A 401k rollover may seem like a very complicated process on the surface. Believe it or not, when you connect with a great gold company, they’ll help you every step of the way.
Future retirees may already have a 401k and Roth IRA in place. But this isn’t necessarily enough if the Roth IRA isn’t self-directed. And it must meet all of the necessary requirements of a gold IRA rollover to qualify.
Today, I’d like to teach you more about a Gold IRA and how to open this account. I’ll also fill in the blanks and share the necessary steps needed to execute a 401k to gold IRA rollover.
By the time you finish reading this, you’ll fully understand the process. And even more importantly, you’ll understand that it isn’t scary even though it seems incredibly difficult to begin.
As I mentioned earlier, the best way to execute a gold IRA rollover is to do so through a reputable gold company. You can learn about the top 10 gold IRA companies by clicking here to read my detailed review.
The Definition of a Gold IRA
The Taxpayer Relief Act of 1997 made it possible for investors to purchase physical precious metals for their nest egg. This is a long-term account that operates exactly the same way as a traditional or Roth IRA.
The biggest difference is the ability to purchase alternative investments including real estate, precious metals, and cryptocurrencies. The other main difference is that it’s a self-directed IRA account. This puts the investor in complete control. They get to choose the gold, silver, platinum, or palladium investments to purchase while growing this account.
For the most part, people tend to call this type of retirement account a gold IRA. But believe it or not, it actually goes by many other names. Some call it a silver IRA. Others call it a cryptocurrencies IRA. And still others call it by its actual name, which is a self-directed IRA. And as I mentioned, it provides even greater investment diversity than a traditional or Roth IRA allows.
Important note: Investors aren’t allowed to purchase any old types of gold, silver, platinum, or palladium. They must meet IRS approval and adhere to specific fineness requirements as well.
The Dead-Simple Method of Opening a Gold IRA
Believe it or not, opening a gold IRA account is straightforward and a lot easier than you might think.
First of all, the first initial step is to discover a great gold IRA custodian. This would be difficult if you are trying to do it on your own. Since you connected with one of the top 10 gold companies, they’ll recommend an excellent custodian to work with you.
Some popular custodians include:
- Equity Trust
- GoldStar
- Kingdom Trust
In all honesty, I actually believe it’s best to choose the custodian recommended by your trusted gold company. It’s an organization that they work with regularly and have a strong existing relationship. This will definitely work to your benefit.
After you’ve discovered your gold broker and custodian, it’s time to fill out the online form on their website. Or if you prefer, call your gold broker directly to get the ball rolling. They will open up the gold IRA account and take care of 95% of the paperwork while they’re at it.
The Differences between a Traditional Self-Directed IRA and a Roth Self-Directed IRA
Before you get started, it’s important to know the differences between the two types of self-directed IRA accounts. Why? Depending on which account you open, it will have major implications involving future or current tax consequences.
The differences are as follows:
Traditional Self-Directed IRA
The main area of importance with this account is how taxes are paid to the IRS. With this account, the income earned isn’t going to be taxed until you take distributions in the future. Account holders are allowed to begin taking distributions once they reach 59 ½ years old.
Another interesting tidbit about the traditional self-directed IRA is that it lowers your annual gross income. As an example, if you contribute the maximum $6000 contribution in 2022, it will lower your income by this amount.
If you’ve earned a salary of $75,000, but deposited $6000 into this account, your 2022 tax income is only $69,000. This is a big benefit to individuals looking to move into a lower tax bracket.
To wrap things up, a traditional self-directed IRA is a tax-deferred account. This means you are not responsible to pay taxes until you take distributions in the future. This account also lowers your gross annual income by the amount deposited into the account during said tax year.
Roth Self-Directed IRA
Unlike the traditional account, the Roth IRA is funded using money that you’ve already paid taxes on. In return for funding the account with post-tax dollars, the IRS allows these investors to keep everything. They will not pay taxes on any of the income earned within a Roth self-directed IRA.
This is a tremendous benefit that’s really hard to ignore. Say you deposit $200,000 into this account throughout your career. But because you made shrewd precious metals investments at the right time, your account grew to over $1 million. Instead of paying 20% or more to the IRS, you get to keep everything!
On the downside, you aren’t going to lower your gross annual income contributing to this account. But it’s a small price to pay to keep the entire proceeds of your investment.
To get started, please read my review of the top 10 gold IRA companies right now. This informative review will help you choose the best gold company to meet your needs.
Initiating a 401k and Roth IRA or Traditional IRA Rollover
At this stage of the game, you’ve already opened your self-directed IRA account. And you accomplished this task with the help of your trusted gold IRA company.
Here’s an important thing to note:
The only way to fund a brand-new gold IRA account is via a rollover or transfer. You must transfer the money from an existing 401k, 403b, or a traditional or Roth IRA. This is how the IRS set up the rules and we must follow them to win big playing their game!
Basically, you have two options when it comes to initiating the rollover from your 401k or other retirement account. Your choices are to initiate a direct IRA rollover or an indirect IRA rollover.
What’s the difference between the two options?
Direct IRA Rollover
Whenever possible, it’s best to initiate a direct IRA rollover. Why? Your administrator account custodian will handle the entire process from start to finish. You will not have to get involved in transferring the funds at all.
Why is this important? By initiating a direct IRA rollover, your 401k account administrator will wire the funds to your IRA custodian. The IRA custodian will then deposit the funds into your precious metals IRA account.
This rollover method is easy, clean, and it doesn’t require any intervention on your part. It’s the safest and best way to rollover funds whenever the option is available.
Speak with your IRA custodian to find out if a direct rollover is possible based on your current financial situation.
Indirect IRA Rollover
In this situation, things can get a little bit tricky if the retirement investor isn’t careful or paying attention.
How so? In this case, your 401k, 403b, or traditional or Roth IRA administrator or custodian will send the funds to you. That’s why it’s called an indirect rollover. The money doesn’t go directly from one administrator to the other. It has to pass through the hands of a middleman, which is you!
At this stage of the game, you are given 60 days to complete the rollover. From the time you receive the funds, you must deposit them into your gold IRA account within a 60-day time frame.
This part is important, so please PAY ATTENTION!
If you fail to deposit within the 60-day time frame, the IRS considers this a distribution. And as you know, when you take a distribution you are required to pay the taxes that you owe.
Guess what? It actually gets much worse depending on how old or young you are. If you are 59 ½ years of age or older, you will not suffer the consequences of an early withdrawal. On the other hand, if you are younger than 59 ½ years old, you’ll have to pay an early withdrawal penalty. The IRS will force you to give up 10% of your funds for failing to follow their rules.
See how that goes? You’re much better off initiating an indirect rollover whenever the option is available. If it isn’t an available choice, please make sure to deposit the funds within the allotted 60-day time frame. Otherwise you’ll have to pay the consequences.
Bottom Line
At this point, I hope it’s easy to understand how a gold IRA rollover works for a 401k and Roth IRA. Basically, the rules are the same whenever you rollover your funds from one retirement account into a precious metals IRA.
The best way to ensure a smooth transition is to work with a top gold IRA company. I’ve personally evaluated hundreds of different companies and narrowed my list down to the top 10. Please read this top 10 review and choose the best gold company to meet your needs.
