As an investor, you should keep in mind that capital gains are taxed at a different rate, much lower, than labor income. This is called capital gains tax. And since gold is an investment asset, when you sell your gold and make a profit, it's taxed as capital gains. However, depending on how you've held your gold, such as in a Roth IRA, you'll have to pay taxes at the ordinary capital gains rate or at an overall rate of 28% for a Roth IRA Gold. Long-term earnings on ingots are taxed at the ordinary income tax rate, up to a maximum rate of 28%.
Short-term earnings on ingots, like other investments, are taxed as ordinary income. An asset must be held for more than one year for gains or losses to be long-term. With a little planning, investors can preserve a greater part of their return in gold by investing in gold that receives the LTCG treatment or investing in an IRA. Alternatively, a physical gold CEF is a direct investment in gold, but it has the benefit of taxes at LTCG rates.
The restriction was intended to reduce gold hoarding, which according to the gold monetary standard was stifling economic growth, and lasted more than 40 years before disappearing in 1975. Lucas' annualized after-tax return increases by more than two percentage points when he uses a traditional IRA for his investment in gold mutual funds and more than three percentage points above a brokerage account when using a traditional IRA for his investment in gold coins. Like all investments in an IRA, profits from gold sold within an IRA are not taxed until the cash is distributed to the taxpayer, and distributions are taxed at the taxpayer's marginal tax rate. These pieces include, among others, gold coins with fractional denominations; American Eagle gold or silver coins; any piece of foreign currency that has not been explicitly mentioned in the IRS's list of reportable items, as well as pieces of U.S. currency that were created after the list was created in the 1980s.
A gold ETN does not physically own gold, but at maturity it yields a return equivalent to an investment in gold. You get more than 3.2 percentage points of annualized return after taxes when you use 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 for your investment in gold coins. Gold has attracted investors for centuries because of its rarity and beauty, which explains why nearly half of the world's demand for gold comes from the jewelry industry (World Gold Council, Gold Investor, vol. Emma and Lucas's results, shown in Figure 3, indicate that the after-tax returns on investments in gold in a traditional IRA far exceed those of investments in gold in a brokerage account or in a Roth IRA.
The after-tax annualized return on gold coins is the lowest, approximately one percentage point lower than that of the gold investment fund, which receives the LTCG treatment. Gold exchange-traded bonds (ETN) are debt securities in which the rate of return is linked to an underlying gold index. The example assumes that the costs and fees of buying, owning and selling gold coins, gold mutual funds and gold futures ETFs are the same. As long as you don't buy or sell to family members or entities you own, the gold you buy and sell comes in certain forms and you don't take physical possession of the gold, you can keep it in a self-directed IRA account, SIMPLE, 401k or SEP IRA.
Whether through a brokerage account or through a Roth or traditional IRA, individuals can also invest in gold indirectly through a variety of funds, gold mining company stocks and other vehicles, including exchange-traded funds (ETFs) and publicly traded bonds. .
