A 401(k) to Gold IRA Rollover is a financial tool and Internet search term that’s gaining immense interest and popularity. The reasons for this are simple and obvious. First and foremost is the fact that almost 80% of full-time American workers have access to employer-sponsored retirement plans and more than 80% of workers participate in a plan. When it comes to Fortune 500 Companies, 89% have access and 90% participate. According to the American Benefits Council, participation in these plans is as strong as it’s ever been.
The second most important fact is that (as of 2011), more than 80% of retirement plans were 401k’s and more than 95% of them offered some kind of matching contribution, which provides a great opportunity and very simple way for employees to give themselves a pay raise. Maximization of this type of participation can accelerate retirement savings, which under the right circumstances can translate into a Gold IRA Rollover.
What is a 401(k) Plan?
A 401(k) plan is a qualified, tax-deferred account that is defined in subsection401(k) of the Internal Revenue Code. In a 401(k) plan, employees are permitted to contribute a defined portion of their earnings on a pre-tax basis to their account. These earnings are withdrawn from the employees pay prior to taxation, and tax on the earnings is deferred until retirement withdrawals are made.
In addition, employers plan on participating in a 401(k) to Gold IRA Rollover may contribute to the employees plan in the form of a company match. The company match can vary, and a percentage match up to a specified percentage is common. These plans do have annual contribution limits. As of 2015, the maximum pre-tax contribution is $18,000. Additionally, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRA’s you own.
What are the Primary Benefits of a 401(k) Plan?
A 401(k) plan comes with numerous potential benefits. Some of these benefits may include:
- Automated savings
- Company match
- Tax-deferred growth
- Ability to borrow from account under specific circumstances
- Various investment options
While investment choices within a 401(k) plan may be limited, many plans offer numerous ways to invest money within the account. Some of these products may include mutual funds, money market funds, stable value accounts, bond funds and company stock. Given multiple choices within a fund, one may be able to diversify their 401(k) holdings. In addition, account holders can move money between funds as time passes or market conditions change.
A company match on contributions can be a huge perk for many employees. Many companies no longer offer pensions for their employees, but now rather offer some type of company match on funds the employee contributes. These matching funds can add up quickly, and can help one reach their retirement objectives faster. Company matches on funds can vary, as well as the amount of time before those funds are considered vested.
One has the ability to borrow funds from his or her 401(k) account under many plans and under certain circumstances. These circumstances may include purchasing a home, education or medical expenses or economic hardship. These loans must generally be paid back within five years, and the interest that you pay on the loan goes right back into your account. It is important to note, however, that should one leave the company with a 401(k) loan outstanding, he or she will have a limited amount of time to repay the loan. If this does not occur, they may be liable for taxes on the funds, as well as early withdrawal penalties if under the age of 59 ½.
Can I Own Physical Gold in a Standard 401k to Gold IRA Rollover?
While 401(k) plans may offer several choices of for investments, the total amount of asset classes available to invest in may be limited. Standard 401(k) plans do not have the option of physical gold or silver ownership. The closest one can come would be owning precious metals funds, gold or silver mining stocks or other similar paper products.
Of course, many buyers of physical precious metals desire to own the physical, tangible metals for their inherent benefits. While specific circumstances may allow for physical metals ownership within a 401(k), such as in a self-directed 401(k), most people with a standard 401(k) account may have to look for other options in order to own physical gold or silver. This is where a gold or silver 401(k) rollover may come into play.
Why Invest in a 401(k) to Gold or Silver IRA Rollover?
There are many possible reasons to invest in a gold or silver 401(k) rollover. No two investors are exactly the same, and investors may have different goals or concerns. Some of the potential reasons may include:
- INFLATION CONCERNS: Investors often buy gold, silver or other precious metals to try to hedge against inflation. Inflation is a sustained increase in the costs of goods and services — in other words items are only getting more expensive. As inflation accelerates, one’s purchasing power is eroded. A dollar today buys less than a dollar did 10 years ago for example. As inflation increases, one’s real returns on investments may be less, as well. Some investors believe that precious metals like gold and silver may not lose value like other assets during times of high inflation. In fact, many investors believe that the value of gold or silver could potentially rise during periods of high inflation thus providing a hedge against rising prices.
- DOLLAR DEVALUATION: Some investors using a 401k to Gold IRA Rollover buy precious metals to hedge against dollar devaluation. Like inflation, as the value of paper (fiat) currency is eroded goods and services become relatively more expensive. Gold and silver are denominated in U.S. dollars and often times exhibit an inverse correlation to the dollar. In other words, often times when the dollar falls, gold and silver rise. Conversely, the value of gold and silver may decline when the dollar is rising.
- PORTFOLIO DIVERSIFICATION: Many investors today are looking for ways to further diversify their portfolios. Today’s investors are looking for additional asset classes beyond just stocks and bonds. Precious metals, like gold and silver, may provide an additional layer of diversification. Precious metals often exhibit little correlation to stocks or bonds and, thus, may be an effective way to add diversification.
