Roth Gold IRA, Traditional Gold IRA,
or SEP Gold IRA?
There are three types of Gold IRA accounts: traditional, Roth, and SEP. All of these account types allow investors to protect their tax-advantaged retirement savings with physical Precious metals.
The most common account type is the traditional Gold IRA which is funded with tax-deferred earned income. Today’s earned income is deposited into the IRA and the contributed amount is deducted from taxable income in the current tax year. When it is time to take withdrawals, taxes must be paid on both the contributed money and any capital gains. This account type is recommended for investors who plan to be in a lower tax bracket during retirement.
Roth IRAs are funded with after-tax earned income but the account is tax-exempt so you won’t have to pay taxes on withdrawals or capital gains. That means you will pay income taxes on your contributions for the current tax year but you won’t pay taxes on withdrawals or capital gains. If you believe you will be in a higher tax bracket during retirement this type of Gold IRA account may be ideal.
SEP Gold IRA accounts are a specialized form of traditional IRAs that are only available to employers and self-employed individuals. The key benefit of a SEP IRA account is the significantly increased contribution limit. Investors in traditional and Roth IRA accounts are limited to annual contributions of $6,500 in 2023 ($7,500 if you’re over age 50) while a SEP IRA account allows contributions of up to $66,000 per year (as of 2023). SEP IRAs follow the same tax rules as a traditional IRA account.
Regardless of the specific type of Gold IRA account, most Gold IRA investors are trying to protect their existing tax-advantaged savings. Instead of focusing on annual contributions they are more interested in converting their existing Retirement accounts into a Gold IRA account where they can purchase and hold physical Silver and Gold.
In this article we are going to focus on the ‘how to’ of moving money from an eligible 401(k), IRA, 403(b), 457, TSP, Annuity, or Pension into one of the three types of Gold IRA accounts. The good news is that a Gold IRA rollover allows you to perform this move without paying any taxes or penalties.
If you are ready to start your Precious metals retirement Portfolio now, Satori Traders has evaluated the Gold IRA companies and rated them for their focus on consumer education, BBB rating, customer reviews, and required minimum Investment. Augusta Precious Metals is our top pick for investors with $50,000 or more. Goldco leads the pack for Investments of $25,000 to $50,000 and Birch Gold is best if you are investing less than $25,000.
What is a Gold IRA Rollover?
Investing in a Gold IRA lets you attain the best of both worlds:
- You get to save for retirement using tax-deferred or tax-exempt money
- You get to hold your hard-earned savings in physical Precious metals.
A Gold IRA rollover lets you obtain these benefits using the money in your existing Retirement accounts. And as long as you follow IRS rules you can perform a Gold IRA rollover without paying any taxes or penalties.
Before you start the rollover process, however, it’s important to know what it is, how it works – and what it could cost you.
Let’s start with the basics.
What is an IRA?
Individual Retirement Accounts, or IRAs, are tax-advantaged Investment accounts that offer special tax advantages to retirement savers. With an IRA, you contribute earned (taxable) income and invest the funds into appreciating or dividend-paying assets. As of 2023, you can contribute up to $6,500 ($7,500 if you’re 50+) per year into your IRA.
Broadly speaking, you can open three kinds of IRAs as covered above.
Traditional IRAs accept before-tax dollars that you can write off on that year’s taxes. Your funds and invested assets grow tax-free until you make qualified withdrawals in retirement. At that time, you’ll pay applicable income taxes on distributions (withdrawals).
Roth IRAs take after-tax dollars, which means you can’t deduct these contributions from your tax bill. However, your money will grow tax-free, and when you take qualified withdrawals in retirement, you won’t have to pay any taxes on your contributions or capital gains.
Bear in mind that these tax rules only apply to qualified withdrawals. If you pull money out of a traditional IRA before age 59.5, you risk a 10% early withdrawal penalty on top of any applicable income taxes. Roth IRA owners who withdraw funds before the account is five years old also risk a 10% penalty and income taxes on capital gains – even if you are past retirement age.
What is a Gold IRA?
Gold IRAs, also referred to as Precious metal IRAs, are a type of “self-directed” IRA (SDIRA).
SDIRAs provide investors with the flexibility to make Investments in a wide array of alternative assets including Precious metals, Real Estate, Commodities, and even Cryptocurrency.
This opportunity to expand your Investment horizons comes with unique advantages, such as:
- Diversifying your Portfolio into assets that don’t move in synch with the Stock and Bond markets
- Minimizing your overall tax burden on high-growth assets
- Hedging your Portfolio against economic downturns and market volatility
Gold IRAs are a specialized form of SDIRA that allow you to add physical Gold, Silver, Platinum, and Palladium to your long-term retirement strategy.
It is important to understand that a Gold IRA is the only way you can protect your tax-advantaged retirement savings with Precious metals. Unless you cash-out your existing Retirement account and pay the taxes and penalties, there are no other options for putting your hard-earned savings into physical Silver and Gold.
What is an IRA Rollover?
The IRS permits three kinds of asset movements between Retirement accounts:
- Rollovers move funds and assets between different accounts. The funds transfer directly from the Custodian of the existing account to the Custodian of the new account.
- Transfers accomplish the same result as a rollover, but you act as a middle-man in the transaction. In other words, you take a distribution from your existing account and then forward that money to your new account.
- Conversions change an account’s tax status (e.g., a traditional IRA to a Roth IRA).
An IRA rollover or transfer, then, involves moving funds from one Retirement account to another Retirement account of the same type (traditional to traditional, or Roth to Roth).
