How to Move (Rollover) a 401k to a Gold IRA without Penalty
Finance | Retirement | Gold IRA | Article By: eBackers Staff Writers – 2nd April, 2020
In the world of finance you actually have a lot more options than you think. Especially if you want to retire, you don’t need to limit yourself to just one account. Plus, if you only have a 401k, you can end up on thin ice if something happens to the economy.
That’s why, today, I’ll be showing you another option. Instead of putting all of your eggs in one basket, I’ll be going over something called a Gold IRA. Also, if you’ve heard of a precious metals IRA, it’s the same concept.
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How to Execute a 401k to Gold IRA Rollover
There is a lot to go over, but I’ll be breaking everything down into easy-to-read sections for your convenience. So, if you need to jump around, please feel free to do so.
Here is a look at what I’ll be going over:
- What is a gold IRA?
- How to rollover a 401k into a gold IRA
- The benefits of a gold IRA
- Final thoughts
What is a Gold IRA?
Before we jump right into the 401k to Gold IRA rollover, it’s important to understand what you’re looking at. I’m sure you know what gold is, but do you know how it functions in an IRA? If not, please pay close attention to this section before moving on.
Precious Metal IRA
A gold IRA is a type of precious metals IRA, so it’s important that you know a little bit about these IRAs and how they actually work. So, let’s take a look.
A precious metals IRA works by using your money to buy up the metal of your choosing (in this case physical gold). The metal is then held in an account that has the same rules as any other IRA account.
These rules include:
- Not being able to touch the money until 59 ½
- You’ll be forced to take contributions at 70 ½
- The value of the account grows tax deferred
These are some of the basic rules that come with a precious metals IRA. Also, if you haven’t noticed already, these basic rules are identical to that of a 401k.
The main differences between a precious metals IRA and a 401k
Now, I’ve shown you how they can be similar, but there are some differences that I need to go over as well. For example, there are a few extra steps that you need to take in order to do a rollover or put a precious metals IRA in your name.
The first order of business is that you need to choose the metal, which in this case is physical gold, and use your money to buy up bullion coins. This money is then held and managed by a custodian, who can make some tweaks to your investment strategy. Unlike a traditional IRA, precious metals IRAs are typically self-directed IRAs, which means that the investment management is usually a lot more hands on. This is why a custodian is generally used.
How to Rollover a 401k into a Gold IRA
Now that you know the basics, I can start to show you all about the actual rollover process and what that looks like. There are a few additional steps when compared to a regular 1035, but it’s not as hard as you may think. So, let’s take a look.
Opening A Gold IRA
The first step you’ll need to take is one that requires you to open the actual account. To do so, you’ll need to do some searching. This is due to the fact that you need to find a custodian and gold broker, because you’re not legally allowed to hold the gold yourself. Also, you have to choose from gold storage locations approved by the IRS as well.
I would definitely recommend doing your research for this portion, because working with people you trust is very important. So, my advice to you is simple; find a company that has a proven track record of proper gold storage.
The first option you have is an indirect rollover. This rollover type allows you to withdraw funds from the 401k, hold onto them, and then deposit them into the gold IRA on your own. You have 60 days to transfer the funds, and if you don’t, it will count as a taxable withdrawal and you’ll incur a penalty.
A direct rollover is exactly as the name suggests. In this case, the money is transferred from one account to another, and it’s very hands off. You’ll have to follow the guidelines laid out by the company that has your 401k, but it shouldn’t be too difficult of a process.
A direct rollover is often recommended, because it’s a lot less risky than holding onto the money on your own.
The Benefits of a Gold IRA
A gold IRA comes with a lot of benefits, but it really depends on what you’re looking to accomplish with it. So, in this section, I’ll lay out the benefits so that you can make an informed decision.
A Hedge Against Inflation
One of the best reasons to consider a gold IRA is that it functions as a hedge against inflation. The value of gold does fluctuate, but it actually works against the dollar. This means that when the value of the US dollar drops, the value of gold actually increases.
Inflation causes the value of the US dollar to decrease, so I’m sure you can see how this is a helpful practice. Even if you don’t put all of your money in gold, it’s a very safe way to make sure that your money doesn’t lose value.
A gold IRA also comes with a lot less risk than a traditional 401k. When the markets are great, yes, a 401k will perform a lot better than a gold IRA. The only issue is that when the market tanks, so will your 401k.
This is not the case with a gold IRA, and if you look at gold trends over the past decade, you’ll see that the price remains fairly level at about 3-4% growth. So, as you get closer to retirement, it might be a good idea to invest in a sure thing.
