The Internal Revenue Service offers us a route to substantial tax savings on gold investments. So it makes sense to take advantage of one of the few breaks the IRS is willing to give us.
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This is done by purchasing gold coins or bullion in an Individual Retirement Account (IRA). By doing so the investor can enjoy profits from gold investments tax-free as long as they remain in the IRA.
Once an individual retires, his income declines, putting him in a lower tax bracket. So, when gains are distributed from the IRA, they are taxed at the lower marginal tax rate.
When IRAs were first introduced in the 1970s, the government did not allow investment in gold to be included in the retirement accounts. In 1986 Washington agreed to allow U.S. gold and silver coin investments for IRAs, and in 1998 the rule was expanded to allow 99.5 percent pure bullion.
The only restriction that remains is that the IRA owner must have an intermediary—a trustee, like Nationwide Coin and Bullion Reserve—hold the physical gold. This way the IRS ensures the investment is in fact held for retirement and not sold earlier.
Purchasing gold for IRAs is especially tax-smart because normally the IRS taxes gold profits at rates for collectibles, which means a maximum rate of 28 percent. The IRA annual contribution limit for 2021 is $6,000 plus an extra $1,000 for those aged over 50. So, consider a 55-year-old investor who buys $7,000 worth of American Eagle gold coins. He hopes to sell the investment in 15 years when he expects it will have doubled in price. Were he to purchase the gold coins in a regular investment account he would have to pay tax of 28 percent on his profits, amounting to $1,960 in tax, assuming today’s tax rates hold for 15 years. Upon retirement, the investor expects to be in the 12 percent tax bracket (married couples may have income of up to $81,050 to be in the 12 percent bracket). As a result, by holding his gold coins in an IRA, he would pay only that 12 percent tax rate on his profits, or $840, a tax savings of $1,120.
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