Home » The 401k to Gold IRA Rollover Guide: How to Secure Your Retirement with Gold

The 401k to Gold IRA Rollover Guide: How to Secure Your Retirement with Gold

A gold-backed IRA sounds like an oxymoron, right? After all, the Internal Revenue Service prohibits the use of gold or other commodities in Individual Retirement Accounts (IRAs). But thanks to the U.S. Gold Bureau’s 401k to Gold IRA Rollover service, you can do just that—the IRS doesn’t have a problem with it! Here are the details about how to make your gold-backed IRA happen.

What is a 401k

A 401(k) is a retirement savings plan, usually offered by employers. Workers contribute a portion of their income on a pre-tax basis and make investment decisions for that money, deferring taxes until withdrawal. It’s often paired with an employer match of 50 cents on every dollar contributed up to 6 percent of pay. The maximum yearly contribution in 2018 was $18,500 or $24,500 if you’re over age 50. Employers can also fund other types of accounts like IRAs or Roth IRAs—see our guide to find out which one makes more sense for you.

A gold-backed Individual Retirement Account (IRA) is a type of retirement account in which your investments are stored in physical gold. With a traditional IRA, you can invest up to $5,500 per year ($6,500 if you’re age 50 or older). If you want to go all out and invest more than that—or if you have a side business or freelance income where you don’t get an employer-sponsored plan—the most common option is to convert your existing traditional IRA into a Roth. This will mean paying tax on any money withdrawn after age 591⁄2 but before age 701⁄2, but it’s still an excellent way to diversify and secure your retirement fund.

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What is a Rollover IRA

A rollover IRA is a self-directed Individual Retirement Account. In short, it’s your account—and you can invest in whatever you like within it. An IRA gold rollover makes good sense for a number of reasons—in an uncertain economy, gold offers security, stability and growth. The trick is to do things right, which means using a reputable company that has both experience and integrity. You can’t assume that physical gold investment companies are all trustworthy—you have to choose wisely if you want secure and long-term retirement planning options.

A rollover IRA is a traditional IRA that you’ve moved over into a self-directed account, which means you can now buy whatever investments you like. If you already have a retirement account and you want to know how to transfer it into a gold one, follow these steps. First, contact your current financial institution or brokerage and tell them what you want—they may charge an administrative fee for doing so, so be prepared for that. Then open an account with a company that will make your rollover happen—this could take some time (upwards of several weeks), depending on your current provider’s cooperation levels. Lastly, ask your new provider how much gold costs per ounce and whether they offer any special rates on physical bullion.

Buyer Beware! Gold IRAs are Unregulated!

Why Switch from a 401K to an IRA?

If you’re unfamiliar, an Individual Retirement Account (IRA) is a tax-deferred retirement account. This means that you won’t pay taxes on any of your investment earnings until you withdraw them. In other words, if you invest $10,000 in gold today and it earns 15% interest over a year, by April 15th of next year, your account would hold $11,500 worth of gold; after 30 years of compounding growth at a similar rate, your investment would be worth more than half a million dollars! Further, owning physical gold is one way to diversify your portfolio and hedge against economic instability and inflation. As such – when deciding what to invest in – diversification should be a key consideration.

The first thing you should know is that – unlike a 401K plan – an Individual Retirement Account (IRA) allows you to invest in more than just stocks, bonds and mutual funds. This includes precious metals like gold, silver and platinum! However, there are only a few kinds of IRAs that allow you to own physical precious metals. One kind of IRA is a self-directed IRA. With these types of IRAs, clients can invest in anything they want… as long as it’s permitted by law. You can buy gold, silver or other physical precious metals for your self-directed IRA through a secure online or retail purchase.

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When Can I do This?

Generally, you can start your rollover process at any time. The IRS only requires that you complete your rollover within 60 days of receiving a distribution. But there are no penalties if you have not completed it by then. Just be sure to set a date and stick to it. Also, in order for your roll over from traditional IRA to gold IRA company, make sure you check which type of retirement account has been funded—for example, traditional IRAs come with tax advantages but also disadvantageous tax penalties for early withdrawals (before age 59 1/2). By contrast, Roth IRAs allow for penalty-free access to funds upon retirement but do not offer tax deductions upfront.

The first step in converting your traditional or Roth IRA funds into gold is opening a precious metals account at an approved depository or custodian. If you have any doubts about whether your retirement account provider is on that list, you can always confirm it by contacting IRS directly. Currently, there are more than 20 precious metals IRAs registered with NTRCA, which is updated weekly and contains contact information for those providers. Depending on what products are offered by your precious metals company of choice—and where they come from—you will be required to set up a Self-Directed IRA (SDIRA) and transfer funds either personally or through an intermediary like Goldco Precious Metals LLC.

