Are there any tax advantages to investing in certain types of precious metals?

The Internal Revenue Service (IRS) considers physical holdings of precious metals such as gold, silver, platinum, palladium and titanium to be capital. This opportunity gives precious metal owners an enormous advantage over other investment asset classes. Buying shares in an exchange-traded fund (ETF) that tracks the value of a precious metal is an option for those who don't want to face problems related to the physical ownership of coins or precious metal ingots by IRAs. Investments in precious metals are more volatile on a daily basis and have a higher overall risk than other sectors, since they tend to be more sensitive to economic data, to political and regulatory events, as well as to underlying commodity prices.

Fortunately, the IRS now states that IRAs can buy precious metal ETF shares classified as investment trusts from grantors without any such problem. Therefore, to the extent that the sales price received exceeds the individual's tax base on the collectible, he must declare a taxable gain; if the person's base on the collector item exceeds the sales price, he can declare a loss for the transaction (even assuming, that is, that the collector item was “held for investment”). The prospectus contains important information about trusts, including investment objectives and strategies, purchase options, applicable management fees, and expenses. Both life insurance and collectibles cannot be held in an IRA and, according to the IRS, “if you invest your IRA in collectibles, the amount invested is considered distributed in the year invested and you may have to pay an additional 10% tax on anticipated distributions.

Additional fees may be charged for transactions that include contributions, distributions and fees for purchases and sales of precious metals. Investors always want to consider the total cost of ownership when weighing different investment options in precious metals. Investors can invest in precious metals both directly by buying the asset in the form of ingots or real coins, and by investing in the shares of companies that invest in or produce precious metals. However, it's important to keep in mind that there are many risks, in addition to tax exposure, associated with investing in precious metals.

You get more than 3.2 percentage points of annualized after-tax return when using a traditional IRA instead of a brokerage account for your investment in gold mutual funds and more than 4.2 percentage points of annualized after-tax return on your investment in gold coins. However, in any case, coins should generally be treated as “collectibles” for purposes of tax law, in the same way that a gemstone, a stamp, a work of art or an aged wine are collectibles. More detailed information about an IRA investment in precious metals (“collectibles” allowed and prohibited) can be found in IRS Publication 590, Individual Retirement Agreements (IRAs). The Internal Revenue Service (IRS) considers that physical holds of precious metals such as gold, silver, platinum, palladium and titanium are capital assets specifically classified as collectibles.

It's also important to consider the differences in after-tax returns between the types of gold investments held in a brokerage account.

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