Since their origin in the 1970s, individual retirement accounts, or IRAs, have helped many Americans plan for a comfortable retirement. However, most retirement savers associate IRAs with paper assets, like stocks, bonds, and savings accounts, and these kinds of investments offer little in the way of security in the face of inflation, fluctuating currency values, and market instability. A gold IRA, on the other hand, is backed by a physical asset proven to hold value over time.
Most of the time, investors also have little control over how their investment actually gets used. With precious metals in a self-directed IRA, the investor has control over the gold and other eligible precious metals that he or she holds inside of their account. Tax advantages also make investing in precious metals a sensible retirement strategy.
What Is an IRA Rollover?
An IRA rollover simply names the process of transferring funds from one tax-advantaged account to either a traditional or Roth IRA. According to Investopedia, this can be done when a custodian of the first IRA disburses a check to the investor, the investor holds it for no longer than 60 days, and then the investor deposits the money into the second IRA. Alternatively, the transfer could be made directly between the custodians of both IRAs.
In short, you could take advantage of an opportunity to invest in a precious metals IRA when the price of gold is low and expected to climb by moving funds from one retirement account to a gold IRA. In the past, as long as you transferred the money to the second IRA within 60 days, the money did not have to get declared as income.
Before 2014, the laws were widely interpreted to mean that an investor could make a transfer from one specific fund to another once per year, but that same person could make use of multiple accounts to make more than one transfer. In other words, a transfer from account A to account B would not impact the ability to make a transfer from account C to account D within a year.
2015 Rollover Rule Change: One Per Year
The new IRS guidelines, as described on the IRA One Rollover-Per-Year Rule fact sheet, explain that the interpretation of rollover rules will change beginning in 2015. All individuals will only get one chance per year to make one IRA rollover across all accounts. In other words, a transfer from account A to account B would be the one rollover allowed per year; you would not be allowed to transfer funds from account C to account D in the same year.
This sums up the new interpretation of the laws:
- If you’ve already used one IRA-to-IRA transfer in the current year, you must report any additional distributions as part of your gross income.
- The amount that you declare as gross income could also be penalized 10 percent like an early withdrawal.
- If you move money from one IRA to another after you’ve already used your one IRA rollover, it might get treated as an excess contribution and get taxed at a 6 percent rate as long as it stays in the account.
There are some exceptions to this rule:
- Direct transfers between trustees aren’t limited.
- You are still allowed to covert to a Roth IRA if you qualify.
The one-year time period refers not to a calendar year, but to the date one year from when the last IRA rollover occurred. To make the transition time a bit fairer, there is a temporary rule that applies only to 2014 and 2015. If you made a transfer from one IRA to another within the last 12 months in 2014, you would still be allowed to make a transfer from another IRA account in 2015. In other words, if you moved funds from account A to account B, you could not take an additional distribution from either of these accounts. But you could make a rollover from a third account that you had not involved in rollovers in the last 12 months.
What This Means for Your Precious Metals IRA
How does this change the way you fund your gold IRA in the future? Investing in gold for your retirement is a solid idea and very doable, but you will want to plan ahead because you will only get to make one rollover a year. However, because of the transition rules, you may still have a chance to transfer funds if you act fast and make a rollover contribution before the end of 2014. You can contact the experts here at SBC Gold to make the most of your opportunities by initiating a rollover contribution before the 2015 rules take full effect.