The Tax Implications With a Gold IRA Investment

An IRA tax-advantaged status applies to investments in gold as well.

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Many investors look to gold as a hedge against inflation and a way to protect the value of their investments when economies face challenges, and these benefits also apply to gold held in an IRA account. In addition, gold held inside of an IRA account has certain benefits over gold held in regular taxable accounts, particularly when held inside of a Roth account. With an IRA, you pay no taxes on the gains in value of the gold when it is sold, but only when you withdraw the money resulting from the sale of the gold.

Allowable Gold IRA Investments

While the Internal Revenue Service considers gold a collectible, and it prohibits IRA investments in collectibles, it does allow certain types of gold investments. Your IRA can invest in gold coins produced by the U.S. mint in specific sizes. One ounce, one-half, one-quarter and one-tenth ounce coins are allowed, as well as some types of gold bullion.

IRA Contribution

When you make a contribution to your IRA by purchasing gold within the account, you may be allowed to take a tax deduction for your purchase. If you are investing in a traditional IRA and your income falls below the allowable guidelines, you can take a deduction for your contribution up to the allowable amount. As of 2013, you can contribute up to $5,500 per year -- $6,500 if you are 50 or older -- to an IRA, regardless of the type of investment. With a Roth IRA contribution, you receive no immediate tax benefit for your contribution, but any earnings in the account are tax-free.

Withdrawal at Retirement

When you withdraw from your IRA by selling the gold at retirement, you do not pay the normal capital gains tax rate on collectibles, as you would if your gold was held outside of an IRA. This rate can be as high as 28 percent. You owe no taxes on Roth IRA withdrawals at retirement age, or 59 1/2 or older, as long as the account has been open longer than five years. With a traditional IRA, you owe taxes on the amount you withdraw at your normal income tax rates.

Withdrawal Before Retirement

By taking a withdrawal by selling your gold held in an IRA and taking the cash before retirement age, the tax implications change. With a traditional IRA, you still owe the same amount of taxes on your withdrawal, but you also owe a 10 percent penalty on the amount you withdraw, unless you qualify for an exception. With a Roth account, you can always withdraw the value of your contributions tax-free, but the gain in value you experienced from your gold investments will be taxed at your normal rate for income, and you will also pay the tax penalty of 10 percent for this early withdrawal.

Early Withdrawal Exceptions

You can withdraw up to $10,000 from an IRA to purchase a first-time home without paying any penalties. You will still pay the taxes on the complete amount you withdraw with a traditional IRA, and on the gain in value in the gold with a Roth account less than five years old. You can also take advantage of exceptions for expenses for higher education, for death or disability, if your medical expenses exceed 10 percent of your income and to pay health insurance premiums if you are unemployed.

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About the Author

Craig Woodman began writing professionally in 2007. Woodman's articles have been published in "Professional Distributor" magazine and in various online publications. He has written extensively on automotive issues, business, personal finance and recreational vehicles. Woodman is pursuing a Bachelor of Science in finance through online education.

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