In our present economic climate, many investors want to know how to move a 401k to gold without a penalty. The best way to make sure you’re following the proper IRS rules and procedures is to use a trustworthy, experienced gold IRA specialist. Below are our top two recommended companies:
How to Transfer 401k to Gold IRA
One great way to safeguard your wealth is to transfer a traditional 401k to a Gold IRA.
Although a lot of investors are interested in preserving their wealth by converting some of their 401(k) for gold, nobody wants to pay penalties for doing this. It’s important to follow the correct procedures to transfer your capital and convert it without paying a penalty before you start buying gold or silver using your 401(k) funds.
Goldco is a top company for investing in precious metals. They offer low fees and excellent customer service and have a lot of great customer reviews. They score 4.9/5 on TrustPilot and have an A+ rating with the Better Business Bureau.
Augusta Precious Metals is also a wise choice. They also have low fees and are highly trusted. Augusta offer customer education and don’t use high-pressure sales tactics. They have an overall rating of 4.8/5 and an A+ rating with the Better Business Bureau.
401k to Gold IRA Rollover
You need to do a 401(k) to gold IRA rollover in order to transfer your 401(k) to an IRA backed by gold. Not many 401(k) plans allow you to invest in precious metals such as gold. If yours does not, you will have to invest in a reputable gold IRA or self-directed/solo IRA by rolling over your 401(k).
The process of rolling over a 401(k) plan to a Roth or traditional IRA isn’t difficult. Many investors choose to do this when leaving a former employer because they prefer to keep all their retirement savings in the same place.
Another reason to invest in precious metals is to diversify your retirement savings and it’s a wise choice to invest in assets not closely tied to the economy so their value should stay stable regardless of what happens economically. If this is your concern, a 401(k) to gold IRA rollover might be the best solution for you. An experienced gold IRA advisor will be able to offer guidance and design a retirement plan to suit your goals and requirements.
Convert a 401k to Precious Metals With These Steps
The steps associated with converting your 401k into precious metals include buying and selling the metals and completing the relevant paperwork. You will be able to convert your 401(k) using a hassle-free, smooth transfer using an experienced advisor who will be able to assist you every step of the way, handling storage facility paperwork, custodian paperwork, and so on.
So if rolling over your savings into gold sounds good to you, these are the steps you will need to take:
- Find an experienced gold IRA provider to assist you, providing you with precious metals investing information and helping you to navigate the various resources to open a gold IRA.
- Next choose your self-directed custodian who will oversee your gold IRA account.
- Open a new account with the custodian so the gold can be bought and kept somewhere secure and safe.
- Process the fund rollover from your account to the new gold IRA account so the custodian and provider can get the gold on your behalf.
A professional IRA provider will make the process relatively quick and easy for you.
Is Moving a 401(k) to a Gold-Backed IRA a Good Idea?
The economy has been turbulent lately and this trend is likely to continue. Gold has held its value throughout history and can be used as a solid hedge against financial disaster and runaway inflation. As the dollar seems to lose value every day, it’s no surprise so many Americans approaching retirement are concerned about their assets losing value as time goes on.
Investing in gold is about taking action to safeguard your hard-earned money with an investment backed by actual physical gold instead of the ever-changing dollar. It’s simple to move a 401(k) into a gold backed IRA and, when done properly, means no penalties are due and no tax either.
Silver and gold were added to the Taxpayer Relief Act of 1997 as assets that a self-directed IRA could hold. Palladium and platinum were added in 1998. You can invest in any of these four precious metals or even a mixture of each in a self-directed IRA.
If you are no longer employed by the company you have the 401(k) with, you can roll them over into a self-directed IRA, then use them to purchase precious metals.
If you are still employed by the company though, you might still be able to free the monies up to invest in a gold-baked IRA using a process called ‘in-service distribution’. This isn’t a loan – it’s a distribution of the funds which are rolled into the self-directed IRA. Such a rollover happening within 60 days doesn’t incur any tax penalties. Not all plans have the same rules though so it’s best to ask the 401(k) provider whether your plan allows for this. If so, they can assist you with the transfer process.
Goldco Precious Metals and Augusta Precious Metals both offer a free gold ira rollover guide, click one or both of them below to get the guide, and if you want to talk to them about your specific situation, they would be happy to speak with you.
Click below to get the Goldco Precious Metals gold IRA guide or speak to one of their IRA professionals:
Click below to get the Augusta Precious Metals gold IRA guide or speak to one of their IRA professionals:
Rollover of a Self-Directed Gold IRA
If your 401(k) doesn’t include the type of free access to investing in gold meeting your investment goals, you can opt out of the 401(k) and put the funds into a self-directed gold IRA. Doing it this way will give you access to nearly any kind of gold investment and that includes mutual funds, ETFs, stocks, and commodity futures.
