Does gold play a part in your retirement portfolio? Many Americans are considering adding gold to diversify investments and take advantage of every opportunity available.
According to a 2024 Gallup poll, nearly one-fifth of Americans believe gold is the best long-term investment, behind only real estate (36%) and stocks or mutual funds (22%). This places it ahead of other investment options, like saving accounts or CDs (13%), bonds (4%), and cryptocurrency (3%).
Executing a 401(k) to gold IRA rollover is a simple way to make gold a bigger part of a long-term investment strategy. This process involves taking a 401(k) plan you’ve been using to save for retirement and transforming it into a gold IRA. You can use this self-directed IRA to invest in gold as well as other IRS-approved precious metals, such as silver, platinum, and palladium.
However, gold, in particular, can provide many investment benefits, including stability, liquidity, and protection against economic uncertainty. Learn everything you need to know about 401(k) to gold IRA rollovers below.
Gold IRA Rollover vs. Gold IRA Transfer: What Are the Differences?
A gold IRA rollover and a gold IRA transfer might sound like one and the same. Some new investors might even make the mistake of using these terms interchangeably, but there are distinct differences between the two.
A gold IRA transfer occurs when you already have a gold IRA and move the assets stored in it from one custodian to another. You won’t need to notify the Internal Revenue Service or any other IRS agencies when you complete a gold IRA transfer; you also won’t need to pay taxes when you do it. Additionally, you may trigger as many gold IRA transfers each year as you would like.
A gold IRA rollover, on the other hand, occurs when you have a retirement plan, such as a 401(k), set up, and you ask its administrator to distribute the assets to a new custodian so you can adjust your entire investment strategy. It differs from a gold IRA rollover in these ways:
- You must report a 401(k) to gold IRA rollover to the IRS.
- You may face taxes and penalties after completing a rollover.
- You can only complete one rollover per year.
These differences might scare off some people. However, gold may provide much-needed retirement portfolio diversification and serve as an inflation hedge.
Important IRS Rules for Gold IRA Rollovers
While executing a 401(k) to gold IRA rollover may work wonders for your retirement portfolio, it can also cause complications if you aren’t careful. Ensure you abide by the rules the IRS has put in place for gold IRA rollovers.
For starters, Americans have the option to carry out direct and indirect rollovers. Direct rollovers involve moving retirement funds from one account to another without withdrawing assets. This should make a rollover simple and minimize tax implications and penalties.
Indirect rollovers are slightly more complicated, as they involve withdrawing funds from one account and depositing them into a new account later. This could subject you to IRS taxes and penalties. The IRS will also provide just 60 days to complete an indirect rollover before imposing taxes and a 10% penalty on the funds you withdrew from a 401(k).
Here are other noteworthy IRS rules for gold IRA rollovers:
- You must report a 401(k) to gold IRA rollover to the IRS.
- You can only complete one rollover each year.
- You need to keep gold that is at least 99.5% pure in a gold IRA.
The IRS does not allow Americans to physically possess the gold kept in a gold IRA. Instead, they are required to choose a reputable custodian and depository services to store the gold.
The IRS also imposes contribution limits and regulations on gold IRAs, just like traditional IRAs. Americans can only contribute $7,000 per year to a gold IRA or $8,000 if they’re 50 or older.
Costly IRS Penalties for Late Rollovers
If you’re going to execute a 401(k) to gold IRA rollover, choosing to do a direct rollover is often the right option as you may be able to avoid potential IRS penalties.
If, however, you decide to do an indirect rollover, aim to avoid costly IRS penalties by acting fast when it comes to funding a gold IRA with assets from a 401(k). Fund this gold IRA with these assets within 60 days to steer clear of the 10% early withdrawal tax you will face if you don’t meet this deadline.
Can You Complete a 401(k) to Gold IRA Rollover If You’re Currently Employed?
An alarming 2023 survey found that almost half of Americans cash out their 401(k) funds when changing jobs, even though this comes with IRS taxes and penalties. Many end up losing significant percentages of their retirement funds.
When leaving a job, this could be a wonderful time to give thought to executing a 401(k) to gold IRA rollover. However, keep in mind that you don’t necessarily have to be leaving a job to set up a gold IRA rollover. You may still have the option to complete a rollover even if you have no plans to leave your current employer.
To do this, one must be at least 59.5 years old with an active 401(k) that allows for in-service distributions. Not all employer-sponsored 401(k) plans will let someone do this. Check with your employer to see whether it’s possible.
You may also execute a rollover in one of the following scenarios:
- You have an old 401(k) with a former employer.
- You have an inactive or eligible 401(k) with your current employer.
Speak with whoever is in charge of choosing retirement plans for your employer about rolling a 401(k) into a gold IRA. They can inform you as to whether or not your current 401(k) plan allows it.
Picking the Right Custodian for Your Gold IRA
As per IRS rules, Americans can’t legally store gold that is part of a gold IRA in their home. Keeping this gold at home or storing it in a safe deposit box would technically turn it into a distribution that the IRS would tax accordingly.
