals.
  • There is no tax difference between a precious metals IRA and any other IRA.
  • The benefits of investing in precious metals are numerous and include long term market stability.

How are precious metals taxed outside of an IRA?

As noted previously, if you plan on buying physical gold or silver with after tax funds, you’ll be facing a different tax situation than if you’re investing in a precious metals IRA. Gold purchased outside of an IRA will be taxed as a collectible, putting it in the same category as stamps, baseball cards, paintings, and similar items.

If you’ve held gold outside of an IRA for more than a year, any gains for the sale of that metal is taxed as a long-term capital gain. This isn’t the exact same as long-term capital gains in your brokerage account. Collectibles held for less than a year are taxed at the same rate as income taxes. Once they have been held for more than a year, collectibles are taxed as ordinary income but capped at 28%.

As the Journal of Accountancy notes, this tax rate is significantly higher than long-term capital gains taxes, which are generally 15%, although higher-income individuals incur higher tax rates capped at 20%.

Losses from the sale of precious metals outside of an IRA can be used to offset other capital gains on your taxes. For anyone reporting any losses on these metals, there is a limit of $3,000 of ordinary income after other capital gains that may be offset with these losses.

There is one other key tax consideration that differs between buying precious metals inside and out of an IRA. The collectibles’ capital gains tax rate (capped at 28%) only applies to those precious metals held outside of an IRA. Gold, silver, platinum, and palladium inside of an IRA are converted to cash upon withdrawal or for distributions, and are therefore taxed as ordinary income. Again, because Roth IRAs require taxes be paid upfront instead of deferring them, distributions from a Roth Precious Metals IRA are still not taxed at all.

When thinking ahead to the 2023 tax season, you have options when it comes to the type of Precious Metals IRA you choose. Given the types of IRAs available, you can leverage tax benefits alongside the advantages that diversification with gold, silver, platinum, and palladium can bring.

Are there penalties for early withdrawals from a precious metals IRA?

As with many IRAs, precious metals IRAs incur a fee if you make an early withdrawal from them. For precious metals IRA, the fee is 10%. It’s worth noting, however, that if you’re over 59 ½, you won’t have to pay a fee at all.

Can I roll over funds from a Traditional IRA or 401(k) into a precious metals IRA?

At present, it's entirely possible to rollover funds from an existing IRA or 401(k). In fact, you can also transfer funds from a 401(a), 403(b), 457, Thrift Savings Plan, and annuities. There are some important details to keep in mind while you are rolling funds over, however, but don't worry - Birch Gold is available and ready to help.

Key Takeaways: Precious Metals IRA Tax Rules

With financial markets wavering, people across the US are taking steps to protect their wealth against inflation by hedging up their retirement accounts with precious metals IRAs. Investing in a precious metals IRA means that you’ll be able to access self-directed IRA tax benefits that will remove or lower potential tax penalties while taking advantage of the rising prices of gold, silver, platinum, and palladium.

It’s easy to get into the weeds fast when dealing with retirement accounts. At Birch Gold Group, we’ll streamline the process for you, whether you’d like to start a new precious metals IRA from scratch or rollover some or all of your existing retirement accounts into the fund. If you’d like to see what options are available, check out our information kit today.

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