How To Move a 401(K) Into Gold Without Penalties
You can save funds for retirement through a self-regulated retirement account (IRA), or using a 401(k) plan. Traditional IRA’s and 401(k) plans can allow you to avoid paying taxes on your contributions. If you are looking to make your account more diverse, consider investing some of your 401(k) funds in gold.
Investing in gold is beneficial for a variety of reasons. One of the top reasons why people turn to gold is to protect their monetary portfolio from inflation. For thousands of years, people have turned to gold for investments, and it retains its value for this reason. Another reason people invest in gold is that they are worried about market volatility. When comparing gold to a corporation, gold cannot go bankrupt, while a corporation can. Regardless of what happens to the economy, your physical gold coins and bullion will always be sitting in your vault ready for you to use.
If and when you decide to invest in gold, it’s time to start thinking about how you’re going to get started. You may consider buying gold coins and bullion outright, but the disadvantage is that there are no tax advantages to this method. On the other hand, if you purchase your gold through your 401(k) plan, you are able to deduct your 401(k) contributions from your annual tax return. This way you won’t have to pay taxes on your investment until you eventually sell the gold and withdraw your earnings.
TABLE OF CONTENTS
– How to move a 401(k) into gold
– When the IRS charges penalties on 401(k) rollovers
– How to turn your 401(k) into gold without a penalty
– Companies to help convert your 401(k) into gold
– Frequently asked questions
How to move a 401(k) into gold
Now that you’ve decided to purchase gold, it’s time to carry out the plan. Considering many 401(k) plans to restrict your investment options, it is likely that your current 401(k) plan does not offer any gold investment options. You will need to find a new plan that will allow you to directly invest in gold.
In order to avoid paying taxes on this transition, you will need to do what is called a 401(k) rollover. A 401(k) rollover is when you transfer funds from your old 401(k) plan to your new 401(k) plan.
According to the Internal Revenue Service (IRS), this transfer must be completed within a 60-day time frame. If you do not transfer these funds in time, your transfer will be treated as a 401(k) withdrawal. In order to avoid paying taxes and penalties on your withdrawal, you will need to follow the IRS rules.
You’ll also be able to enjoy new perks when converting to a new 401(k) plan or IRA. Although employers do not have any incentive to shop around for a great plan, they offer these plans as a benefit to their employees. This is why these employer plans will often have limited options and high fees. Taking this into consideration, you may need to get a new 401(k) plan if you’re looking for more gold investment options, as well as cheaper investments and lower account fees.
To convert your old 401(k) plan into a new gold IRA or 401(k) plan, you will need to complete the following steps:
1) Choose your account
2) Open your new account
3) Consult your old 401(k) plan provider about doing a direct rollover
4) Decide what new investments you want.
1) Choose your account
When performing a 401(k) rollover, not only do you get more investment options, but you can save on fees as well. Since employer plans often come with high fees, switching plans can save you a lot of money.
Roth IRA: When you rollover to a Roth IRA, you will need to pay taxes on the funds that you transfer. These allow you to perform tax-free withdrawals, but your initial contributions will be taxed.
Traditional 401(k): If you rollover to a Traditional 401(k), you will not need to pay taxes as long as you complete the transfer within 60 days.
Traditional IRA: Similarly to a Traditional IRA, these are a tex-deferred retirement plan.
The Government will allow you to own multiple IRA’s and 401(k) accounts. This means that you will be able to create a stand-alone 401(k) account or self-directed I.R.A. for (gold). The trustee will be both the custodian and broker of these physical metals.
You will be able to buy and sell gold when you use a gold IRA or 401(k) plan. In order to do this, you must follow government standards. Self-directed IRA’s and 401(k) plans do not allow you to physically hold the physical metals yourself.
A solo 401(k) plan and self-directed IRA are essentially the same things, but with one main difference. The 401(k) plan allows you to contribute more money each year, while the self-directed IRA does not. Other than this, both these options have very similar benefits and rules.
2) Open your account
Setting up your account online is the easiest option. One way to do this is to use a robo-advisor. You can use a robo-advisor to invest in a balanced portfolio automatically. This way you don’t have to deal with the hassle of picking your payments. Another option is to use an online broker. With an online broker, you’ll have more control over your investments by choosing which investments you buy, while also having the ability to divest whenever you want. If you are choosing this route you should find a provider who charges low fees, as fees and commission costs can add up very quickly. You will also need to choose a provider who specializes in precious metals.
