Precious Metals IRAs are growing in popularity by leaps and bounds. One of the few things that is holding them back has to do with the rules and regulations which the IRS strictly maintains and enforces where these types of otherwise flexible IRAs are concerned. It is no joke to run afoul of these IRS rules, as doing so can and usually will involve often stiff financial penalties that can destroy the value and point of having such a Precious Metals IRA in the first place. This is why you need to be aware of them so that you do not suffer the consequences of ignorantly violating them and then pay the consequences for such ignorance later.
Rules on Maximum Contributions Allowed Per Year
Contributions to your Precious Metals IRA are where the whole process starts, but these donations which are tax free are not unlimited. In the years 2015 and 2016, there is a limit of $5,500 of total annual contributions that you can make to the traditional or self-directed IRA, of which these Precious Metals IRAs are a part. For those who are older than 49 years, this amount is raised to $6,500 to help them catch up on any contribution amounts on which they may be behind.
What happens if you contribute more than these limits to your Precious Metals IRA should not surprise you too much. The IRS does not outright forbid them, it simply taxes them, albeit at a lower rate than these monies would ordinarily be taxed. Excess contributions are IRS taxed at a rate of 6% per year for as long as these excessive donations remain a part of the Precious Metals IRA.
Rules on Contributions and Required Minimum Distributions
When you are making contributions to your Precious Metals IRAs, you have to make sure that these donations to the account are made to the actual IRA and not to its associated checking account. Regarding distributions, you are allowed to start withdrawing from the Precious Metals IRAs beginning at the age of 59 1/2. You are forced to start taking out distributions by age 70 1/2.
Rules on When Taxes Will Have to Be Paid
Make no mistake, the IRA taxes may be deferred, but they will still have to be paid in full eventually. This day will come when distributions finally begin to be taken. The only exceptions are if the Precious Metals IRA owns an active business, in which case UBIT, or Unrelated Business Income Tax, becomes due. Another is in the cases when leverage is utilized in the account or borrowing to make larger investments is pursued. In these cases, UDFI, or Unrelated Debt Financed Income, taxes will be levied on the profits that were attributed to the leverage employed.
Rules on Reporting
As many as three different filings could be required of you and your self-directed Precious Metals IRA each year. These are potentially:
Form 1099R – Distributions taken out of the IRA.
Form 5948 – Value of the IRA itself along with a breakdown of the prior year contributions made.
Form 990T – Any UDFI or UBIT taxes due are reported on this form.
Rules Governing Precious Metals IRA Debit Cards
Self-directed IRAs are not allowed to apply to have credit cards, since this would require that a personal guarantee of payment from the IRA be given to the card and its issuer. In cases where the IRA has a checking account that will benefit from a bankable plastic card, you are allowed to apply for a strictly debit card.
Precious Metals IRA Distribution Rules
In some cases you may decide to liquidate your gold or other precious metals holdings before you withdraw it. In this case, all of the traditional IRS IRA taxing rules will apply. This means that you pay taxes when you withdraw the gold and sell it. In the event that you exercise option two to acquire physical possession of your gold from the Precious Metals IRA, then you will have to pay income tax on the actual value of the precious metals at the exact time when you withdrew the physical gold. Besides this, the IRS gets you at the future point when you sell the gold for dollars by levying a 28% capital gains tax on any gains realized on the gold sale.
Rules on What Types of Precious Metals May Be Included
Not just any item that is representative of the precious metals categories may be successfully included in these Precious Metals IRAs, per the IRS. Collectible coins are automatically ruled out, and this ruling extends to any bullion classified coins which are certified at a certain grade by one of the two main coin certification companies PCGS or NGC. Those bullion coins which are acceptable must be either one ounce, half ounce, quarter ounce, or tenth ounce gold coins or one ounce coins if they are made out of silver, platinum, or palladium. Where gold bullion coins are concerned, a 24 Karats purity is generally required, except for in the case of the U.S. minted Gold American Eagle coins that only contain 22 Karat gold instead.
Rules on Custodial Maintenance
Despite some of the language that you may hear from various nefarious operators on the Internet to the contrary, Precious Metals IRAs are not permitted to be physically held by you at your home. A custodian must be appointed to manage and safeguard these precious metals coins and bars. Investors are not even permitted to buy their own gold, silver, platinum, or palladium with the promise and understanding that they will then turn these valuable assets over to the custodians of their IRAs. Possession of such precious metals bullion even temporarily invalidates the assets from being held in the account and counts as a distribution from the IRA if funds from said IRA are utilized to acquire them by the account holder directly. This makes these coins purchased with IRA funds fully taxable.
It is up to the account holder-appointed IRA custodian to both directly buy the precious metals which are to be included in the Precious Metals IRA and to store them in a guaranteed third party depository, unless they are an IRS-recognized depository themselves. Your role in the IRA accumulating process is in fact limited to giving orders to your custodian to purchase or liquidate gold and other precious metals coins and bars as you so desire.
Regarding the depository where your precious metals in the IRA are stored, the depository itself is required to be an IRS-approved facility and company. This depository is expected to charge an annual storage fee that is paid for out of your own IRA account and to be held securely on your behalf until either you sell it and purchase a different investment with the proceeds, receive it as a distribution in cash, or receive it physically in kind as a distribution.
Precious Metals IRA Rollover Rules
Once you decide to undergo a rollover, all of the contributions to your IRA account that you have stored up will then be transferred directly to you in many cases. You then have a maximum time frame of 60 days to to transfer such assets or cash over to your new Precious Metals IRA account. Should you fail to do this within the window of time which the IRS permits, then this transfer of assets will instead be counted, and subsequently penalized and taxed, as a distribution or withdrawal from the IRA itself. Such rollovers may only be undertaken one time each year, although transfers from one IRA to another are not so limited.