Tax Rules Regarding Precious Metals in IRA Accounts

The allures of investing in precious metals can include protection against inflation or economic Armageddon, portfolio diversification, and aesthetic enjoyment of precious-metal coins. Whatever your reasons for owning precious metals, one vehicle for purchasing and holding coins and bullion is a self-directed individual retirement account that accepts these assets. However, the Internal Revenue Service allows only certain types of coins and bullion in an IRA. You face tax consequences if you purchase non-approved precious metals for your IRA.

The IRS is pretty picky about physical metals in an IRA. You are limited to certain gold, silver, palladium and platinum coins from approved mints, such as those in the United States, Canada and Australia. Gold coins from South Africa are not allowed -- not pure enough for the IRS.

You can also buy precious metal bullion in your IRA, but it must meet purity and origin standards as specified by the major U.S. precious-metals futures exchanges. You cannot contribute the metals to an IRA; rather, you buy the metals with contributed cash. The metals must be stored by the IRA custodian, not the IRA owner.

The IRS could punish you if you purchased non-approved coins or bullion in your IRA. The money spent to purchase the non-approved metal would be treated as a distribution.

You pay taxes at your marginal rate for traditional IRA distributions no matter your age. If you're younger than 59 1/2 and/or have owned a Roth IRA for less than five years, you also pay a 10 percent penalty on the distribution.

However, most precious-metal IRA custodians won't allow you to buy non-approved coins or bullion with the account. That makes these tax rules largely moot.

Precious metals do not generate interest or dividend income. However, you must pay taxes on precious metal capital gains withdrawn from your traditional IRA. These gains are taxed as simple income at your marginal tax rate -- they don't qualify for the long-term capital gains tax break, no matter how long you’ve held the metals.

If you meet the Roth IRA rules – account tenure of at least five years and you're at least 59 1/2 -- you can withdraw your precious metal capital gains without any income tax obligation.

If you're single and earning more than $200,000 a year in modified adjusted gross income, or $250,000 as a couple, you are on the hook for the 3.8 Medicare surcharge instituted in 2013. The amount of your obligation is the lesser of your investment income or the excess of your modified adjusted gross income above those thresholds. Taxable IRA distributions are not included in your investment income, but they do raise your modified adjusted gross income and thus could expose you to the surcharge.

If your precious metals are in a Roth IRA, you needn’t worry about distributions. They'll be tax-free as long as you observe the rules in Section 3.