Your Guide to a Gold IRA Transfer
What is it?
A gold IRA transfer is the movement of funds from a traditional IRA to a self-directed IRA.
A Gold IRA is a type of individual retirement account called a self-directed individual retirement account (IRA).
Where conventional IRAs (both traditional and Roth) are containers for retirement savings in the form of mutual funds, stocks, bonds, bank savings products, and exchange-traded funds, self-directed IRAs hold alternative investments like precious metals and cryptocurrencies. Self-directed IRAs are controlled entirely by the investor.
Precious metals, including gold, silver, platinum, and palladium, have historically not been permitted in individual retirement accounts. That changed with the Tax-Payer Relief Act in 1997 that allowed for precious metals to be held in a specific kind of self-directed IRA: the Gold IRA or Precious Metals IRA. These are two interchangeable names for the same instrument.
Some companies differentiate between metals, offering Gold IRAs and Silver IRAs. Other companies do not distinguish between metals and offer Gold/Precious Metals IRAs that hold any or all of the four kinds of metals.
(Note: The IRS strictly regulates the types and purities of the metals held in Gold IRAs. Gold and silver purity must be 99.95%. Platinum and palladium purity must be 99.99%. The metals must be produced by certified manufacturers; some types of bullion must also meet precise weight specifications. Only particular gold and silver coins are allowed. Click here to see Strata Trust’s list of allowable precious metals. Visit Goldco’s pages for information on approved gold coins and approved silver coins.)
Why the need for a separate kind of IRA to hold precious metals? Because precious metals are not paper assets; they are actual, physical bars, ingots, and coin. These metals must be physically kept somewhere, and the IRS specifies which facilities may store them. Investors may not keep their Gold IRA precious metals at home or anywhere other than in IRS-approved storage facilities. Additionally, Gold IRAs must be managed by IRS-approved custodians.
How Do I Execute a Gold IRA Transfer?
Transfers into Gold IRAs happen when investors move funds from existing IRA accounts to new Gold IRA accounts. A transfer is different from a rollover (see the next section on differences).
In transfers, investors themselves make the arrangements for the movement of their IRA funds. The process begins when they receive funds distributions from their current IRAs in the form of a check. The IRS grants them 60 days to deposit those funds into the bank of their new Gold IRA firm. The 60-day timer begins on the date that their check is cut. (Somewhat confusingly, the IRS refers to Gold IRA transfers as “60-day rollovers.”)
If investors do not deposit their funds into their new Gold IRAs within 60 days, the IRS imposes two penalties:
- The distribution becomes taxable (unless it came from a Roth IRA, where the funds were already taxed).
- The IRS considers the funds an early distribution, and because the early distribution is not authorized, it is subject to a 10% penalty on top of taxes if the investor is under age 59 1/2.
In some cases, the IRS waives the 60-day funds transfer requirement. Waivers may be granted when investors miss the deadline because of circumstances beyond their control.
The IRS grants waivers in three ways:
- They are automatically granted. That is, the investor does not have to do anything to be granted the waiver. (See qualification criteria below.)
- They are granted after the investor states that he or she meets the waiver requirements and complies with a subsequent IRS audit to demonstrate proof of the qualification.
- They are granted after the investor has applied for and been issued a private letter giving the waiver. The application for this letter costs $10,000.
Criteria for an automatic waiver of the 60-day rollover requirement include the following:
- The missed deadline was not the investor’s fault; it was the destination bank’s fault.
- Documentation verifies that the investor did everything possible to get the funds to the financial institution before the 60-day deadline.
- Documentation demonstrates that the funds would have been received by the deadline had the bank credited them properly.
- The funds are credited to the new Gold IRA account within one year from the date that the distribution check was cut.
What is the Difference Between Transfers & Rollovers in your IRA Involving Gold?
Gold IRA Rollovers
Above, we have described the process of carrying transferring into a gold ira. There is another common way to move funds from a current traditional IRA to a self-directed IRA. It is called a Gold IRA rollover (not to be confused with the IRS 60-day rollover covered above).
A Gold IRA rollover is the most common method of moving funds from one IRA to another. In a rollover, the administrator of an investor’s current IRA sends the funds electronically to the administrator of the Gold IRA. The investor never touches the money.
In the United States, funds may be rolled over to Gold IRAs from instruments such as IRAs, annuities, thrift savings plans (TSPs), 401ks, 401as, 403bs, 457s, and other qualified retirement plans. The process of rolling over funds begins with the investor selecting a Gold IRA firm and submitting the paperwork to open an account. After funds have been moved electronically, the investor works with the Gold IRA administrator to purchase specific precious metals and coins and select a storage facility.
In a Gold IRA rollover, there are no tax implications of the funds’ movement.
Gold IRA Transfers
The funds from the investor’s current IRA get distributed to the investor in the form of a physical check. The investor then personally sends those funds to the bank of the firm holding his or her new Gold IRA. As mentioned above, the funds must be received by the bank within 60 days of the distribution check being cut.
Be warned, there are significant tax implications to consider.
The Difference in Tax Implications Between Gold IRA Rollovers and Gold IRA Transfers
The main difference between a rollover and a transfer lies in the tax implications.
A rollover carries no tax implications because the investor never touches the funds that are moved.
A transfer, on the other hand, carries hefty tax implications because the investor personally receives the money and is responsible for getting it to the target IRA on time. In some transfer cases, the estimated taxes and 10% unauthorized early distribution penalty are withheld from the distribution check. In other words, the distribution check is cut for the account balance minus the taxes and 10% penalty. The investor receives this portion of the funds as a tax refund or a credit against taxes owed when filing the yearly tax return, assuming the funds were transferred within 60 days.
A Final Note
It is easy to get confused by the terms “transfer” and “rollover” because different firms use them differently. Some firms define transfers and rollovers oppositely from how we have defined them in this article. Additionally, the IRS term “60-day rollover” can add to the ambiguity. All that being said, I hope we've provided clarity on the differences between a gold IRA rollover and a gold IRA transfer.