In today’s economy, hedging against inflation and economic uncertainty is vital in securing the value of your retirement plan. After all, you wouldn't want to deal with a stock market crash and have your portfolio cut in half in just a few days, right? 

A great way to protect yourself from market crashes is by adding gold to your holdings. In this case, you may need to move your 401K into a Gold IRA. To help you with this endeavor, we'll share everything you need to know about rolling over a 401k into a Gold IRA, including its benefits and drawbacks, and tax implications.

But first, let’s get to know how these two types of accounts work.

What is a 401K?

A 401k account is an employer-sponsored retirement savings plan that allows you to save and invest part of your income (subject to annual limitations). With this plan, your employer can match a portion of your contributions, either partially or on a dollar-for-dollar basis. 

A partial match allows your employer to contribute a fraction of your salary. The typical match offered is $0.50 on the first 6% of your pay. On the other hand, with a dollar-per-dollar match, your employer’s contribution equals 100% of your contributions, on the condition, however, that it does not exceed 3% of your total compensation. 

Among its many benefits is tax savings. You can go with a traditional or a Roth account, each having distinct advantages. Contributions are deducted from your gross income in a traditional 401k. As a result, you can get tax savings from having your taxable income reduced from contributions made for the year. No taxes are paid until the money is withdrawn, usually in retirement. 

With the Roth option, contributions come from your pay after taxes have been charged. That means, the money you contribute will not be deducted from your taxable income, and as a result, you'll still have to pay taxes upfront. But the good part is; your future withdrawals will be completely tax-free. 

You’ll be responsible for the type of investments you hold within your 401k account. You can choose from an assortment of stock and bond mutual funds that your employer offers. If available, you can even invest in your employer’s own stock or in a guaranteed investment contract (GIS). 

What is a Gold IRA?

Introduced to the investment market by the Tax Relief Act of 1997, a gold IRA is a self-directed individual retirement account that lets you invest in precious metals. Although it’s called a gold IRA, it doesn’t actually mean you can only buy gold with the plan. You can also invest in specific types of silver, palladium, and platinum.

One thing to remember about Gold IRAs is that you can’t simply purchase anything made out of those four metals. They’ll have to meet fineness requirements specified by the IRS before you can put them in your gold IRA. 

When you invest in Gold, you’ll have to prepare yourself for a more complex transaction and some additional fees involved. If you want to learn more about Gold IRAs, check out our Gold IRA Ultimate Guide.

Benefits of Moving a 401K to Gold IRA

Here are some benefits you’ll get to enjoy for rolling over your 401k into a Gold IRA: 

Diversification: It’s never a great idea to put your money inside a single pot. By taking a portion of your portfolio out of the stock market, you get to balance out your holdings with assets, like gold, which is generally not affected by the market movement.

Control: With 401ks, your options can be pretty limited. But with Gold IRAs, you’ll have more freedom in making your investment decisions since they are self-directed. 

Inflation & Market Hedge: The Federal Reserve has increased the money supply for the last decade. With the surge of the pandemic, things only got worse as the central bank’s emergency remedies increased it by 40%. This entails one thing: inflation. And guess what comes after? The rising prices of commodities like groceries and fuel. Gold has long been a proven way to protect your purchasing power as its value never reduces to zero regardless of the economy's performance.

Growth Potential: The price of gold has considerably risen over the past decade (over $1,900 per ounce today). If the trend maintains its increase, it could mean greater savings potential by the time you retire.

Drawbacks of Moving a 401k to Gold IRA

Moving your 401k to Gold IRA does not only come with benefits, it also comes with certain drawbacks you need to take note of. Here are a few: 

401k offers ease of merging with another plan:  It’s common to merge your old plan with a new one, but this may not be as easy with Gold IRAs.

More legal protection with 401k: Since 401ks are ERISA plans, they are considered more secure than most IRAs. That means you’ll be protected under threat in bankruptcy, creditor demands, or civil cases. If you opt to move all your funds, it entails letting go of this advantage.

No exemption for separation of service: With Gold IRAs, you'll be discouraged from making withdrawals before turning 59 ½ – the typical rule for many IRA plans. But with 401k, it’s actually a lot easier. The 10% penalty rule is waived for early withdrawals of employees who leave the company upon turning 55 or older. This is how the separation service rule for 401ks work, but with Gold IRAs, you won’t have such an exemption. 

