A 401(k) plan is perhaps the most significant component of any comprehensive employment package today.
It is an employer-sponsored retirement savings plan designed to offer some distinct tax advantages to the employee’s retirement funds.
Because 401(k) plans are sponsored by employers, you might want to consider executing a rollover to a self-directed IRA (individual retirement account) when leaving your current employment.
In retirement savings, a rollover (IRA rollover) is the process of transferring retirement funds from one retirement account (401-K or conventional IRA) into a different retirement account (typically a self-directed IRA).
This process is commonplace and it offers several advantages to the account owner.
The main advantages of an IRA rollover include avoiding immediate tax action and maintaining the retirement account’s tax benefits.
Another reason to consider rolling over a 401 (K) to a self-directed gold IRA might be the fact that you enjoy greater flexibility in terms of investment options.
For many investors, a retirement savings plan that isn’t closely tied to the stock market is a worthy consideration for retirement portfolio diversification.
Because gold prices tend to have a negative correlation with stocks and most other traditional investments, it makes sense to include physical gold in a diversified retirement portfolio.
The Internal Revenue Service (IRS) permits gold investing as part of a retirement plan only through a specialized account known as a gold IRA.
Rolling over your 401 (k) to gold IRA plan may be the easiest way to directly invest in physical gold for retirement.
This article provides a step-by-step guide to rollover IRA from 401 k.
How to move Your 401k to Gold IRA – All You Need to Know
There are several moving parts to complete a 401 (k) to gold rollover.
Working with a reputable gold IRA company experienced in gold IRA rollovers takes the effort out of the process.
It is important that the rollover process is executed as per the Internal Revenue code guidelines to avoid IRS penalties, including an early withdrawal tax penalty.
Fortunately, there are plenty of gold IRA companies experienced in rolling over 401 (k) to gold IRA plans without any tax penalties.
3-Step Gold IRA Rollover
Step 1: Account setup
To get started, your Gold IRA provider will set up your gold IRA account with a precious metals custodian before you purchase gold.
With most gold IRA companies, you don’t have to go out searching for a trustworthy gold IRA custodian experienced in managing gold-backed retirement accounts.
These companies usually maintain long-standing partnerships with reputable custodians.
Equity Trust, GoldStar Trust Company, and STRATA Trust Company are just a few renowned custodians of self-directed precious metals IRAs.
These companies offer two types of gold IRAs distinguished by specific tax application rules:
This is a tax-deferred retirement account with a pre-tax treatment. This means that your contributions are tax-deductible but you will have to pay taxes when you take distributions after retirement at the age of 59 ½ years.
This is an after-tax retirement investment account. Since you are contributing to the account using after-tax dollars, you do not pay any taxes when they take distributions after retirement.
Expect to pay a one-time set-up fee at the time of establishing the gold IRA account with your new custodian.
Account maintenance fees are changed annually to cover the administrative costs of holding your precious metals account.
Step 2: Rollover Execution
To fund the precious metals retirement account, you will perform one of two types of rollovers permitted:
Your 401 (k) plan administrator will either transfer the money electronically to your gold IRA account or issue a check financed by your 401 (k) money, which you deposit.
The 401 (k) plan administrator lets you withdraw the funds in cash instead of transferring them to your gold IRA custodian.
The IRS allows 60 days for the funds to be re-deposited into the self-directed account before the account is considered distributed and the compulsory tax penalty applied.
Once the funds are in your gold IRA account, your precious metals company will buy gold bullion bars or IRA-approved gold coins and proof coins for your gold investment.
Step 3: Shipping & Storing the Precious Metals
According to IRS regulations for precious metals IRAs, you cannot take possession of the physical gold or other precious metals you buy through an IRA without triggering a taxable event.
The IRS dictates that all physical gold bullion bars and gold coins purchased for self-directed IRAs must be held with approved depository facilities.
Many precious metals IRA companies work with top-rated depository firms like Delaware Depository and Brink’s Global Services.
The metals are shipped directly to the secure vaults in these facilities but you reserve 100% ownership rights.
Is holding physical gold a good idea for an IRA?
For many investors, gold investments and investments in other precious metals are considered to be safe havens and provide a hedge against inflation.
It is not uncommon for gold investors to buy gold inside a precious metal IRA.
The idea is that physical gold held in precious metals IRAs will retain its value when the times are tough.
Gold investors who choose to hold physical gold rather than invest in paper gold, exchange-traded funds (gold ETFs holding actual gold bullion), gold mining stocks, or gold derivatives such as futures or options contracts intend to protect their retirement portfolios with assets whose value isn’t directly tied to paper money.
While gold is the most common precious metal allowed in an IRA, it is not the only one.
The IRS (internal revenue service) permits investing in four precious metals, making gold IRAs all the more worthwhile in terms of portfolio diversification.
What’s more, a gold IRA (or precious metals IRA) offers the same tax-advantaged status as a traditional IRA plan or employer-sponsored 401 K.
Can you roll over a 401k while still working?
Generally speaking, you can use your 401 K fund to finance virtually any type of investment within a self-directed IRA.
However, it is worth noting that the Internal Revenue Code is very specific about how 401 k funds may be re-invested while maintaining its tax-advantaged status.
Besides the IRS rules and regulations, 401 K providers may limit what you can and cannot do with your retirement funds while they are still sponsoring the 401 K.
However, if your current 401 k sponsor allows it, you could perform what the industry calls an in-service withdrawal, which allows employees to take distribution of their 401 K funds before the typical triggering events; retirement, resignation, etc.
The funds distributed must be transferred into an IRA within 60 days to avoid IRS penalties and tax consequences.
Consider the in-service withdrawal option if you wish to rollover your 401 K into a self-directed IRA that lets you purchase gold, real estate, private bonds, and other investment vehicles not offered with workplace 401(k)s.
Final Word: Should You Do a 401(k) to Gold IRA Rollover?
Admittedly, not everybody with a 401 (K) plan will want to establish a gold IRA rollover when leaving an employer for non-retirement reasons.
There are options to maintain the 401 (k) as is, cash it out, or consolidate it with a 401 (k) plan provided by the new employer.
Besides leaving the company sponsoring your 401(k) plan, other circumstances may necessitate a 401k to gold Ira rollover.
Generally speaking, workplace 401(k) plans are quite limited in terms of what investments are allowed.
Most 401 (k)s typically allow only a combination of selected stocks, CDs, bond funds, and mutual funds.
Even a self-directed 401k plan will not allow nontraditional investment vehicles like physical gold and other precious metals, real estate, private equities, and corporate bond funds, among others.
You may only include these investments in a self-directed Ira.
This means that you can use your 401k funds to finance precious metals IRA, for instance, only if you execute a rollover.
Partnering with the best gold IRA companies makes it quite easy to execute a 401 (k) to gold IRA rollover.
Also Check Out: How is Gold Made?