Diversification of your Portfolio
Some of you may just be looking to diversify your portfolio, and that’s a great thing to do as you reach refinement. Keeping all of your eggs in one basket is never a good idea, so having a gold IRA can help you limit this risk.
With a gold IRA you also get full control over the account. This is very different than a 401k, because you have to leave it in the hands of whomever is managing that account. While going with a custodian is the best way to manage the account, if you have the know-how, a gold IRA can be very valuable to you.
A gold IRA shares the same tax benefits of a traditional IRA or 410k. This means that the funds grow tax deferred, and so long as you don’t surrender funds too early, this will always be the case. So, if you don’t want to pay upfront taxes on gains, a gold IRA can be a great way to get some extra tax benefits in.
Keep in mind that you don’t need to rollover your entire 401k either. Even if you just want to get some of it in another account, a gold IRA can be a great way to add diversity and mitigate risk.
Is A Gold IRA Right For You?
I know that I went over a lot, but I want to make sure that you have a good place to start. Rolling over money from your retirement is no easy thing to do, and requires clever and precise moves. So, before you do anything, always be sure to do the research.
As always, if you feel a bit lost or confused, please feel free to refer back to this article as a guide. I want to make sure you’re well informed, so there is no shame in taking another glance at what I’ve gone over.
A gold IRA has a lot of great benefits that you can take advantage of. You get all of the same protection that a traditional IRA, but you have a bit more control over the account. Plus, if you want to make sure your investments never tank before retirement, a gold IRA is a great way to accomplish this.
Now, I can’t sit here and tell you that a 401k to gold IRA Rollover is right for you. That’s something you can only decide yourself, but I would always recommend looking into one. Holding physical gold and silver is a great way to protect yourself and your money, and it even makes it easy to pass wealth through generations as well. If you don’t believe me, believe the ultra wealthy people, like the Rothschilds, that have a significant amount of wealth invested in gold.
Now that you know the facts, do you think a 401k to gold IRA rollover is right for you?
The owners of this website may be paid to recommend Goldco Direct. The content on this website, including any positive reviews of Goldco Direct and other reviews, may not be neutral or independent.
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Frequently Asked Questions
Can my IRA hold anything other than gold?
Yes. Your new precious metals IRA is self-directed, and you have the authority to invest into any assets that you want. You don’t have to just allocate your funds to gold and other precious metals, you can also put them into stocks, cash accounts, mutual funds, and more. There are also other gold related investment products that you can invest your funds into.
Can my existing IRA be rolled over?
Yes, funds from an existing IRA can be rolled over to a precious metals IRA and you can do this as often as you want without having to pay penalties or taxes. You will simply need to set up the new IRA and then authorize the transfer of funds. Typically, the custodian of your new IRA will handle this and will work with your existing custodian to work out the transfer of the funds. IRA rollovers are subject to time limits and other restrictions and you may have to report it to the IRS. In order to avoid complications, be sure to get tax advice before you start the rollover process. Also, you can invest in gold with your 401(k).
What is the difference between a traditional a self-directed IRA?
A traditional IRA is controlled by a custodian or trustee. You must allow them to direct your funds into investments that they deem to be worthy. A self-directed IRA is where you get to choose where your funds are invested. You don’t have to follow the decisions of a custodian or trustee. The main benefit of the self-directed IRA is that you get to choose from stocks, bonds, precious metals, mutual funds, CDs, or other IRA-compliant investments.
How can I invest my IRAs into precious metals?
As long as your IRA is self-directed, you can simply direct some of your funds into precious metals. Most commonly, you can invest in palladium, platinum, silver, or gold. However, you must know that any precious metal, whether it be in coin or bullion form, must meet certain requirements of purity and refinement.
Can my existing IRAs be used to invest in precious metals?
Typically, yes. However, the final decision is left to your current custodian or trustee.
Is it OK to have more than one IRA?
Yes. There is no limit on how many IRAs you can have at once, but there are limitations on the total amount you can invest annually into IRAs. In December 2011, if you were under 50, you can contribute up to $5,000 per year in all IRAs. If you were over 50, you can invest up to $6,000 per year.
What is an IRA?
An IRA, or Individual Retirement Account, is a savings plan for your retirement that has been designed specifically to provide tax advantages to individual investors such as tax-free or at least tax-deferred growth of earnings. There are several different types or IRA accounts- all of which have different rules that govern the mimimum withdrawal age, annual limits on contributions, and others. Most commonly, IRAs are used to supplement an employer’s 401(k) account and typically will be the majority of your investment portfolio.