How is Gold Taxed in an IRA?
Typically speaking, people look to invest in Individual Retirement Accounts (IRAs) because there are certain tax benefits to that route. In general terms, the two types of IRA are pre-tax funded and post-tax funded.
As company-funded and Union backed retirement plans started to go out of vogue, people looked for other ways to plan for retirement. One of the most popular options has been the IRA. In this route, a person can hand over a certain amount of their income every year to a third-party held account. This money is then available to the person on retirement age.
One of the huge benefits of an IRA is that whatever cash, stocks, or bonds you hold in your account are not taxed while they are held there. That means if you hold stock in the next big company in your IRA, and that stock goes through the roof, you won’t pay tax on it while it’s still in your IRA.
There are a number of laws and regulations surrounding IRAs, and we won’t go into all of them. Instead we’ll focus on how we pay taxes on our IRA funds, and how that impacts Gold IRAs.We’ll offer a brief explanation of the two types and how they affect Gold IRAs.
Pre-Tax Versus Post-Tax
In the pre-tax version of an IRA, you are allowed to redirect a certain portion of your income into your retirement account before you are taxed. As an example, if you make $50,000 a year, you can put $10,000 into an IRA and then you would only pay taxes on the $40,000 remaining.
With this option, however, you must pay taxes on any money you withdraw from your IRA when you retire. That means if you set up your IRA to disburse $4,000 a month, you would pay taxes on it as if it were earned income.
The second option, sometimes called a Roth IRA, means you let the income tax formulas work their way over your paychecks, and after all taxes are taken out, you put your funds into your IRA. In this option, whenever you draw on your retirement account (provided you meet all requirements), you won’t pay any tax.
Bottom line, you will always pay tax on your retirement money. The only question is whether you pay when you fund your account or if you pay when you withdraw from your account. With investments, you won’t pay taxes on market gains themselves: if stocks are purchased with pre-tax money, you will pay tax on the funds you receive from the stock increase when you make withdrawals; if you purchased the stocks with funds already taxed, you will not pay tax on the gains.
How Tax Works in Gold IRAs
If the above section made sense to you, and you already know how a Gold IRA works, there’s good news: you already know how they tax a Gold IRA. In essence, the process works the same way. You can either divert cash funds to your Gold IRA agent before you pay taxes on that income, with which untaxed money your agent will buy your bullion; or you can pay taxes upfront on your income, then divert already-taxed funds to your agent.
If your agent purchases gold with funds that have not been taxed yet, then you will have to pay taxes on the funds you withdraw after selling any gold in your IRA. If your agent purchases gold with funds on which you’ve already paid tax, then you can withdraw proceeds from sales without any tax paid.
All that to say, the gold itself is never taxed. When it comes to purchasing gold with funds that have been taxed or funds that have not yet been taxed, you should consult your self-directed IRA advisor.