- GOLD AND SILVER HAVE A LONG HISTORY AS A RELIABLE STORE OF VALUE: Precious metals, like gold and silver, have been used for transactions for thousands of years. They have proven to be a reliable store of value over that time and are still recognized today for their value. These metals are transacted all over the globe. An ounce of gold in the U.S. is the same as an ounce of Gold in Japan.
- GOLD AND SILVER CARRY NO COUNTERPARTY RISK: Unlike paper investments, physical gold and silver cannot go bankrupt or default on an obligation.
- PEACE OF MIND: Physical gold or silver ownership can provide significant peace of mind. Because of their history, characteristics, lack of counterparty risk and liquidity, precious metals ownership may provide a degree of comfort in an ever changing world.
Of course, this list could go on and on, but these are just a few reasons that many investors turn to gold and silver.
If your 401(k) is from a previous employer, the process to roll it over is fairly straightforward and simple. One should always, however, consult their tax professional before doing anything tax related or that may have tax consequences. In order for your rollover to go smoothly, all regulations must be adhered to. Your tax professional can guide you through the process and answer any tax related questions that you may have. While this guide is meant to be for informational purposes only, no investment advice is being given or implied.
401k to Gold IRA Rollover
A Gold IRA Rollover can occur under a wide variety of conditions. Considering that the 401k is the most prevalent type of eligible retirement plan, it’s what we’ll focus on in this article. Rules pertaining to 401k plans can vary as dramatically as the companies sponsoring them, but some generally common elements include rollover opportunities when: the sponsoring company substantially modifies the plan, the sponsoring company changes the managing custodian, or the employee quits, retires, or is terminated.
It is quite typical that employees cannot rollover any portion of their 401k for a Gold IRA Rollover as long as they are still employed. However, in a fair number of plans, a still-working employee can be permitted to do an “in-service rollover” once they achieve 59½ years of age. The number or frequency of such events can vary dramatically between retirement plans. Some plans don’t permit in-service rollovers of any kind and a smaller number of plans make employees wait until achieving 70½ years of age, at which time required minimum distributions (RMD) take effect anyway.
401k to Gold IRA Rollover Check
401k plans are typically quite limited in their scope of available investment types and rarely if ever allow for investment in IRA-approved physical precious metals, consisting of gold, silver, platinum, and/or palladium. The most common investment types made available in 401k plans are a variety of funds including; equity, balanced, bond, company stock, stable value, and money funds.
Some plans do allow for investment in a limited selection of popular stocks, including in some cases precious metals ETF’s like GLD and SLV. Prices of these ETF’s are tied to the value of their precious metal, but are in no way truly comparable to the safety and security of physical precious metal ownership, which is the basis of a Gold IRA.
What Does This Lead To?
Stock brokers pushing such ETF’s will frequently stress the benefit of not having to pay annual storage fees (though such fees are nominal at best), although they never mention the fact that your certificate entitles you to a portion of a pie that’s continually being eaten away by fees, frequently doesn’t own enough metal for proper coverage, and most importantly can freeze in value during cataclysmic events, like dollar destabilization, a stock market crash, or a rush on the market. These are just a sampling of possibilities where investors could miss out on tremendous appreciation, simply because “they weren’t told,” but it’s in the fine print.
A Gold IRA Rollover provides the perfect opportunity to convert profits from the second-longest bull market on record, into protection for the same portfolio. And protection should be more than just a consideration in a global environment where the new U.S. administration is struggling with; dire global political threats, dire global economic threats, and a continually growing national debt that has the International Monetary Fund (IMF) seriously considering replacement of the dollar and other global reserve currencies, with a “One World” currency of their own.
These global factors combined with the debilitating effect of domestic concerns, such as political party in-fighting, Washington legislative gridlock and a growing policy tendency toward isolationism is forcing the U.S. economy into a dangerous and potentially cataclysmic environment. In a world where huge hedge funds have the ability to affect market movement within nanoseconds, it only makes sense, not only to maximize the traditional 5% – 15% physical precious metals allocation recommended by financial planners, but to actually increase it.
Benefits of a 401(k) to Gold IRA Rollover
A Gold IRA rollover provides the perfect vehicle to transition into the safety and security of gold and other IRA-approved metals. Gold has been utilized and accepted as global currency for millennia. Gold in particular, has been so highly regarded throughout, that its discovery or presence has literally caused the altering or in some cases the destruction of entire civilizations. Even in recent history, the Allies, including France, were fighting to secure their gold from the oncoming “Blitzkrieg” warfare tactics of the Nazi Germans.
Human attraction to gold and other precious metals has certainly not waned over time. The reasons for continuing popularity are the same as they always have been: scarcity, physical characteristics, aesthetic attributes, and wealth storage.
Due to the Gold IRA rollover having become such a popular topic, a variety of unscrupulous scammers have appeared promoting “home storage” IRA’s. The ads appear to make it clear, that it’s a simple process to establish a home storage IRA, providing immediate access to your precious metals account and avoiding custodial and depository fees, but nothing could be further from the truth.
