Gold IRA Rules and Regulations
A Gold IRA allows you to invest a part of your retirement portfolio in precious metals. Like everything else in the investment field, the IRS regulates the Gold IRA sector. The IRS provides and enforces stringent rules that ensure individual retirement accounts are properly maintained.
The IRS rules affect both you, as the holder of the account, and your IRA manager. If you fail to comply with the rules, you will suffer a significant penalty on your account.
IRA managers have their own rules as set by the IRS. These rules ensure that the owners of IRA accounts have their funds adequately managed.
As a result of the potential penalties you could face, you must understand all of the rules and regulations you and your IRA Manager must follow concerning your Gold IRA. Let’s break down everything you need to know about Gold IRA rules and regulations.
Table of Contents
Rules And Regulations for Gold IRA Administrators
Let’s start by looking at the expectations set for IRA administrators.
Firstly, they must ensure that the IRS approves them to carry out Gold IRA management. Individuals seeking to open a Gold IRA should do so only with IRS-approved IRA administrators.
Unapproved Gold IRA administrators will suffer heavy penalties, including the shutting down of their business.
Once a new Gold IRA account is open and funded, the administrators are expected to carry out the transaction on behalf of their clients. Upon opening a Gold IRA, a client is not allowed to directly purchase precious metals from dealers. Instead, this is the responsibility of the administrator and the precious metals dealer.
Rules And Regulations About IRA Precious Metals
The IRS has a list of precious metals that are allowed in IRAs. IRA administrators must be familiar with this list and know which precious metals they should and should not be investing in for IRAs.
The IRS states that precious metals managed in a Gold IRA must be the official currency of a well-known public entity. This rule helps to monitor and maintain the value of the precious metal purchased.
It also sets the purity standards of precious metals that one can invest in for a Gold IRA. For instance, the IRS states that gold of purity level .995 or higher can be invested in an IRA. Silver must be .999 pure for it to be allowed for IRA investment.
Collectibles and precious metals of a lower purity value are not allowable for investment in Gold IRAs. If you want to invest in these regardless, you can buy them for yourself, separate from your Gold IRA.
Additionally, the IRS indicates that all IRA precious metals must be deposited with an approved custodian.
Besides gold and silver, the IRS also allows investment in other precious metals such as platinum and palladium. For platinum and palladium, the IRS requires a purity level of .995 for physical bullions or coins invested in an IRA.
IRA Rules On The Storage Of Precious Metals
The primary rule regarding the storage of IRA approved precious metals is that you cannot have the precious metals you have invested in within your custody. If you were to have your physical precious metals with you, the IRS would consider this a withdrawal from your retirement account, which would then lead to a penalty and a tax obligation.
The IRS stipulates that an approved custodian must store your Gold IRA precious metals. This IRS – endorsed custodian must also be a partner to your Gold IRA administrator.
The custodian is responsible for holding the precious metals and storing them in an approved depository. They should find a depository as a third party which the IRS must also approve. However, you are allowed to have some say in the chosen depository. However, if you don’t have a strong preference, you can just go with the one that your Gold IRA administrator is in partnership with.
Your precious metals are stored in the depository for the whole life of the Gold IRA. You can either instruct your administrator to sell your precious metals or deliver them to you when you have reached retirement age.
Rules On Retirement Age Limits
The IRS also has rules and regulations surrounding retirement age. In these rules, the IRS stipulates when you can have access to the assets in your Gold IRA. Your Gold IRA and its contents should remain untouched until you reach the age of 59.5.
Once you have reached this age, you can decide on what to do with your assets. At 59.5, you can choose whether to receive your distributions or not. At 70.5 years of age, you must receive at least the minimum withdrawal each year from your Gold IRA.
If you get your distributions before you are 59.5, this is termed as an early distribution. The IRS doesn’t typically allow this unless in specific situations. For an early distribution, you will have to pay taxes on your distribution on top of a 10% penalty.
If you do need to get your distributions before the age of 59.5, don’t panic. There are certain situations when a Gold IRA holder can get early distribution without penalties:
- When you need to utilize $10,000 from the IRA for the first-time purchase of a house
- When you require funds to pay for school for yourself or family members
- When you receive regular equity withdrawals
- If the IRA owner becomes disabled
- If the IRA owner is unemployed and can’t afford insurance
- If the IRA owner is hospitalized without insurance or money for the bills
- Upon death, the beneficiary can withdraw the funds
The IRS prevents tampering with these accounts before retirement age as retirement funds are typically invested from your pre-tax income, meaning that they are not taxed. However, these restrictions also give your investment time to grow, and the fact that you don’t have to withdraw your funds until 70.5 gives your funds an extra 11 years of growth if you have no need to access them at 59.5.
IRA Tax Regulations And Contribution Limits
The IRS also rules on the maximum amount you can contribute annually for your Gold IRA. There is an upper limit to how much you can contribute to the account annually like all other retirement accounts.
A rollover funds most Gold IRA accounts. You can roll over 401(k) accounts from previous employers to a new Gold IRA easily, and you may be able to roll over from a current employer 401(k), though this is more difficult.
The Gold IRA can be funded for a maximum of $5,000 per year until you are 50. For those above 50, the maximum amount you can fund your Gold IRA annually is raised to $6,000. A rollover from a 401(k) is the most common method to fund your Gold IRA. You could also write a check to your Gold IRA administrator to fund your account to purchase more assets.
If you get a distribution of your Gold IRA accounts for an account with no exceptions, tax must be paid. If you profit from holding your assets, you will be charged a 28% capital gains tax once you receive your distribution.
You also have to pay full income tax of the values of the assets you hold in your account on receiving your distribution. The income tax is assessed based on the real value of your distributed precious metals.
It probably does not come as a surprise that there are many rules and regulations in place when setting up a Gold IRA. When following the procedure to transfer funds into your Gold IRA, it is important to bear in mind that your administrators have a lot of hoops to jump through, too. You, your administrators, and their partners must follow the IRS’s rules to complete a safe, legal transaction.
For the most part, these rules and regulations are in place to protect your funds and ensure consistency across all of the Gold IRA transfers that your administrators make. You or your administrator could suffer stiff penalties for not abiding by the rules set by the IRA, so you mustn’t rush into the process. Instead, speak to your administrator about all of the rules and regulations you both must follow to make the process simple and legitimate.