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No matter how good the economy gets, there are still some unfortunate truths that always seem to be true no matter what year it is. For example, you can’t live on your retirement savings alone if you want to maintain the same standard of living you enjoyed during your working years. The biggest problem with this situation is that most 401k plans don’t offer any investment opportunities outside of stocks and bonds (which, by the way, make up about 70% of most 401k portfolios). If the market takes a dive—as it always does at some point—you could be facing some very bleak years in retirement.
Why Would I Want To Do This?
There are four main reasons people want to convert their retirement accounts to gold: protection against inflation, security in times of uncertainty, diversification and direct control. Each of these reasons is legitimate but it’s important that you understand how they work and if they are right for you. Inflation: All things equal, more dollars means less value over time. This is called inflation; we all expect it and prepare for it by having insurance policies (health, car), savings plans (retirement) and emergency funds.
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Gold holds its value over time. Storing your assets in gold is therefore one way of hedging against inflation as you know that you can always convert back at a later date, regardless of what happens to your purchasing power. There are other ways of mitigating inflation and they all have their own merits. However, if you want total security against rising prices then converting your retirement accounts makes sense.
How Does it Work?
If you’re looking for an alternative investment option, check out a gold IRA. A gold-based retirement account isn’t right for everyone, but it can offer certain advantages over a traditional 401(k) or other types of accounts. In particular, it provides greater protection against inflation and will generally maintain its value in times of market uncertainty. A gold-based account is also less vulnerable to government intervention than other types of retirement plans. Make sure you do your research before committing to any specific plan though; not all gold IRAs are created equal.
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Investing in gold through an IRA account is simple and straightforward. Just find a reputable broker or financial adviser who offers gold IRAs and follow their steps for opening an account. They’ll usually need you to create a custodial account and transfer your existing retirement plan into it, but most of them have online applications that make it easy. You may also need to file some paperwork with IRS (typically Form 8606), but don’t worry; they provide clear instructions on how to complete everything. If you already have an existing self-directed retirement plan, then you can generally just roll it over into one of these accounts as well.
What are the Tax Implications?
As with most tax questions, it’s best to consult an accountant when making major decisions that could affect your taxes. But at first glance, there’s nothing too shocking about converting a retirement account like a 401(k) or 403(b) into one of these gold IRAs. The IRS does require you to report any withdrawals from an account in addition to any other income, so be sure you consider these factors before converting your traditional accounts into precious metals IRAs. If you think it makes sense for your financial plan and goals, go for it! After all, gold isn’t going anywhere…except up!
Are you exempt from paying taxes on income or capital gains due to low income levels? If so, you may still be required to pay taxes on any money you withdraw from these accounts. However, depending on how much of your current income is exempted (or how long you’ve held an account for), it could be worth converting. In particular, if interest rates are low and gold prices are high, converting a retirement account like a 401(k) or 403(b) into one of these gold IRAs might help boost your savings while deferring taxation until retirement. This is because distributions from traditional IRAs and employer-sponsored plans are taxed at ordinary income tax rates if they occur before age 591⁄2 and then subject to additional 10% early withdrawal penalties.
Can I Make Money?
There are many people who want to know if they can make money in today’s market with precious metals. The real question is how much risk you’re willing to take and what your investment strategy will be. If you’re seeking safety, then investing in precious metals might not be for you – instead consider bonds, savings accounts or even cash as options. If you’re willing to take more risk (which means possible higher returns), then precious metals could fit well within your portfolio. Making sure that these investments are held in an Individual Retirement Account (IRA) is important because it gives investors additional tax advantages and prevents them from having to pay taxes immediately on their profits should they decide to sell their holdings and withdraw funds before retirement age.
In 2015, gold was one of the most profitable investments you could make. For example, if you had purchased $1000 worth of gold at $1,000 per ounce and sold it at its peak price in November 2015 of $1,277 per ounce, you would have turned your original investment into approximately $2245 – an 81% return on your investment (excluding fees). Investing in precious metals is risky and can be confusing as they are not considered to be traditional assets like stocks or bonds. Still, precious metals have played an important role throughout history and appear poised for even more growth going forward.
