Can an Individual Withdraw From an IRA and Invest in Gold?

As an investment, gold can be a safe and profitable harbor when other investment classes not are doing well. A well-funded IRA could be a source of funds to start or add to an investment in gold. But before you withdraw any money from your IRA and incur tax consequences, it may pay to understand all of your options.

Gold in an IRA

You do have the option to withdraw money from an IRA account and use the proceeds to buy gold coins or bars. If you take money from your IRA, you will be liable for income taxes and possible early withdrawal penalties on the amount withdrawn. Another option is to transfer some or all of your IRA to a retirement plan custodian who will buy gold coins or bullion as part of your IRA investment. Using the IRA wrapper to buy gold maintains the tax advantages of investing through an IRA. A third options is to buy within your existing IRA a mutual fund or exchange-traded fund -- ETF -- that tracks the value of gold.

IRA Withdrawal Penalties

If you choose to withdraw money from your IRA, you must pay income taxes on the amount withdrawn. If you are not yet 59 1/2, you will likely incur an additional 10 percent early withdrawal penalty. The IRA custodian can withhold income taxes when you request the withdrawal. Allowing the custodian to withhold taxes avoids the necessity of paying a larger tax bill when you file your income taxes. The withheld money is sent to the Internal Revenue Service as taxes withheld. If you owe more taxes, the amount will be due when you file your regular tax return.

Gold IRA Custodian

The rules for individual retirement accounts allow an IRA owner to make investments in gold coins and bullion with IRA assets. To buy physical gold with your IRA you must work with a trustee who handles self-directed IRA accounts owning gold. Request a transfer form from the trustee to authorize the transfer of your IRA money to the trustee. The trustee will buy the gold as you direct and hold the coins or bullion as the custodian of the retirement account. The tax rules limit gold IRA investing to certain types of coins and bullion meeting set purity levels. A trustee who handles IRAs investing in gold will know which types of gold qualify under the tax rules.

Considerations

If you want to buy gold to hold and store yourself, using IRA money is an expensive way to get the money to invest. The value of gold must increase by the amount of taxes you will pay on the IRA withdrawal just to cover your costs of getting the money out of the IRA. Finding another source of money for your gold investment may be more cost-effective. A self-directed IRA that can buy gold in its physical form has higher fees than a the typical IRA account with a mutual fund company or stock broker. The self-directed IRA trustee will charge a new account fee, an annual paperwork fee and storage fees for the gold. The least expensive way to invest in gold with IRA money is through a mutual fund or ETF.

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About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

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