3) Consult your old 401(k) plan provider about doing a direct rollover
It is important to consult your old 401(k) broker about moving your funds early in the process because they may slow down the process because they do not want to lose your business. Always make sure to ask your provider to do a direct rollover so that the funds go directly into your new account rather than going to you.
This next step is very important. The funds that leave your old account must transfer into your new account within 60 days. If not, you will need to pay taxes and penalties on your withdrawal. Completing your rollover as quickly as possible is your best bet to avoiding penalties.
The process may vary but if you wish to carry out a direct rollover, most providers will require you to send in some forms. You should contact the administrator of your former employer’s plan to find out how to do this. Once you’ve sent in the paperwork, they can then send a wire transfer or check to your new account.
Although this option is much harder to do, you can technically do an indirect rollover as well. An indirect rollover is when the money is sent to your account first, and then you send the money to your new IRA within the 60 day window.
Indirect rollovers can end up complicating your taxes and end up in you paying income taxes and penalties on the rollover if it is not completed in time. Most providers withhold 20 percent of your withdrawal as a tax payment automatically. Since you will need to transfer the entire amount to your new account, you will need to provide the difference from your personal account.
4) Decide on your new investments
After you’ve set up your indirect or direct rollover, you can now determine how you want to use your money. You may look at index mutual funds, or invest in physical gold. If you’re looking to diversify your gold portfolio, there are also other techniques you can use as well.
Gold futures & options
Essentially these contracts are agreements to buy or sell gold in the future at a set price. These contracts are traded on commodity exchanges and are therefore highly regulated by the federal government.
Stock in gold mining
If you’re looking to invest in a gold mining or gold refining business, you can purchase stock in a mining company. In order to observe if they are financially stable, you should always research the company beforehand. You can also buy shares in a mutual fund that invests in gold mining to reduce your risk.
Gold exchange-traded funds (ETF’s)
A gold ETF (known as a basket of other assets) may own gold options, futures, and physical gold. An ETF-style investment can be traded when the market is open, while mutual funds can only be exchanged after the market closes for the day.
When the IRS charges penalties on 401(k) rollovers
The IRS rules that you must complete your 401(k) rollover within 60 days. If you do not deposit your money from your previous 401(k) into your new account within those 60 days, you will be required to pay a penalty on those funds. Doing a direct rollover is the best way to avoid this. A direct rollover will ensure that your funds are instantly transferred from one account to another.
A 10 percent penalty will apply if you withdraw your funds before you are 59.5 years of age. You will also be required to pay your regular income tax rate on your early withdrawals. If you have to pay state income tax as well, you could easily spend 45 percent of your withdrawal on penalties and taxes.
How to turn your 401(k) into gold without a penalty
Fortunately, if you’re doing a direct rollover, you can readily avoid anteing up penalties and taxes. This option allows your provider to handle transfers so that your funds will automatically show up in your new account.
By doing an indirect rollover, you handle the transfer yourself and ensure the rollover is completed within 60 days. If your previous provider automatically held back 20 percent of your funds for tax purposes, you will need to replace these funds once you have finished the indirect rollover.
In order for this plan to succeed, your new account must be a tax-deferred plan. You will not be able to deposit these funds in your bank account unless you are at least 59.5 years old. Otherwise, you will be required to pay a penalty as well as taxes on your withdrawal.
Companies to help convert your 401(k) into gold
If you’re trying to invest in a gold 401(k) or IRA, There are a handful of companies that can help you get started. When it comes to investing in precious metals, many companies will not allow that as an option. That is why it is important to check with your new provider which services they offer before opening an account. Once you’ve done your research, you’ll then be able to begin investing in precious metals.
This organization operates as a brokerage for gold IRAs and is ranked very highly for its customer service. Goldco does a great job of handling paperwork regarding IRA custodians, storage facilities, and other retirement account providers, unlike other companies.
Since Goldco is a broker, they will only handle the buying and selling of your gold. They also do not store any precious metals at their company. Although Goldco cannot serve as the custodian, they can assist you in filling out the paperwork for another custodian company. After this process, they will also help you purchase gold coins and bullion that have been approved by the IRS.
Goldco can also assist you in performing a 401(k) rollover. They can handle the paperwork involved in transferring your funds to your account. They will also assist you in buying other precious such as silver.
