What happens to your IRA when you pass away? It may be a grim subject, but it’s a very important one to understand, and it’s something that all gold IRA owners should confront head-on.
American Bullion believes in the long-term value of strategic gold investments. In some cases, physical gold bullion can help protect a family’s wealth for generations. In order for that to happen, however, you need to ensure that you set up your beneficiaries correctly, educate them on their options, and seek outside help where necessary. If you want to transfer gold IRA hassle free then keep reading.
Naming a Beneficiary for Your Self-Directed IRA
Before making any decisions about your retirement assets or the beneficiaries thereof, we advise consulting a trusted expert on the subject beforehand. It is a good idea to introduce your beneficiaries to your advisors early on.
Self-directed IRAs, like any other retirement account, should be set up with listed beneficiaries in the event that the owner dies while assets still sit in the account. It is vital that beneficiaries are listed by name and that you designate a primary, secondary, and, when possible, contingent beneficiaries.
Beneficiaries may need additional financial training for your self-directed gold ira. The reasons for this are two-fold:
- The IRS holds very specific rules regarding the ownership and holding of physical gold coins and bars. Since investment gold is often held in a remote depository, the heir of a gold IRA account may never see their metal investment during the transfer process. Moreover, the IRA beneficiary needs to understand the complicated ownership process for physical precious metals.
- Any self-directed IRA may need extra care because they can be more challenging to own and run than other retirement accounts.
If, for whatever reason, you feel that your beneficiary is ill-suited to run a self-directed account, you should consider creating a trust to administer your IRA. This means naming the trust as the beneficiary of the gold IRA and designating your heir as the beneficiary of the trust. While this is more complicated up front, it does allow you to name a competent trustee to run the trust (bypassing probate laws and fees after transfer) — preferably someone whom you trust implicitly and whose understanding of self-directed IRA rules is stout.
How Traditional IRAs Transfer After Death
The beneficiary of any IRA — whether gold IRA or traditional IRA or Roth IRA — may maintain the tax benefits of the account by electing to receive the distributions through an Inherited IRA. Inherited IRA is an IRS designation set up specifically with the beneficiaries of an IRA in mind. They can be a little complicated, but the most important thing to remember is that any recipient of an IRA transfer after death has three basic options (four if the beneficiary is a spouse):
- Take all of the IRA money immediately. This is not usually recommended. If the recipient of an IRA accepts all of the funds in one swoop, it is likely that their income for the year will push them into a higher tax bracket (or, if already in the highest tax bracket, the beneficiary will pay the maximum amount of taxes on their Inherited IRA distribution). Of course, for a Roth IRA distribution, no taxes are owed.
- Elect to “Disclaim” the IRA. The beneficiary may decide to decline the IRA funds and let the funds transfer to another (normally younger) alternate beneficiary. Beneficiaries normally elect this option when they do not need the money or when they prefer a smaller required minimum distribution (RMD).
- Transfer the money to an Inherited IRA. This is the most common option for non-spouses and, in the case of a gold IRA, the most sensible investors (more on that later). Although funds in an Inherited IRA still grow tax-deferred, the beneficiary does not have to wait until age 59.5 to receive distributions. In fact, the beneficiary almost always has to withdraw a minimum amount each year (the RMD).
- (Spouses only) Transfer IRA funds to own account. Spouses who inherit any tax-deferred retirement account may elect to absorb the funds from their deceased husband or wife’s IRA into their own tax-deferred account. Distribution rules do not change for the inheriting spouse — the IRS treats the funds as if he or she contributed them from the start.
If your beneficiaries are not spouses, they must act quickly and tell the IRS what they plan to do with their account. Any non-spouse beneficiary is required by law to receive RMDs by December 31st of the calendar year following the year that the original IRA owner dies.
Are Gold IRA Transfers Different?
As far as inheritance transfer rules and treatment of spousal beneficiaries, there are no major differences between a self-directed gold IRA and a traditional/roth IRA. However, the nature of gold IRA investments are different enough that, in most cases, they should be treated differently.
Gold itself is not a horribly illiquid asset, but many gold IRAs contain other illiquid forms of investment, such as real estate or private company debt. This means the recipient may be faced with tax consequences based on illiquid assets and not have the funds readily available (an excuse that the IRS isn’t keen on adjusting around).
Moreover, physical gold bullion should not be treated as a piggy bank, especially by younger beneficiaries. The real value of a gold investment is the ability to offset (or at least reduce) the risks associated with paper currency and other paper assets (stocks, bonds, mutual funds, etc.). This means you should educate your beneficiaries wisely when you list them on your account.