Can I Roll My 401k into Gold?

It’s no secret that gold prices have been on the rise lately, and many people are wondering if it’s possible to roll their 401k into gold and enjoy the benefits of both rising interest rates and rising gold prices. Is this possible? What are the pros and cons of doing so? If you’re considering rolling your 401k into gold, here’s what you need to know.

Why Would Someone Roll Their 401K Into Gold?

There are several reasons someone might roll their 401K into gold. The most obvious is if they just lost a significant amount of money in another investment. If you were invested in real estate, for example, and that market dropped significantly, it would make sense to convert to gold as a store of value until things recover. Another reason could be that you want to hedge your portfolio or invest in something different for other reasons. This isn’t ideal because things like real estate can often provide better returns than gold over long periods of time and don’t have some of its risks—such as counterparty risk—but it can work if you understand what you’re doing.

Can I Roll My 401k into Gold?

Your 401K plan allows you to convert your traditional contributions to a Roth account, but it does not offer direct access to gold and other precious metals. You’ll need to buy these through a broker or an exchange, then transfer them over as part of an in-kind transfer. This can be tricky because of how often values change, and precious metals are also difficult to resell if you want out. If you do decide that rolling your 401K into gold is right for you, use caution when selecting your method so that you don’t end up taking on more risk than is worth it.

After selecting a method, you’ll have to decide what type of gold or precious metal you want to buy. Many people tend to go with one of three options: bars, bullion coins, and ETFs. Bars typically come in smaller sizes but often offer a better price than other forms of gold because they don’t have any premium attached and are easier to store. Bullion coins are also popular, but there is some debate over whether they represent actual bars of gold—which can be called fungible—or just something that resembles them, which means they may not be as easy to sell.

How do You Roll Your 401k Into Gold?

Roll over your 401K by purchasing physical gold through an exchange-traded fund or ETF, which is a low-cost vehicle that allows investors to gain exposure to specific asset classes. A gold ETF will give you instant access to physical gold without having to worry about storage or insurance costs. You may also be able to roll over your 401K account directly into a self-directed IRA and invest in bullion directly instead of buying an ETF. However, some investment firms may charge higher fees for rolling over your IRA as opposed to rolling it over within a traditional brokerage account. In addition, depending on where you live, you may not be able to move bullion from bank vaults that hold most commercial paper because these storage facilities are subject to regulation from banking authorities.

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You will want to make sure you select a reputable storage facility that holds bullion in good condition and can deliver bars upon request. Many are designed for institutional investors and might not meet your individual needs. A good starting point is a bank or other financial institution where you have an account, as many have private vaults that offer short-term precious metals storage for retail customers, albeit at premium rates. Another alternative is to roll over your 401K account directly into a self-directed IRA and invest in bullion directly instead of buying an ETF. However, some investment firms may charge higher fees for rolling over your IRA as opposed to rolling it over within a traditional brokerage account.

To roll over your 401K, or part of it, to gold or other precious metals such as silver and platinum, check with your investment advisor to make sure you understand all tax consequences before making a change. Most experts recommend that you consult a tax professional prior to transferring any retirement account assets so you are aware of all of your available options and don’t end up being stuck in an undesirable situation. No matter which option is best for you, having gold in a self-directed IRA will give you greater flexibility when it comes time to use or liquidate assets. This can be important if gold prices rise significantly over time. You won’t have to pay any penalties or taxes on profits when selling bullion in an IRA — a benefit many investors appreciate.

What is a 401K Rollover?

When you roll over your 401K into gold, it allows you to take retirement savings that are sitting in an employer-sponsored retirement plan like a 401(k) and move them from one financial institution to another. It’s also referred to as a transfer or trustee-to-trustee transfer. Depending on your circumstances, rolling over money from your employer’s plan can offer many benefits such as access to better investment options, lower fees, and higher contribution limits. Ultimately, rolling over money from your current employer’s plan is a personal decision and has advantages and disadvantages depending on what you are looking for in terms of retirement planning.

Rolling over your 401K to an IRA can offer you more investment options and a higher contribution limit. However, when moving money from a traditional 401(k) to an IRA, you will lose valuable tax benefits including employer matching and year-end tax deferral that come with traditional employer plans. Additionally, there are restrictions on how much you can rollover in one transaction; depending on your age and the type of account you are rolling over, maximums range from $50,000 to $60,000 in 2019.