The purpose of a rollover or transfer is to ensure that you maintain the tax-advantaged status of your retirement savings. Done correctly, an IRA rollover won’t trigger a tax bill or early withdrawal penalties.
What is a Gold IRA Rollover?
A Gold IRA rollover involves rolling or transferring funds from one Retirement account into an SDIRA that permits Precious metals transactions. After funding your Gold IRA account, you can use the money to add Precious metals to your long-term retirement strategy.
How Does a Rollover Work?
IRA rollovers can follow a few different procedures, depending on your preferences and the account(s) and administrator(s) involved. When you choose a Gold IRA company they will help you walk through the rollover process. You’ll also want to consult with your tax preparer on the IRS regulations regarding asset transfers, lest you accidentally generate an unexpected tax bill.
Direct vs. Indirect Rollovers
Some accounts permit either direct or indirect rollovers, while others limit your options. Understanding the difference is crucial to avoiding accidental taxes and penalties.
A direct rollover involves your current account administrator transferring funds and/or assets from your existing account to your new one. They may do this by contacting your new account administrator directly, or by handing you a check payable to your new account.
Indirect rollovers require more effort. With an indirect rollover, your current account administrator cashes out your account under your name. Then, you have 60 days to deposit the check in your new account to avoid taxes and penalties.
But that’s not all. Indirect rollovers also require your administrator to send 20% of your withdrawal amount to the IRS to pay potential taxes. If you deposit the full withdrawal amount within 60 days, you’ll get that money back at tax time. But if you can’t afford to front that 20% from your own pocket, you’ll owe taxes on any “leftover” amount.
Between the two, direct rollovers are less likely to generate a tax bill. However, not all plans permit direct rollovers, so you should ask about your options before committing.
Eligible Rollover Distributions
Any funds you’re allow to roll into an IRA are called “eligible rollover distributions.” They can stem from a variety of sources – but there are some limits.
If you’re conducting an IRA-to-IRA transfer, you won’t be able to deposit required minimum distributions (RMDs) or excess contribution distributions. And in plan-to-IRA rollovers, you can deposit some or all funds except for:
- RMDs
- Loans or S corp. allocations treated as distributions
- Distributions taken to pay for hardships or insurance
- Excess contribution distributions
- Dividends paid on employer securities
Taxes and Penalties
In general, cashing out your Retirement account before age 59.5 exposes you to the risk of being slapped with a 10% early withdrawal penalty. If you cash-out a Roth IRA before the account is five years old you will also be at risk of the 10% penalty, regardless of your age.
Rollovers and transfers, however, are usually tax and penalty-free as long as you follow IRS rules and procedures.
Changing the status of a traditional account to a Roth account will result in a tax bill - you’ll owe income taxes on the transferred amount. It isn’t possible to change from a Roth account to a traditional account because you can’t move post-tax funds to a pre-tax account.
Annual Rollover Limits
The IRS doesn’t restrict how much you can rollover or transfer from one account to another. It does, however, limit how often you can perform these changes.
As of January 2015, IRS regulations prohibit you from making more than one 60-day indirect rollover per year – no matter how many IRAs you have.
That said, the limit is fairly narrow in scope, as the one-per-year rule does not include:
- Direct rollovers
- Traditional to 401(k) conversions
- Trustee-to-trustee transfers between IRAs
- IRA-to-plan rollovers
- Plan-to-IRA rollovers
- Plan-to-plan rollovers
Attempting a second 60-day indirect rollover in a single tax year risks distributed funds being labeled “excess contributions” and taxed at 6% annually until they’re withdrawn.
Contributing to Your Rollover IRA
Rollover funds don’t count as IRA contributions in the IRS’ eyes, which means you can complete a rollover and add funds to your account in the same year. For 2023, IRA contribution limits are set at $6,500 per year ($7,500 if you’re over 50).
Is a Gold IRA Rollover a Good Idea?
IRA rollovers are increasingly-common in the modern age, thanks to their unique benefits.
For one, IRA rollovers don’t shackle you to a dollar amount, so you can bypass annual IRA contribution limits. (Not to mention the chance to switch tax designations to protect any capital gains you accumulate.)
Once the money is in your new account, most IRAs offer more Investment control than employer-sponsored accounts. That’s doubly true for SDIRAs and Gold IRAs, which offer access to a broader range of assets.
Many IRAs also charge fewer or lower fees than more actively-managed 401(k)s, so you can keep more of your hard-earn money. (That said, however, do watch out for Gold IRA fees that eat into potential returns.)
Should You Do a Gold IRA Rollover?
Gold IRA rollovers allow you to supercharge your IRA without running afoul of IRS contribution limits. In some ways, rollovers also let you change strategies or start over, as you can switch tax advantages and move to a more flexible Investment structure.
Of course, you’ll want to do your homework before opting for any rollover, as one wrong move could result in taxes and early withdrawal penalties!
If you’re ready to take the next step and add Precious metals to your retirement strategy, Satori Traders has researched the Gold IRA companies and identified the top three. If you have $50,000 or more to invest, contact Augusta Precious Metals. For Investments of $25,000 to $50,000, Goldco is your best option. If you are investing less than $25,000 then get in touch with Birch Gold.
About Satori Traders
Hi, my name is Bryan Post and I love the shiny stuff - Silver and Gold.
I've been investing in the Precious metals and mining stocks since 2002 when I realized that Gold is the only real money on the planet.
Here on Satori Traders I share everything I've learned about the metals, Financials markets, trading, Technical analysis, and the numerous games that central banks play with fiat currencies.