Gold IRAs, or precious metals IRAs, is a kind of individual retirement account which allows investors to add gold coins or bullion or other precious metals that are approved.
If somebody who has a 401(k) retires or leaves their job for another reason, they can just roll the money from the 401(k) into a gold IRA. If their 401(k) is with a current employer though, the employee should ask the employer if he is allowed to take an ‘in-service withdrawal’ which means getting access to the funds before retirement or before leaving the company for another reason.
So long as the employee reinvests those funds in another 401(k) plan or in an IRA within 60 days, no tax penalty is incurred. Traditional IRAs don’t typically allow physical gold investments though and limit the investor to gold stocks or funds only. However, if you do want to keep physical gold not ‘paper gold’ then a self-directed IRA lets you do that. To convert a 401(k) plan into another 401(k) or into gold, this is what you should do:
- Choose what type of new account to get
- Open the account
- Discuss doing a direct rollover with your previous 401(k) plan agent
- Choose your new investments
We can take a closer look at each of those four steps.
Choosing Your New Account
More investment options will be opened to you if you decide to do a 401(k) rollover and you can often find ways to save on fees too, which is good because employer plans usually come with high fees. This means switching plans can leave you better off.
Roth IRA: Rolling over into a Roth IRA means you will have to pay taxes on the funds transferred. This type of IRA lets you make withdrawals without having to pay tax but your contributions will be taxed.
Traditional 401(k): Rolling over into a traditional 401(k) means you won’t have to pay any taxes on your rollover so long as the transfer is completed in 60 days maximum.
Traditional IRA: Traditional IRAs are like traditional 401(k)s in that they are a retirement option with deferred tax.
The government permits you to have more than one 401(k) and/or IRA, which is advantageous because it means you can create a solo 401(k) or a self-directed one for gold or other precious metals. The trustee is then the custodian of the physical gold and also your broker.
You can buy or sell gold when using a 401(k) or gold IRA if you follow some specific government rules. You can’t physically hold the gold yourself if using a self-directed 401(k) plan or gold IRA.
A solo 401(k) and self-directed IRA are more or less the same thing. However, you can contribute more money every year with a 401(k) than a self-directed IRA. Apart from that they have similar benefits and rules.
Opening Your New Account
It’s quickest to set up a new account online and a lot of people easily set up their new IRA with an online broker or a robo-advisor. You can even use the robo-advisor to invest in a balanced portfolio for you if you prefer not to pick out your own investments.
An online broker gives you even more control over the investments you make. You will be able to pick which ones to buy and you can mix and match as you choose. It’s a good idea to find a provider that doesn’t charge high fees since commission costs and fees add up fast. Also, make sure you select a provider who specializes in precious metals.
Discussing a Direct Rollover with Your 401(k) Plan Provider
Something else you need to do is talk to your previous 401(k) provider about rolling over your funds. We recommend doing this early since your provider might slow everything down, not wanting to lose you as their client. Always ask them to do a direct rollover since this means the check doesn’t go to you but into your new account.
This is very important: when the funds leave your previous account they have to arrive in the new account within sixty days, else you will have to pay penalties and taxes and these can be costly. Complete the rollover as soon as you can to be sure of avoiding penalties.
Most providers will ask you to complete several forms if you plan on a direct rollover, although processes can vary between providers. You will need to contact your former employer’s plan’s administrator to ask how to do this. They will send a wire transfer or check to your new account after receiving your paperwork.
It’s also possible to do an indirect rollover but it’s not quite as straightforward. When using an indirect rollover the money goes into your account and you then have to send it into your IRA and make sure it’s there within sixty days.
If you go for an indirect rollover you risk making your taxes more complicated. You might have to pay penalties and income tax on the rollover if you fail to complete it in time. A lot of providers will keep 20% of the withdrawal as a tax payment and because you have to transfer the whole amount into the new account you’d have to make up the different using your personal account.
Choosing the New Investments
After finishing your indirect or direct rollover you can decide how to use the money. Perhaps you want to invest in index mutual funds or maybe you prefer to invest in physical gold. You can help protect your portfolio from market fluctuations by diversifying your holdings.
It’s also a good idea to be aware of some disadvantages when investing in gold bullion or coinage. For example, you might have to pay fees to store the gold or broker commissions. If you choose to diversify your portfolio you can use other techniques to invest in gold too.
Gold futures and options: These contracts serve as a type of agreement that you will purchase or sell gold at a specific price in the future. These contracts are firmly regulated by the federal government because they are traded on commodity exchanges.
Stocks in gold mining: Another option is investing in the stock of a gold mining and/or refining company. Always check the company out thoroughly before doing this to make sure they have financial stability. It’s also possible (and less risky) to buy shares in mutual funds which invest in gold mining so you’re going through a third party who will have done the research for you.
