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3 Shrewd Gold Investing Strategies

By    |   Friday, 10 July 2015 02:40 PM

Investing in gold acts as a hedge against inflation at times and secures investments by maintaining a certain amount of value. Owing the precious metal in the form of coins or bullion, or buying gold exchange-traded funds (ETFs) or gold mining stocks, may be included in your investment strategy.

How these are taxed is an important consideration as well. Physical gold and gold ETFs that are outside an IRA are taxed as a collectible, according to Investopedia. If you hold it for one year or less and then sell, it is taxed as ordinary income. If you sell after a year, it is still taxed as ordinary income and the rate can be as high as 28 percent on the gains, substantially higher than the 15 percent on long-term capital gains, Money Crasher said.

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If investing in gold is part of your investment plan, you need an efficient way to protect yourself from excessive taxes. Here are three shrewd gold investing strategies to consider to receive long-term capital gains tax treatment.

1. IRA
One option is to use an individual retirement account, an IRA, to invest in gold. Although gold was not initially allowed as part of an IRA, most gold investments can be purchased within an IRA, according to the Journal of Accountancy. The tax rate for the vehicle is like any other IRA and much more favorable than gold as a collectible. When investing in a gold IRA, be aware of the fees for storage and administration that the trustees may charge.

2. ETF
Another option is to forego owning physical gold in favor of gold ETFs, mutual funds, or gold mining stocks. While they may yield lower pre-tax returns, the after-tax rate may make them a better investment because they are taxed at the long-term capital gains rate if held for at least one year, the Journal of Accountancy said.

3. Closed-End Funds
These often sell at a discount to the price of gold. A closed-end fund is similar to a mutual fund or ETF in that multiple investors can buy into the fund. However, unlike a mutual fund or ETF, there are a limited amount of shares available, according to Kitco News. The price of mutual funds and ETFs generally tracks close to the net asset value of whatever is in the fund. The price of closed-end funds can fluctuate against the price of gold so discount buys may be available. The returns are also taxed at long-term capital gains rates.

The least tax-efficient way to invest in gold is to own the physical metal, unless your aim is simply protection against a financial downturn.

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Investing in gold acts as a hedge against inflation at times and secures investments by maintaining a certain amount of value.
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Friday, 10 July 2015 02:40 PM
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