– The Better Businesses Bureau gave them a rating of A+
– Goldco’s IRA’s have the ability to invest in precious metals
– Over a decade of experience with gold IRA’s
– Excellent customer service
– Does not offer storage of custodian services
– Annual fee of $175 for accounts that are worth less than $100,000
Birch Gold Group
The Birch Group began in 2003 and is based in California. This organization serves as an experienced brokerage for precious metals. They can also help you with the purchase of precious metals other than gold such as silver, platinum, or palladium.
They can also help you in buying gold for an IRA or for personal ownership. You can also learn about how to invest in gold and the risks involved, thanks to the Birch Gold Groups’ dedication to client education. All investments carry out some degree of risk, and that is why it is important to know which ways you could lose money before you invest.
The Birch Group also assists you in buying gold through your retirement account. All of the investments for IRA’s are approved by the IRS. Other than purchasing physical gold, you can also buy real estate, raw land, mutual funds, stock, private loans, bonds, and other investments.
After you decide to go with this organization as a broker, they will assist you in finding a custodian. In the case that you already have a custodian, Birch Gold Group can work with them to purchase and store your gold. They will also ship your gold to approved repositories. For example, you may store your gold with Brink’s Global Service Delaware Depository.
– Offers a great level of service
– Excellent reviews from consumer organizations and professionals in the industry
– Provides good education to clients
– You are not required to pay fees during your first year, as long as you transfer $50,000 minimum to your new account
– Annual fees and setup costs are not clearly laid out on the firm’s website
Augusta Precious Metals
This company helps investors open tax-advantaged retirement accounts, and within these accounts, you may invest in precious metals. Augusta Precious Metals recommends Goldstar Trust, Equity Trust, and Kingdom Trust as custodians, they can also work with other custodians as well.
Once you’ve finished setting up your self-directed IRA, you may use your custodian and Augusta Precious Metals to purchase gold. They can also assist you in buying other premium coins, bars, bullion, and rounds. You will find that Augusta sells collector sets and commemorative coins as well.
To add another layer of protection, Augusta offers a price protection program where if the price of your precious metals changes within seven days of your confirmed order, they will still honor the rate at which they initially gave you at the time of purchase. They will also frequently give their clients a quantity discount based on big bullion orders.
Augusta Precious Metals provides a plethora of promotions. After you’ve made an investment that qualifies in your new account, they will award you up to $2K in silver. Another bonus is that within up to seven days of your order, you can cancel for any reason.
– Fast and easy setup process
– Competitive pricing compared to other industry organizations
– Lifetime customer support
– You are required to invest a minimum of $50,000 into your new account
Frequently Asked Questions (FAQ)
When it comes to changing your retirement plan, it is a big decision. Luckily, converting to a gold IRA is fairly simple and straightforward. That being said, here are some common questions about moving a 401(k) plan into gold.
1) Can I invest my 401(k) in gold?
Your current plan may not give you the option to invest in gold, but there are numerous other plans that allow gold investments. Keep in mind that there are specific rules set out by the IRS regarding how gold can be bought and stored. Because of these rules, it’s important to find a reputable company to work with.
2) When rolling over to a 401(k) account, do I have to pay taxes?
You are legally allowed to do a 401(k) rollover and avoid paying taxes and penalties, but to do this you must follow the correct process. Start by contacting your current 401(k) plan and explain your situation. The rollover may take several weeks or months to complete, so it’s best to begin as soon as possible.
3) Can I buy gold without paying any taxes?
Traditional 401(k) plans and IRA’s are tax-deferred savings accounts, meaning you do not need to pay any taxes on your contributions. Once you retire and eventually withdraw your funds, you will pay taxes on those withdrawals. You will not get any tax breaks if you purchase gold for personal ownership. Right now, the only way to avoid paying taxes on gold is by purchasing it through your 401(k) plan or IRA.
4) May I purchase physical gold in my 401(k) plan?
Although this process is a bit tricky, you absolutely can purchase physical gold in your 401(k) plan. Since your IRA cannot be the seller and holder of the gold, they will need to store the physical gold with a third party. You are also not personally allowed to hold the gold. You may only keep gold and silver in a plan of this type if someone else is storing it, according to the IRS. While you will not be allowed to have physical control over the gold, you may still be allowed to access the storage facility.