Meeting the IRS requirements for such an account is difficult if not impossible for all but a very few investors. Just as an example, some of the requirements are; the trustee corporation must have a business location that is open to the public, all employees and trustees of the company must put up a $250,000 fidelity bond as corporate insurance, and the applicant must have verifiable fiduciary experience with a “reputable financial background” and prove to have had experience handling retirement funds.
There are more requirements, but suffice it to say that the promoters of such offerings of assistance assume no responsibility whatsoever for ramifications that may arise from an IRS audit. Fines and other penalties could amount to more than just substantial damage to a retirement portfolio. So carefully review this information if considering a home storage Gold IRA, rollover or otherwise.
How to Open a Gold IRA?
The process of opening one of these accounts is fairly straightforward. First things first, you’ll need to find a custodian. Because it’s illegal for you to keep the gold yourself, you need a custodian to hold the gold you purchase through your IRA. You can find one by contacting a nearby bank, credit union or trust company. Make sure to do your research and find a company that has a strong track record of well-performing Gold IRA’s. (View Page: List of Top 10 Gold IRA Companies)
You’ll also need a broker or metal dealer to sell you the gold. Often, the custodian will have a list of brokers it’s worked with that can serve as a starting place for your research. When you’ve found a custodian and a broker you’re satisfied with, you can open your account and purchase your precious metals. Once it’s time for you to retire, you have the option either to collect the metals or liquidate them into cash. The IRS will tax either action as a distribution.
Steps to Handle a 401k to Gold IRA Rollover
Once you’ve opened your gold IRA, you can contact the company managing your 401(k) account to begin the rollover process. First you’ll have to choose between a direct and indirect rollover.
In an indirect rollover, you withdraw the funds from one account and then deposit them in another.
With a direct IRA rollover, the funds move directly from one account to another. The direct option is usually much simpler, and it comes with less risk of IRS penalties.
With an indirect rollover, you have 60 days from the date you receive the funds to transfer the money to your custodian or gold IRA company. The funds become a taxable withdrawal if you don’t complete the transfer in the 60 day period. If you are 59.5 years old or younger, a 10% early withdrawal penalty is also applicable.
With either rollover option, you’ll also have to make sure you’ve satisfied any special requirements the company might have for rollovers. Once you’ve met the requirements, the company will send a check with your funds to either you or your Gold IRA custodian. At that point, you’ll have completed your 401(k) to gold IRA rollover.
Should You Do a 401k to Gold IRA Rollover?
Are you looking to diversify your retirement savings?
Do you want a retirement option that doesn’t mirror the volatility of paper currency or the stock market?
If either is the case, you should ABSOLUTELY consider maneuvering a 401(k) to Gold IRA Rollover.
Gold IRA plans, or gold investments in general, can be appealing since the price of gold typically moves in the opposite direction of the stock market. So if your securities investments are performing poorly, your gold investments are probably on the rise, and vice versa. Many investors use gold investments to hedge against other investments. It’s uncommon for investors to have a portfolio of entirely gold, or any one asset class for that matter.
Gold sellers will often market gold IRA’s by contrasting them with the volatility and risk of the stock market. What’s more, gold will undoubtedly always have some value to it. However, it’s important to remember that there’s no such thing as a risk-free investment. The price of gold is subject to its own rise and fall. Investing in physical assets also presents the possibility of theft, although most custodians will insure against that scenario.
- Finding a financial advisor can explain the pros and cons of different retirement strategies can prevent a lot of headaches. Our most highly recommended Gold IRA Custodian, Regal Assets, has veteran investors ready to help and answer your questions around the clock.
- Saving for retirement is less complicated once you know how much you need to save. With the SmartAsset Retirement Calculator, you can enter your information and determine the funds you need to maintain your lifestyle after you retire.
The Bottom Line
Investing in gold can be a good way to diversify your retirement plan across asset classes. This could mean purchasing physical coins and bars or stock in gold companies. If you’re looking for a new destination for the funds in your 401k and you want something that doesn’t closely follow the stock market or the economy, then a 401(k) to Gold IRA rollover could be a good option.
That said, it’s always important to diversify your investments. Make sure your retirement strategy includes several different asset classes. That will help protect you from risk on all sides. This guide is meant to be a brief introduction into rolling over a 401(k) account from a previous employer into a Precious Metals IRA that owns physical gold or silver. That being said, there are very specific guidelines that must be adhered to. If you have a 401(k) account with your current employer, we recommend that you discuss your desire for physical gold or silver ownership with your plan sponsor to see what, if any, options may be available to you.
If your mind is set on rolling over your 401k to a Gold IRA at this present moment, we recommend that you go through our List of Top 10 Gold IRA Companies, as choosing a good company is the first step into investing in physical precious metals. Make sure you understand why we hold the first place custodian (Regal Assets) in such high regards, lest you may settle for less than the best in terms of fee structure, stockpiling options, security system, and overall helpful administration among all the companies in the Gold IRA Industry.
Do you have any questions on how to rollover your 401(k) to a Gold IRA? Ask below!