Which Type of Gold Account Is Best For Me?
There are several types of gold accounts for retirement investors. The first is an Individual Retirement Account (IRA). These can be self-directed IRAs or limited-purpose IRAs. Self-directed IRAs give investors more flexibility, but all that extra freedom comes with added responsibility. A self-directed IRA allows you to buy and sell different investment products, from precious metals such as gold and silver bullion and coins, to stocks, bonds and mutual funds. Limited purpose IRAs focus on real estate, savings bonds or life insurance policies. Depending on your investments now and your financial goals in retirement, one account type may make more sense than another. If you want to keep things simple, start with a self-directed gold IRA account today!
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A gold ETF is a type of self-directed retirement account that invests in physical gold bullion. This allows you to diversify your portfolio and take advantage of potential appreciation in precious metals as well as downside protection if gold prices fall. Generally, these accounts are set up as an individual retirement account or Roth IRA, but some brokerage firms also offer them for business accounts. The most popular ones are SPDR Gold Shares (GLD) and iShares Comex Gold Trust (IAU). They’re available through many brokers, including Fidelity Investments and TD Ameritrade.
What Is the Cost?
Moving money from your 401(k) into a traditional or Roth IRA can be an excellent way to save for retirement. With either type of account, you’ll have an unlimited amount of time—and potentially thousands of dollars—to grow your savings tax-free. The main difference between IRAs and a 401(k) is that with an IRA, you have to pay taxes on any money withdrawn before age 59 1⁄2. However, if you convert your existing traditional or Roth IRA into one that holds gold instead of cash, you could avoid any future taxes by holding off on making withdrawals until after age 59 1⁄2.
As of June 2017, there are no limits on how much you can convert from your existing 401(k) into a gold IRA. However, IRS rules do place strict limits on what you can contribute to your regular or Roth IRAs each year. If you’re younger than 50, for example, your 2017 contribution limit is $5,500 if you earn less than $131,000 per year and $6,500 if you earn more. If you’re over 50 but younger than 70 1⁄2, your yearly limit rises to $6,500 as well.
In addition, you may have to pay a penalty if you start making withdrawals from your account before age 59 1⁄2. For example, if you’re under 59 1⁄2 and take out more than $10,000 in one year—or make several smaller withdrawals over two years—you could owe an additional 10 percent fee on top of any taxes due. Withdrawals above $100,000 will also incur an additional IRS tax of 3 percent as well. So if your conversion amount happens to be right at either threshold—like $100,000 exactly or $99,999 and change—it may be better to wait until after age 59 1⁄2 to make your first withdrawal.
Where Do I Go Next?
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The IRS puts strict limits on what you can invest in when it comes to your Individual Retirement Account (IRA). If you’re 50 or older, then you can put up to $1,000 into collectibles. That includes things like artwork, rugs and—gold coins. As of 2013, gold-backed IRAs were still considered collectibles under IRS guidelines; however, one firm is challenging that classification by suing the federal government.
If your reason for wanting to convert your 401(k) is because you want more investment options, then a gold-backed IRA might be for you. The upside of converting is that it allows you to invest in gold without having to find an outside custodian. However, if you don’t take additional steps, any profits you make will have their taxes assessed as capital gains, which means they’ll be taxed at 20% rather than at your regular income tax rate. In addition, collectibles are treated as property by the IRS and therefore have no contribution limits like traditional IRAs.
Whether or not you should convert your 401(k) depends on your own personal circumstances. If you’re already holding a lot of gold, then it might make sense because it could diversify your holdings and may even come with lower capital gains taxes than what you’d pay on profits from outside of an IRA. On the other hand, if you don’t have much exposure to gold and want more investment options, then it may not be worth the hassle. So before making any decisions, be sure to take into account all of your available options.