This.
It's not that they had the gold, it's that they used 401k money to buy and take physical delivery of the gold, which this judge ruled as a withdrawal from the 401K.
So they're liable for taxes and penalties in the withdraw. 401K withdrawals are treated as ordinary income and taxed at the taxpayer's current income tax bracket rate, IIRC. In any case, $411,000 of income will put you at the top rage.
The only bright side is hopefully the gold went up enough in value to cover some of the taxes.
Good post. Thanks.
I am of the opinion that there is a middle ground that could be enacted. Since the law is not 100% clear in this area, the couple should be allowed to correct / remedy the situation by either establishing an oversight (transfer to a third party holding) or by returning the gold to the account.
Traditional 401K...because you didnt pay tax on the money that went in.
Roth 401K withdrawals are tax free because you already paid the tax on the money that went in.
If you dont want to get into this trap, contribute only to Roths. If you are contributing to traditionals, stop and start contributing to Roths. If you have traditionals accumulated, talk to a good adviser about a plan that allows you to convert to Roth with the least tax implication. Over the long haul, the difference of taxes paid in retirement can be in the millions.
IRA gold bought and held in an IRA with IRA money is NOT a “distribution” of US currency to be called... INCOME!
This should NOT stand on appeal or anywhere else. They did NOT sell the GOLD and convert it to cash, which would THEN be required to be declared as income.
This is a Byzantine judge. Has to get sorted out from the FDR notion that one cannot hold or own physical gold. It just ain’t so.
and yeah- imaging 80K go for it punk IRS “agents” hovering like invasive wasps in a beehive. Time to warm them up to cook temperature... with LEGAL facts. This is NOT distributed income.