Must I pay taxes when I Switch?

One of the biggest problems when you convert your traditional IRAs and pension plans into gold is taxes. This doesn’t mean, however, that you can’t make a gold investment from your retirement plan. There are ways in which you can sell certain types of investments tax-free. For example, when you convert your existing retirement funds into gold-backed IRAs, it may be possible for you to avoid paying capital gains taxes on up to $250,000 per individual or $500,000 per couple. (These amounts will change in 2016.) However, it is still necessary for people over age 59 1⁄2 years old to pay ordinary income tax on at least part of their conversion amount.

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If you want to avoid paying taxes when you convert your traditional IRAs and pension plans into gold, it’s also possible for you to qualify for rollover treatment. This allows you to exchange securities for physical precious metals without having any immediate tax consequences. The investment exchanges must be made within a specific time period, generally between 60 and 90 days from your purchase date, although there are various other restrictions that apply as well. If you hold a variety of different assets in your IRA or plan—including mutual funds, stocks or bonds—it’s a good idea to check with your broker or financial planner before choosing which asset class(es) will be included in your conversion.

What Happens if I Never Take Any Distributions?

The biggest mistake investors make is withdrawing money from their retirement accounts. Under current tax law, you don’t have to take a distribution at all if you want. However, if you do take distributions before age 59 1/2 and are not yet vested in your employer’s plan, then all of those distributions will be taxed as ordinary income at your marginal rate – plus a 10% penalty for early withdrawal . That’s on top of having already reduced your savings by whatever amount was withdrawn. The bottom line is that it doesn’t pay to spend money that you haven’t yet earned—no matter how great an investment opportunity might look!

Distributions can be tempting when market volatility produces losses. In these times, investors often feel more comfortable holding cash than investing in stocks and bonds, especially if they have an overall bearish outlook. But as tempting as it may be to pull out your money when stocks are down, taking distributions when your portfolio is in a loss position will only compound your problem by further reducing your savings. In order to rebuild your account balance, you’ll need those dividends and capital gains in the future! That’s why making any withdrawals during bear markets is a losing proposition. Wait until you’re fully vested – at least age 59 1/2 – before making a withdrawal from a tax-deferred account. And remember that regular contributions must continue even while waiting for vesting.

Where do I Store My Precious Metals in a Self-Directed Account?

When you open a self-directed account, you’ll be able to decide where your precious metals are stored. Whether you want to store them in a safety deposit box or online vault service, it’s up to you. Many financial institutions will require that your holdings are secured within their own vaults for safekeeping. You can always buy gold and keep it in your home if that makes you feel better about security. Just remember that precious metals purchased through a 401k rollover qualify as collectibles under Internal Revenue Service (IRS) regulations, which means any capital gains on sale would be taxed at 28 percent, instead of 15 percent long-term capital gains tax.

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If you decide to sell your gold holdings, there are two common options: physical delivery and a cash-out sale. Physical delivery is exactly what it sounds like—your gold is physically moved from its current storage location to a new one. If you select physical delivery, there’s no need for any additional paperwork—simply transfer ownership of your metal and store it in a new place. Selling using cash-out means that instead of physically moving your gold from its current location, your financial institution buys it from you for an agreed upon price based on market value at the time of purchase. You may be able to get higher proceeds by taking physical delivery and then selling or donating your gold piece by piece instead of immediately liquidating everything all at once.

Is There Anything Else to Consider About this Transfer?

If you’re transferring funds from your 401(k) or other traditional retirement plan, you’ll want to be sure that you aren’t subjecting yourself to a 10% early withdrawal penalty. You can avoid it by rolling over $100,000 at a time; if all goes according to plan, you shouldn’t have any cash in your account. Alternatively, you can use an in-kind rollover; IRS rules state that if you do that and don’t also take cash out of your plan (via a loan or distribution), there is no 10% penalty. The caveat is that many banks and brokerage firms are only able to process in-kind rollovers from certain plans—not all plans qualify. The good news?

If you want gold as part of your portfolio, you’ll want a diversified approach that keeps costs down and maximizes returns. Depending on how much money you have in your retirement plan, chances are there will be substantial costs associated with selling off those assets. Instead of selling them one by one, explore buying metals through a gold IRA company or another online seller; their buying power can reduce transaction costs while helping you get started. If you don’t mind taking more risk—and are willing to take on more volatile prices—investing in shares of mining companies is another route; it requires paying attention to each company’s earnings and news about its activities, but long-term growth is possible if demand for physical metals rises.

Buyer Beware! Gold IRAs are Unregulated!