How to Rollover Your 401k into a Gold IRA

So, what do you need to do to roll over your 401k into a Gold IRA? Here’s how the process works:

1. Open a Gold IRA.

To set up a gold IRA, you’ll need a designated custodian to administer your self-directed account. They will be responsible for reporting to the IRS, so they must be approved by the agency to operate. You’ll also need a metals dealer who’ll provide you with IRS-approved coins and bars, as well as a depository to store your precious metals. You should start working with a reliable IRA company (check out this post!). They’ll walk you through the entire process of opening your new account, funding it, and selecting the appropriate investments

2. Talk to Your 401k Plan Administrator.

Inform them you’ll want to roll over your 401k to your new IRA account.

3. Complete the Forms and Paperwork.

Make sure to tell your administrator you want a rollover and not a transfer. A rollover allows you to move funds from one type of retirement account to a different type of IRA. While a transfer, just means moving your funds in an IRA account from one custodian to another with the same kind of IRA.

4. Fund Your Gold IRA.

Once you receive your funds, be sure to put them in your Gold IRA within 60 days. If you fail to do so, you’ll have to face a 10% tax penalty if you’re under 59 ½.

5. Buy Precious Metals.

Direct your custodian to purchase IRS-approved metals you want to include in your account using your IRA funds.

6. Get Your Gold Shipped to a Qualified Depository.

You can find one on your own, or opt for your custodian’s recommendation.

7. Begin Enjoying the Benefits of a Gold IRA.

You're now well on your way to a more secure future for yourself and your loved ones.

What are the Tax Implications of Rolling Over your 401k into a Gold IRA?

The tax implications on contributions and withdrawals depend on the type of self-directed account you’ve opted for. If you choose a traditional IRA, you won't have to pay taxes on contributions, but only on withdrawals made in retirement. It’s the opposite with the Roth IRA, you’ll pay taxes for the money you contribute, but all your withdrawals will be tax-free. 

Important: You only have 60 days to roll over your funds upon receiving them from your 401k provider/administrator. If you fail to meet the deadline, you may have to face a 10% financial penalty.

FAQs on Moving Your 401K into an IRA Account

How long will it take for my money to roll over?

Depending on the administrator, you can expect your rollover to take place within a few days to a few weeks.

Where can I set up my Gold IRA account?

You can set up your Gold IRA with a bank, a trust company, or a brokerage firm. Gold IRAs typically come with additional fees, so make sure you check around before choosing one. If you need some suggestions, our guide to the best gold IRA companies might come in handy.

How can I do a 401k rollover without penalty?

You’ll need to complete your rollover within 60 days, or better yet do a direct rollover. With this option, your administration will do all the work for you, and you can have your funds automatically transferred to the new account.

Can I buy physical gold with my 401k?

There are different ways you can start investing in precious metals. The most popular way is opening a gold IRA account. Or, you can do a 401k rollover. You can transfer a portion of your existing account into a self-directed IRA and diversify your portfolio with IRS-approved precious metals.

How does a Gold IRA rollover work?

After you’ve set up your gold IRA account, you can do a rollover. You have two options, either direct or indirect. With a direct rollover, you can have funds from your existing account automatically transferred to the IRA. Or, you can opt for an indirect rollover that lets you personally receive your money and reinvest it into your Gold IRA.

Why should I move my 401k to a Gold IRA?

Although a gold IRA entails more fees than a regular one, it can also provide additional benefits than solely investing in stocks, bonds, and mutual funds. Many investors vouch for its ability to hedge against inflation and market uncertainties.

Bottom Line 

Investing in gold can be a good way to diversify your retirement plan across asset classes. By following the steps in this article, you can execute a 401(k) to Gold IRA rollover and ensure that your hard-earned money is safe and secure. That said, it’s always best to work with a qualified Gold IRA company to get started on your rollover. 

Be sure to consult with a qualified expert if you’re confused about the process. Or you can reach out to us if you want. We’ll be more than happy to answer any of your questions.

We hope you find this guide well worth your time. Invest wisely!

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