Where to Own Gold – Asset Protection PlanningSep 11 • Categorized as Asset Protection,Investments
by Jeff Schneider CPA, PassportIRA
Diversify and Protect Your Gold and Silver Assets
Although this is likely not a revelation to you, the markets have brought you dozens of ways to begin acquiring through financial instruments, futures, and allocated or unallocated physical storage.
The revelation comes when you don’t plan how to best acquire the metals so you don’t get hit with a huge tax burden later. Awareness of the following methods will help you determine the best place to turn to buy into physical metals.
1) Physical Possession (28%)
Gold, whether owned in coin or bullion form is considered a collectible to the IRS. They have approved particular coins for investment purposes, but long-term capital gain rates are at the collectible rate of 28%.
Don’t forget to report the gain, as you likely won’t receive a 1099 or any other notification. If the IRS tracks you down, you’ll be subject to penalties.
2) Gold ETFs, similar to GLD (28%)
Conspiracy theories aside, the popular GLD sponsors have definitely pulled the wool over investors’ eyes by structuring the investment vehicle as a grantor trust.
This ideally gives the investor a sense of comfort that they own the underlying portion of the metals in accordance with the investment they’ve made. But in reality, it gives the investor a tax bill of 28%.
3) Foreign Metals Financial Instruments, similar to CEF (as low as 15%)
The Central Fund of Canada (CEF) has grown in popularity over the past few years. Really though, CEF has been open for business since 1961 and the board is packed with well-respected individuals from the precious metals community.
CEF, though, trades at a premium to the underlying metals it has in the vault.
Most would write it off due to the ownership and accountability, but the structure will likely play a part.
Unlike other ETFs, Central Fund of Canada qualifies as a Passive Foreign Investment Company (PFIC) in the United States.
This results in 13% savings in the tax rate upon sale as sellers qualify for the 15% long-term capital gain rate. Short-term rates on stock held less than a year will be taxed at your ordinary income tax rate.
4) Futures (23%)
Futures provide you the right to purchase an asset at a fixed price at a future date. Considering this is purely a financial instrument, you don’t have to worry about being taxed at collectible rates.
Instead, futures end up having a fixed tax rate of 23% after blending long-term and short-term rates we’ve discussed in a previous article.
5) Gold Miners (as low as 15%)
Gold miners are purchased as a way to leverage the prices of gold as it comes out of the ground. Not only do gold miners have the advantage of managing production rates based on market prices, they also can help you manage your tax rate.
Regular short and long-term capital gain rates apply. Miners held over a year will only be taxed at 15%.
6) Retirement accounts (tax deferred / tax free)
That’s right. Holding qualified precious metals in a retirement account can allow you to pay zero tax on the gains. Even if you’re holding metals in a Traditional IRA, the gains will stay deferred. Then you can distribute after retirement when you’re at your lowest tax bracket.
Holding metals in a Roth IRA gives you an immediate 28% gain by avoiding the taxes mentioned above.
And better yet, a Roth IRA doesn’t have required minimum distributions so you can keep them as long as possible to raise the cost basis on the way up.
IRA custodians will now even do ‘distributions in kind’ which will allow the metals to be removed from the IRA without having to liquidate to cash.
We’ve written a bonus report on owning precious metals in your IRA. Only certain metals qualify, so be sure to know what you’re getting into. To learn more, you’ll get access to the report by clicking here.