A gold IRA is an individual retirement account that lets people invest in and hold physical gold and other precious metals. It is an excellent way to diversify a retirement portfolio and hedge against inflation. There are many precious metals permitted for purchase with gold IRA funds.
Like many retirement accounts, there are tax advantages to investing in IRA precious metals- as long as you follow all the rules. One of the most important rules to understand regarding precious metals IRAs is the required minimum distributions (RMDs).
In this guide, we answer the following questions:
- What are the RMD rules for gold IRA holders?
- How do they work?
- Is there a penalty for failing to meet the requirements- and if so, what is it?
- What do RMDs mean for a gold IRA or retirement account?
An Introduction to Gold IRA RMD Rules
Precious metal IRAs have several rules regarding withdrawals and when they can be made. First, there is a minimum withdrawal age of 59 1/2 years old- at which time you can take funds without paying additional taxes. It is not until much later that RMDs kick in.
RMD stands for required minimum distribution. It applies once a person turns 72 (in most cases) and is an annual amount that must be withdrawn. The account holder can choose to take physical possession of the precious metals owned- or sell them and withdraw the IRA funds in cash.
Suggested Reading: Rules and Regulations of Gold IRAS Explained
How Do RMDs Work?
The annual RMD amount is calculated on the total amount held in the account at the end of the year prior to you meeting the age requirement. That total is then divided based on your life expectancy, and that amount is what you must withdraw each year.
It is calculated by your gold IRA broker- but you are solely responsible for ensuring the correct amount is withdrawn before the deadline.
Deadlines are usually December 31st of the year you become eligible- although it can sometimes be postponed until April 1st of the following calendar year (only for the initial RMD withdrawal).
Unless you had already paid taxes on the fund when they were deposited into the gold IRA, your withdrawals will be taxed as income.
It is not only precious metals IRAs that are affected by RMDs- many individual retirement accounts are applicable. You can, however, choose to take the combined amount from just one account- rather than spread it between them all. Speak to a financial advisor for specifics on how best to do this.
What Are the Current Precious Metals IRA RMD Penalties?
Failing to meet the required minimum distributions on gold IRAs results in a heavy penalty. If it is handled incorrectly in any way, you may have to pay taxes of up to 50% of the amount that should have been withdrawn.
This penalty applies if any of the following three statements are correct.
- You made no attempt to meet the RMD.
- You did not withdraw the entire amount required at the time.
- You did not meet the RMD before the allowed deadline.
How Do Gold IRA RMDs Impact Investors in Physical Precious Metals?
In short, RMDs do not have any impact on any self-directed IRA holders (including gold IRAs) until they reach the age of 72 (unless they are exempt due to later retirement). Once they kick in, you have the responsibility of withdrawing the required amount of funds each year to avoid tax implications.
Using some of your retirement funds to purchase precious metals such as gold coins or bars is a smart move for investors- but it is vital to be prepared for the RMDs when the time comes.