Gold ETFs, or exchange-traded funds: These are a combination of various assets, so a gold ETF might include gold options, actual physical gold and gold futures, for example. Mutual funds can’t be exchanged before the market closes for the day but ETFs can be traded at any time.
Forms of Gold Permitted by the IRS
As per US Code 408 with regard to individual retirement accounts, you are only allowed specific forms of gold. The guidelines include the following:
- Gold coins, bars and rounds must be 99.5% pure
- Numismatic coins are not permitted
- Some non-US Gold coins with 99.5% purity are eligible
- Fractional ownership of bars or coins is not permitted
- Gold coins in one, one-half, one-quarter and one-tenth ounce sizes are allowed
- Gold is to be sourced from an approved refiner or national government mint
IRS Requirements
There are penalties for those who don’t follow the regulations for their retirement account type. An account transfer must be transferred within 60 days. Any money which hasn’t completed the transfer into another retirement account approved by the IRS gets treated like regular income at the current tax rate. Plus, anyone under 59.5 years of age is subject to a 10% fee on early withdrawals on any distributed fees.
The only way to transfer your 401(k) without having to pay a penalty is to make sure it’s completed within 60 days. A better option still would be doing a 401(k) rollover into a precious metals IRA, since rolling over in this way makes triggering the IRS’s 60-day rule impossible.
IRS Storage Requirements for Gold IRAs
All gold which is held in an IRA account has to be stored with a US bank or else another IRS-approved financial institution that isn’t a bank. You aren’t permitted to take physical possession of IRA-owned precious metals meaning you can’t keep the actual metals at home, at work or in any kind of storage facility or personal lockup.
According to the Internal Revenue Code’s section 308(m), precious metals such as gold must be stored in specific ways. The rules state that precious metals in an IRA have to be in the physical possession of an IRS approved depository (not a bank) or financial institution.
So basically you won’t be able to take physical possession of any precious metals you buy with an IRA. Instead it must be held by a third-party custodian in a self-directed IRA.
An investor’s precious metals will be held by a custodian in his name just like how a broker-dealer would hold an investor’s mutual fund investments or shares.
Gold IRA companies have set up relationships with various depository facilities approved by the IRS to hold precious metals. Once an investor has set up a gold IRA account, he can pick which depository he wants to use as the gold IRA custodian.
401(k) Rollovers into Gold: Some FAQs
It would be a mistake to take switching to another retirement plan lightly. However, the good news is it’s quick and easy to convert the funds to a gold IRA. These are some of the most commonly asked questions about the process:
Q: Can I invest a 401(k) in gold?
You can, but read this guide thoroughly before you get started and make sure you are using a reputable company.
Q: Will I have to pay any tax if I roll over a 401(k) to a gold IRA?
You can perform a 401(k) rollover without paying taxes or penalties, the exception being if you don’t follow the process properly.
Q: Can I buy gold without paying tax?
Traditional 401(k) plans and IRAs are tax-deferred accounts meaning there is no tax to pay on investments or contributions. The only tax you will pay is for withdrawals when you finally do withdraw the funds. Those who purchase gold for the sake of it do have to pay taxes if they aren’t buying it via a 401(k) rollover.
Q: Is it possible to purchase physical gold using my 401(k)?
Yes you can purchase actual gold with a 401(k) plan but this can be complicated because your IRA can’t act as both seller and holder of the gold. Precious metals companies and banks must store physical precious metals with a third party because you aren’t allowed to hold on to your own.
Your 410(k) plan will only be able to hold actual gold if somebody else is responsible for its storage. You can always access it but you can’t keep it with you for various security reasons.
Q: Do I have to pay tax on an IRA rollover?
If performed properly, the money will keep its tax-deferred status during the rollover and there won’t be any taxes or penalties to pay. According to the clear IRS terms, you will have to pay a penalty if the rollover takes more than 60 days to complete.
There is also a 10% penalty plus a tax bill if you withdraw early (before you are 59.5 years of age). You can avoid that though as long as you complete the whole transfer process within 60 day.
If you’re opting for an indirect rollover you can only skin the penalties if you are 59.5 years of age or older and if the new account is also a tax-deferred plan.
In Conclusion
Rolling over your 401(k) plan into a gold IRA is a good move for those who want to safeguard their hard-earned money after retirement. Moving an eligible 401(k) to gold with no penalties is fairly simple. Buying physical precious metals with tax-advantaged funds offers protection from future inflation or economic turmoil which could result if current geopolitics continue their instability.
Throughout history gold and other precious metals have been seen to increase in value or at least hold on to their value while other types of assets lose theirs, thus providing the type of portfolio balance that will help you safeguard your savings in the long term.
Now is a great time to get at least some money out of the unstable markets and into gold. Both companies that we recommend (Goldco Precious Metals, Augusta Precious Metals) can show you how to move your 401k to gold without incurring a penalty.
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