Most average Americans have some type of standard retirement account, and feel that it’s more than enough to set up their future. The typical retirement account consists of stocks, bonds, and other US dollar focused assets.
Today, I’d like to fill you in on a different strategy. In my 401k to gold IRA rollover guide, I’ll show you the simple steps to convert cash into gold investments. And when I say gold investments, I do not mean gold stocks or ETFs. I mean purchasing physical gold for your precious metals IRA retirement account.
The process of getting started is known as a gold IRA rollover. Principally, it’s the official name for the progression needed to open a self-directed gold IRA. But instead of purchasing traditional stocks, bonds, and mutual funds, you’ll acquire precious metals including silver and gold.
Right now, I’d like to share the necessary steps one must take to complete the 401k to gold IRA rollover process.
First, we’ll discuss funding your account and the differences between a rollover and a transfer. And then we’ll move into choosing the best gold IRA account type to meet your needs. From there, we’ll focus on picking a custodian plus the rest of the steps.
Don’t worry if this sounds confusing right now. All will be revealed in short order.
How Do Rollovers and Transfers Differ as Gold IRA Funding Options?
For the most part, when funds move from one retirement account to another, the average person calls this a rollover. But the Internal Revenue Service has clear distinctions between a rollover and a transfer, which I’ll discuss below.
A rollover consists of you, the investor, receiving the proceeds of your 401k account paid directly to you. You become responsible for depositing the proceeds into your self-directed IRA within the appropriate amount of time. I’ll share the gold IRA rollover rules in greater detail below.
A transfer is a different process altogether. With a transfer, your original retirement account custodian directly transfers your money to your new self-directed IRA custodian. You aren’t responsible for depositing the proceeds of your previous retirement account into your new one, unlike a rollover.
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The Rules: Gold IRA Rollover
In a gold IRA rollover, the current custodian will deliver the proceeds of the account directly to the account holder. From here, the IRS provides a 60-day grace period. The investor has 60 days to deposit the funds into their new self-directed gold IRA account.
Nevertheless, if the account holder fails to complete the deposit within 60 days, the money is considered taxable income. The situation gets worse if the account holder is younger than the designated age of 59 ½ years old. Anyone younger than 59 ½ years old is subject to a 10% early withdrawal penalty.
Investors are allowed to initiate one gold IRA rollover each year, including money and precious metals. If you withdraw funds to initiate a Roth or traditional IRA rollover, the tax withholding doesn’t come into play.
The Rules: Gold IRA Transfer
During the transfer process, the proceeds of the original retirement account move from one custodian to another. The account holder never comes into possession of their money during this process. This makes things immeasurably simpler in my opinion.
Even better, penalties are never at stake during the transfer process. Why? The 60-day transfer rule will not come into play. Remember, you aren’t going to take possession of the money. So, the 60-day time limit never has a reason to begin.
Furthermore, during a transfer, the original IRA custodian will move money via wire transfer to the new custodian. Or less likely, your original custodian will mail a check to your new custodian. Either way, the transfer process is completed without investor intervention, which vastly simplifies the procedure.
5 Steps to Complete a 401k to Gold IRA Rollover
- Picking the ideal gold IRA account type
- Choosing an account custodian
- Initiating the 401k rollover
- Buying precious metals investments for your gold IRA account
- Storage facility shipping
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1) Picking the Ideal Gold IRA Account Type
To start things off, you must begin by choosing the ideal gold IRA account for your personal needs. In this case, you have two options to choose from. They include the following:
- Traditional gold IRA – you’ll fund your account using pretax dollars.
- Roth gold IRA – you’ll fund your account using post tax dollars
Typically, the average 401k to gold IRA rollover happens with pretax dollars for a traditional self-directed IRA account. But that doesn’t necessarily mean it’s the best option for you, so choose wisely.
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2) Choosing an Account Custodian
This part of the process often feels daunting for new investors. Why? There are many different custodians to choose from. So how do you narrow down your search?
First off, the majority of account custodians only work with traditional IRA accounts. So, you can eliminate them as possibilities right away.
Instead, you must focus on choosing custodians that engage with self-directed IRA accounts. The self-directed account trustee you choose must remain compliant with all IRS rules.
But most important of all, you must choose an account custodian who handles precious metals IRA investments. The best custodians have insider connections with the top gold companies, the best storage facilities, and more. Otherwise, they will not have unique relationships and they’ll lack the ability to provide personalized recommendations.
3) Initiating the 401k Rollover
Now it’s time to fund your new Roth or traditional self-directed IRA account. As we learned earlier, we discovered that we must fund this account with a 401k to gold IRA rollover.
To begin the process, you must have already opened your account with your new custodian. You must have completed all paperwork and submitted everything required. Once the account is officially open, you can begin this step.
It’s very easy, so have no fear. Contact your 401k administrator to begin. Let this person know that you intend to rollover the proceeds of the account into a self-directed gold IRA.
From here, your 401k administrator will take action. He or she will send you the necessary paperwork needed to get your new IRA account funded. You must fill out this paperwork and send it to your account administrator. Only then can they send you the proceeds of your 401k account via wire transfer or check.
Please remember to deposit the proceeds into your new account within 60 days. Otherwise, you’ll become the subject of early withdrawal penalties and withdrawal taxes.
4) Buying Precious Metals Investments for Your Gold IRA Account
Now that you’ve successfully funded your account, it’s time to begin investing in gold, silver, platinum, or palladium.
This may seem simple on the surface, but you must follow specific rules when purchasing gold bullion. The IRS requires specific purity levels for gold IRA accounts. The purity level breakdown is as follows:
- Gold – 99.5% pure
- Silver – 99.9% pure
- Platinum – 99.95% pure
- Palladium – 99.95% pure
Please follow these purity level guidelines religiously when purchasing investments for your gold IRA account. Otherwise, if you fail to follow these instructions, you’ll purchase ineligible investments, which is against the IRS’s rules.
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5) Storage Facility Shipping
After purchasing gold, silver, platinum, or palladium investments for your gold IRA, they must be shipped to a storage facility.
Before this can happen, your gold company will contact your IRA custodian ahead of time for payment. They will send them an invoice, and once your custodian makes the payment, the shipping process can begin.
It’s important to follow up and ensure your gold dealer properly shipped your investments to a secure storage facility. Check in with them to find out when your precious metals were released.
Make sure your custodian can confirm that your metals have reached the depository. It should take roughly 7 days or less for your precious metals to get shipped to the storage facility.
What did I tell you? The 401k to gold IRA rollover process only seems difficult and confusing at first. But now that you’ve read a detailed account of the progression, you likely feel much more confident about everything. Right?
That’s amazing! I can’t wait for you to get started on your precious metals retirement investing journey. It’s going to be an incredible ride.
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