You will need to pick the right custodian for your gold IRA. This custodian will be responsible for storing your gold and other precious metal investments.
There are plenty of custodians you can choose from for your gold IRA. Be sure to choose an IRS-approved depository.
Remember the following factors as you search for the right custodian for a gold IRA:
- Fees
- Reputation
- Customer service
Look for a custodian for a gold IRA who is experienced in handling precious metals.
Step-by-Step Process for Completing a Gold IRA Rollover
Have you decided that executing a 401(k) to gold IRA rollover is the right move to make? You’ll be happy to hear that, as long as you’re eligible to do it, completing a rollover shouldn’t present too many problems.
Here are the steps to take to work through the process:
- Select a custodian for a gold IRA.
- Open a gold IRA.
- Contact your existing retirement account provider.
- Request to transfer funds from your current retirement account to a gold IRA.
- Let the custodian for a gold IRA use these funds to buy gold and other precious metals.
- Complete the necessary paperwork to finalize your rollover.
It may be ideal to perform a direct rollover and not an indirect rollover because of the complications it can create. An indirect rollover will include additional steps and could leave you with a large tax bill.
Choosing the Right Precious Metals for Your Gold IRA
Once you’ve completed a 401(k) to gold IRA rollover, you can maintain control over which precious metals you purchase through the custodian for your gold IRA account. Gold will, of course, be a top option, as it offers the most stability in many cases.
But why stop there? You can also select other options, such as:
- 99.9% pure silver
- 99.95% pure platinum
- 99.95% pure palladium
You can also differentiate which types of precious metals you want. With gold, for example, coins and bars are both viable options.
Gold coins tend to be more collectible than gold bars because they are more aesthetically pleasing and have unique designs. Like gold bars, gold coins offer better divisibility and are highly liquid.
That said, gold coins aren’t as easy to store as gold bars, as they often require special storage solutions. Gold coins also don’t offer the purity that gold bars do and fall just short of matching the liquidity of gold bars.
All of this means gold bars are usually the preferred option for those investing in gold with a gold IRA. Their purity and cost-effectiveness help set them apart.
Whether you decide to invest solely in gold bars or mix and match the different types of precious metals you invest in, go with metals that align with your long-term financial goals. See to it that they offer a risk tolerance you feel comfortable with as well.
Calculating the Gold IRA Rollover Costs
Pulling off a 401(k) to gold IRA rollover might not cost you anything from a tax perspective. However, there may be other gold IRA rollover costs to take into account.
Examples include the following:
- A setup fee
- An annual administrative fee
- A recurring gold storage fee
- Transaction fees for buying and selling precious metals
- Shipping fees for precious metals
Don’t be afraid to discuss the fees you’ll face through different gold IRA custodians. You might save money by choosing a custodian offering lower fees than others. Either way, it helps to do your research.
Top Benefits of Diversifying Your Retirement Portfolio With Gold
Many North American investors have gone all-in on gold investments. A 2023 World Gold Council survey discovered that up to 85% of professional investors have made at least one gold investment.
By diversifying a retirement portfolio with gold, one may enjoy these benefits:
- It can help protect against stock market volatility.
- It offers a hedge against inflation.
- It has historically delivered stability during uncertain financial times.
The price of gold doesn’t always rise and dip as dramatically as the prices of other investments. Recent reports reveal it has consistently increased in value by about 10% over the last decade.
Using a 401(k) Loan As an Alternative If a Rollover Is Not Allowed
Are you interested in executing a 401(k) to gold IRA rollover but ineligible to perform one? Another option is taking out a 401(k) loan and using it to create a gold IRA. You can legally borrow up to $50,000 or 50% from a 401(k) and repay it over time.
These are the pros of taking out a 401(k) loan:
- It won’t subject you to taxes and penalties like a 401(k) withdrawal.
- The interest you pay on a 401(k) loan will go back into your retirement account.
- Missed 401(k) loan payments won’t be reported to the credit bureaus.
These are the cons of taking out a 401(k) loan:
- You may have to pay back a 401(k) loan immediately if you leave your current job.
- You will owe taxes and a 10% penalty if you cannot repay a 401(k) loan.
- The funds left in your 401(k) account will not grow as fast as they would otherwise.
Weigh these pros and cons before deciding to take out a 401(k) loan to open a gold IRA. It might benefit some investors more than others, depending on everything from their ages to their long-term investment strategies.
Ready To Get Started? Start Crafting a Plan for a Successful Gold IRA Rollover With Our Help
If you’re thinking about executing a 401(k) to gold IRA rollover, make sure it fits into your long-term financial plans first. Consult with financial advisors and consider your options before moving forward with this strategy.
If you decide to invest in gold and other precious metals, Preserve Gold can help you embrace the benefits of precious metal ownership. Contact us at (877) 444-0923 to find out more about how we can assist in exploring your options.