With tax day having just passed us, some of you may be rejoicing at the big, fat tax refund you’re set to receive, while others of you may have just written a painfully large check to the U.S. Treasury. Whichever situation you’re in, taxes are just one of the certainties of life, and every year we all do our best to try to minimize our tax burden.
One of the most popular ways of minimizing taxes today is through tax-advantaged retirement accounts such as IRAs and 401(k)s. These retirement accounts allow investors to defer taxation for years, or in the case of Roth accounts, to avoid taxation entirely.
What many people may not know is that tax-advantaged accounts aren’t limited to owning just financial assets like stocks, bonds, and shares in funds. IRAs can own physical assets such as precious metals, and an increasing number of Americans are becoming aware of this and starting their own gold IRA accounts.
As with any asset you purchase, a sale of gold is a potentially taxable event, so how you buy gold can play a role in how it is taxed. Traditionally, many people just bought gold coins to hold at home or store in a safe deposit box. But now with a gold IRA, you can buy gold coins with IRA assets. And the tax treatment of those assets will differ from normal cash purchases of gold coins.
We’ll discuss this a little further, but first a caveat. We at Goldco aren’t tax advisors, and the information you’re about to read isn’t tax advice. Before making any financial decisions, make sure to consult with your tax advisor to determine the tax implications of any decision you make.
Types of Gold IRAs
Like any IRA account, a gold IRA can either be a Traditional IRA or a Roth IRA. With a Traditional IRA, you invest with pre-tax dollars, accrue gains tax-free, and then pay taxes when you take a distribution. With a Roth IRA, you invest with post-tax dollars, accrue gains tax-free, and then pay no taxes at distribution.
The taxes you pay when you distribute assets from a Traditional IRA are taxed at ordinary income tax rates. Right now the federal income tax brackets are 10%, 12%, 22%, 24%, 32%, 35% and 37%.
Depending on how much income you make in retirement, how much Social Security you receive, and how much you might need to take in required minimum distributions (RMDs) from your retirement accounts, your income could fall into any one of those brackets.
Because distributions from a Roth IRA are tax-free, Roth IRAs are often recommended for those who expect to end up in a higher tax bracket in retirement. Note that this doesn’t necessarily mean someone who expects to earn more in retirement. If the government were to raise income taxes to a flat rate of 45%, for example, a Roth IRA could help protect against that, too.
Is Gold a Collectible?
Taxation of gold owned outside a gold IRA isn’t as simple, because gold is considered a collectible. Now, if you’ve read anything about a gold IRA you might be saying, “No, gold isn’t always a collectible!”
For purposes of IRA investing, certain gold coins aren’t considered collectibles. So a Gold American Eagle, or any gold coin with a minimum fineness of .995, would not be considered a collectible for purposes of purchase by a gold IRA. But if you own those coins outside an IRA, they’re still considered a collectible for tax purposes.
Collectibles are taxed in two different ways. Collectibles owned for less than one year are taxed at ordinary income tax rates. But collectibles owned for more than one year are taxed at a collectibles rate that’s normally 28%, plus an additional 3.8% net investment income tax for really high earners.
That means that, depending on how long you’ve owned gold, you could end up paying higher tax rates on your gold’s gains with gold held outside an IRA than gold held within an IRA. And if you own gold within a Roth gold IRA, you wouldn’t pay any taxes at all.
How Much Tax Will I Pay on Gold?
Looking at the numbers, you could pay between 0% and 40.8% on any sales of gold you own. It’s all dependent on your overall income, how long you’ve owned the gold, whether the gold is owned in an IRA or not, and whether your gold IRA is Traditional or Roth.
That can make it tricky to figure out ahead of time what your tax liability on sales of gold might be. And the tax rate you pay could vary from year to year depending on other income you’re bringing in. That’s one more reason to consult a tax advisor when trying to figure out which method of buying gold will work best for your investment goals.
Your Gold Buying Options
Whether you decide to buy gold with a gold IRA or to buy gold coins directly with cash, Goldco has options available for you. With over $1 billion in precious metals placements, Goldco has thousands of satisfied customers who have benefited from owning gold.
Don’t let the onerous task of paying taxes on your gold sales dissuade you from buying gold. With continued high inflation and a recession on the horizon, now is the time to take advantage of gold’s potential for future price growth. Call the experts at Goldco today to learn more about you can benefit from owning gold.
Trevor Gerszt is the founder and CEO of Goldco, a precious metals dealer in Los Angeles. For more than 20 years, Trevor has sought out ways to help people build long-term wealth through the security and stability of precious metals and other alternative assets. Goldco is A+ Rated by the Better Business Bureau, a 5-Time INC 500 Winner and has countless 5-Star Reviews for its quality customer service, dependability and strong reputation.
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