Another option to consider is converting your traditional 401(k) to a Roth account. When you convert, you make after-tax contributions that grow tax-free and then can be withdrawn tax-free in retirement. It’s important to note that conversions are typically not available in defined contribution plans where an employer matches contributions. Some examples of plans where you would be able to convert include a self-employed plan or a solo 401(k). The main benefits of converting your funds are increased flexibility, increased access to investment options, and no longer having to pay taxes on withdrawals once you turn 591⁄2.

Is There a Tax Penalty for Withdrawing From your 401K Early?

The tax penalty for withdrawing from your 401K early is steep. You’ll pay income taxes on any money you withdraw as well as a 10% federal penalty, which basically makes it impossible to withdraw from your 401K without paying taxes. This leaves you with few options, so if you need to access your funds, rolling over your money to an IRA is one of them. If there’s no immediate tax benefit to rolling over a traditional IRA or Roth IRA, why should you bother?

You can’t make withdrawals from a traditional IRA or Roth IRA until you reach age 59 1/2, but there are some circumstances when you may be able to withdraw early without facing a tax penalty. If you use money from your traditional IRA to pay for qualified medical expenses, reimburse yourself for medical expenses if you’re paying back alimony payments or contributions to a health savings account (HSA), paying off an eligible student loan or buying your first home. But if none of these situations apply, rolling over your funds to a retirement account with no penalties is one way to do it.

Do you Need an IRA Account Before Rolling Over your 401K?

IRA accounts are retirement accounts you can open at a bank or brokerage firm. You don’t have to roll your 401K over to an IRA; however, if you do choose to roll it over, be aware that you may have to wait until age 59 1⁄2 before you’re able to pull money out of it without paying penalties for early withdrawal. Moreover, before rolling over your 401K balance, ask yourself if an IRA is better for your particular situation. For example, if you already have a large sum of money set aside in a retirement account at work and want more investment options outside of your employer’s offerings (such as stocks), then an IRA account might be right for you.

A self-directed IRA allows you to invest in a wide range of assets—including real estate, tangible goods, and private companies—which is why it might be a better option for you than an employer-sponsored retirement account. You can also roll over your 401K balance as much as three times per year with no penalties (unless you’re under age 59 1⁄2 ). However, even if you decide that a self-directed IRA is best for your situation, make sure that any potential investments are within your risk tolerance before making them. You might also want to consider consolidating all of your retirement accounts at one bank or brokerage firm so that accessing them will be easier.

If you decide to roll over your 401K, then you’ll need to fill out a trustee-to-trustee transfer. This paperwork must be sent directly from your previous employer to your new retirement account. This can be done electronically; however, it should still be made sure that it’s done by April 15 of each year (or within 60 days of termination).

Should you Rollover your Entire 401K Balance at Once or in Increments?

If you are concerned about how much your retirement savings is worth, you may want to roll over your entire 401K balance at once. However, if you are only worried about protecting part of your assets from potential market fluctuations, it might be better to roll over a percentage of your assets each time until you have reached a desired level of protection. Before rolling over any assets from an existing 401K account, make sure to talk with a financial advisor so that he or she can explain which method is best for you. A financial advisor can help determine whether rolling over your entire account is best and what types of investments would work best for you in different market conditions.

One important thing to keep in mind, however, is that you can only roll over a portion of your 401K balance from one account to another. In most cases, you must leave at least 20 percent in your existing account. As such, it might make sense to roll over just part of your balance each time until you have reached a desired level of protection for as much as possible. If market conditions change and there is no longer a need for all your assets to be protected by investments with downside protections that are not readily available through stocks or bonds, then you may want to consider rolling back some or all of those assets that were initially rolled over.

Keep in mind that there are also limits on how much you can roll over each year. As of 2018, individuals older than 50 years old have a higher contribution limit than those who are younger. If you are 50 or older, then you may be able to contribute up to $24,500 to an IRA; if you are 49 or younger, then your contribution limit is just $6,000 for 2018. You can take out a loan from an IRA under certain circumstances, but it will result in a significant tax bill.