The Step-Up in Basis
Does Not Apply to IRAs

One of the most common — and costly — misconceptions in estate planning is the belief that the step-up in basis that protects heirs from capital gains taxes applies to inherited IRAs. It does not. Every dollar in a Traditional Gold IRA will be taxed as ordinary income when withdrawn, regardless of when or how it was inherited.

What the Step-Up in Basis Actually Is

When you inherit most assets — stocks, real estate, physical gold held outside an IRA — the cost basis is "stepped up" to the fair market value on the date of death. This eliminates the capital gains that accumulated during the original owner's lifetime.

Example: Your father bought Apple stock for $10,000 that was worth $100,000 when he died. You inherit it with a stepped-up basis of $100,000. If you sell it immediately, you owe zero capital gains tax on the $90,000 of appreciation. The gain was entirely forgiven at death.

This is a significant and widely understood wealth transfer benefit — and it applies to physical gold held directly, gold ETFs in a taxable account, and most other capital assets.

Why IRAs Are Different

IRA assets never received a stepped-up basis because they were never subject to capital gains tax in the first place. Every dollar in a Traditional IRA — contributions and all growth — has been sheltered from tax during the account owner's lifetime. The tax was deferred, not eliminated. When distributions are taken, the full amount is taxed as ordinary income.

The step-up in basis cannot apply to assets that were never subject to capital gains treatment. The IRS doesn't give heirs a free pass on deferred income simply because the original owner died. The tax debt follows the money.

What About Roth IRAs?

Roth IRAs don't benefit from the step-up in basis either — but they don't need to. Roth contributions were made with after-tax dollars, and all growth is permanently tax-free. Heirs who inherit a Roth IRA withdraw distributions income-tax free. The absence of a step-up doesn't matter because there is no deferred income tax liability to inherit.

This is another powerful argument for Roth conversion. Assets converted from Traditional to Roth during your lifetime pay the income tax now — and ensure your heirs receive a clean, tax-free inheritance rather than a tax liability dressed up as a gift.

Physical Gold Outside an IRA: A Different Calculation

It's worth noting that physical gold held outside of an IRA — in a personal safe or non-IRA account — does receive a stepped-up basis at death. However, during the owner's lifetime, physical gold is taxed at the collectibles capital gains rate of up to 28% — higher than the long-term capital gains rate on most other assets. The IRA structure eliminates this 28% collectibles rate during your lifetime; the trade-off is losing the step-up benefit at death.

Understanding this trade-off — and how it interacts with your overall estate plan — is one of the more nuanced decisions in Gold IRA planning, and one that benefits significantly from professional guidance.