Internal Revenue Service (IRS) allows investors to buy a wide range of investment choices including certain precious metals. Gold IRA refers to a type of investment made in gold. The type of investment allows you to earn fruitful amounts of income by purchasing and selling gold asserts. Gold IRA account functions the same was as a regular IRA, only that instead of holding paper assets, it gold physical gold coins and bars. Businesses selling gold IRAs often outsource a private IRA services entity to act as the custodian for their clients. Here, investors use gold as a long-term hedge against inflation, making it very attractive to add to their retirement portfolio.
If you wish to create a gold IRA or you’re rolling over a current IRA into a gold IRA, then you need to follow some rules. IRS regulates gold IRAs. Each and every investor is responsible for following some important guidelines that help in preventing any forbidden transactions in an IRA. Read on to see the most important Gold IRA rules.
Gold Types in an IRA
Not all gold can be invested in an IRA account. Gold in IRA may be in the form of physical gold such as American Eagle gold coins and bullion or even gold certificates. Other types of gold approved by IRA include Canadian maple leaf coins, Australian Philharmonic coins and gold bars from other recognized refineries such as Nymex, LME, ISE-9000 and LBMA. All gold coins must be at least 995 fine (99.5 % pure) and be of legal tender coins. Gold bullion bars are also accepted by IRAs. Collectable coins and coins that originate from a mint that has not been approved are not allowed in this account.
IRS Penalties
When buying your gold coins to invest in IRA, it’s important that you check where it is coming from. This is because IRS might view this as a withdrawal instead of a transfer or rollover of your IRA. According to IRS, if you withdraw asserts from IRA before they turn 59.5, you will be penalized with 10 % extra tax on the actual amount you have withdrawn. Apart from this tax, you will be reliable for extra income tax to the value you withdraw, since this will be regarded as an extra income. Also note that, contributing more than you are allowed means you have to pay an extra tax of 6 %.
Custodial Maintenance
IRA gold must be held with a qualified trustee or a custodian, rather than the IRA owner. Finding a custodian may sometimes prove to be quite difficult because, you need to find someone who is both trustworthy and also knowledgeable. A custodian can be a financial institution or any bank or any brokerage, but the custodian can’t be an individual. Before choosing your IRA custodian make sure you check IRS certificate. The custodian must be a registered financial institution or bank or brokerage that has a valid certificate of IRA custodian from IRS. IRS doesn’t require custodians to give every allowable investment and therefore it is the role of the investor to find a suitable custodian to maintain his/her account. Basically, the custodian stores your gold at third party depository. All investors are forbidden from possessing the coins. Possessing coins may be considered a distribution and is fully taxable.
Gold Rollover or Transfer
If your current IRA custodian is not willing to store your gold or even invest in gold on your behalf, then you will need to transfer or rollover your IRA funds to another willing custodian. Before you start this process, you need to select what type of transaction you want to do; roll over or transfer. The two options are best suited according to your specific situation. In rollover, you don’t need to choose a custodian; you are totally responsible for your own gold IRA account. During this process, you will get funds and it’s up to you to deposit money into your plan.
Transfer is a bit different from rollover. In transfer, you need to select a custodian who will liquidate cash and then transfer back to a new custodian. Keep in mind that the rollover and transfer process is tax-free but the custodian charges his fee. There are several companies that specialize in gold IRA and will be more than willing to help you understand all these processes so you can be sure you investment is safe.
Time Limits
If you are thinking of rolling over or transferring your IRA then you need to be aware of several stipulations involved in these processes. Once you get started on the process, this must be completed within 60 days and secondly, you can only do this with the same money once every 12 months. If this is not followed then, you will lose your tax deferred status for your assets. You will also be prevented from touching money in either of your IRA accounts for a whole year.
IRA Funding Restrictions
If are just starting a gold IRA, then you will be subjected to some IRA contribution limits. You are only allowed to put $5,000 a year into your IRA. If you are aged 50 or older, then you can put $6,500 or your own taxable compensation for one year. This means, you have to build up the funds gradually each year. The only way you can add more money into your account in a single year is through a transfer or a rollover. Basically, IRA funding restrictions does not apply to all rollover contributions and qualified reservist repayments. When you reach 70 and a half years or older, you can’t any regular contributions to the traditional IRA. However , it’s still possible to contribute to Roth IRA and then make a rollover to the traditional IRA or Roth IRA regardless of age. Traditional IRA contributions’ may be tax-deductible. This deduction may actually be limited if the investor or his spouse is already covered by different retirement plan and if his/her income has exceeded certain levels.
A good custodian is very important. This is because; he will be in charge of your investment. If you want to find the ideal gold IRA custodian, then you have to do some research. You can start by going through different reviews to see how other investors feel about certain custodian. You will also learn more about fees charges and what to expect from a gold IRA account. Choose a good custodian who is willing to guide you through the process. It’s the only way to ensure you protect your future.