How to Move a 401k to Gold IRA Without Penalty
Many investors are looking into whether it is wise to move their 401k account into a Gold IRA. There are many benefits that come with investing in precious metals, such as gold and silver,?Individual retirement accounts offer an extra layer of protection for those nearing or in retirement. A Gold IRA also allows you to invest in actual physical gold – which you cannot do with a traditional 401k account.
There are many benefits to investing in a Gold IRA. For one, you can invest in physical gold and silver, which can add diversity to your investment portfolio. Additionally, Gold IRAs tend to be more stable than paper investments like stocks or bonds.
Second, gold and other precious metals have always been a good investment to protect against inflation. This is an important thing to think about since the inflation rate in America is the worst it has been in 40 years - 9.1% according to the CPI (Consumer Price Index) from June 2021-2022. Lastly, IRAs allow you to invest while minimizing your taxes which will eventually be due when you retire.
If you have a 401k, you can easily rollover the funds into a Gold IRA by following the Internal Revenue Service (IRS) rules. To make it even easier, there are professional Gold IRA companies that will handle all of the paperwork for you!
This is a comprehensive guide on how to rollover your 401k into a Gold IRA, including reviews of the best companies you can use.
The three?best Gold IRA companies, all highly reputable and frequently respected, are:
#2?Augusta Precious Metals - $50,000 + Only
#3?Noble Gold - Lowest Minimum Investment ($5,000)
What is a Gold IRA?
Before you?invest in a Gold IRA, let’s make sure you understand what it is. An IRA that is invested in physical precious metals can be called a “Gold” IRA, but this type of investment could also include silver, platinum or palladium.
Precious metals IRAs are a type of self-directed IRA (SDIRA), which means that the account holder is responsible for choosing the investments. This contrasts with other types of investment accounts, such as mutual funds or exchange-traded funds (ETFs), where the fund manager makes investment decisions on behalf of all account holders.
With a self-directed IRA, you have more freedom to choose where you invest your money. You're not limited to traditional investments like stocks and bonds. You can also invest in other assets, such as real estate or privately held companies.
401k accounts typically offer only a very limited choice of investments - usually three or four mutual funds. In contrast, a self-directed IRA can be invested in any number of assets, including:
The SDIRA is a great way to invest your money, with the exception of collectibles.
What Makes Gold a Good Investment?
In a time of rapid inflation and doubtful economic stability, an escalating number of investors are seeking comfort in gold and silver. Gold, especially, has demonstrated itself as a secure store of value against inflationary forces better than most financial assets.
A popular belief about gold is that an oz. will always be enough to buy a well-tailored suit; this was true when the metal cost $35/oz and still holds largely true today with its value at $1,500-$2,000.
Although the economy and stock market have their fair share of ebbs and flows, gold has always kept some value - it's never lost all worth. Something to keep in mind when other paper currencies come and go...
Because gold is often seen as a good way to protecting oneself during an economic crisis and against inflation, investing in gold before retirement may be appealing. A Gold IRA?can act as a buffer for the money you saved for retirement so that it doesn't lose value.
Diversifying your investment portfolio is a smart way to reduce risk and volatility, and one way you can do this is by investing in gold, silver, and other precious metals. The price movements of these assets are not closely correlated with overall stock prices, so they can help balance out your portfolio when stocks are falling in value.
The Advantages of Owning Physical Gold
There are multiple ways to invest in gold and other metals, including stocks in mining companies, physical coins, and ETFs or mutualfunds. However, investing?in a Gold IRA has several advantages over paper assets such as gold stocks or ETFs.
Here are several reasons why physical gold is a wise investment:
Furthermore, the physical gold or silver (or platinum or palladium) held in a precious metals IRA entitles you to?the considerable tax advantages that come with all IRAs.Your deposits into a traditional IRA decreases your taxable income for that year, and your profits from investing are only taxed when you begin making withdrawals.?A Roth IRA allows you to earn tax-free profits, and you can buy or sell gold and silver as frequently as desired without worrying about any taxable capital gain events.
The Roth IRA: A Perfect Savings Option for Gold Investment
Depending on your current financial situation and what you want your retirement to look like, you can set up your Gold IRA as a traditional IRA, SEP (Simplified Employee Pension) IRA, Spousal IRA, or Roth IRA.
For instance, if you think you'll have a lower tax bracket when retired than presently, then?a traditional IRA set up may make more sense. If however you believe your taxes will be higher in retirement, odds are a Roth IRA would benefit you more since all the capital gains generated from it aren't taxed.
Even though there's an apparent drawback of not having tax benefits when you make contributions to a Roth IRA, it is usually more than negated by the substantial tax advantage of having your?Roth IRA grow without being taxed on the capital gains, given that you wait a minimum of five years before making any withdrawals from the account.
Different Ways to Grow Your Roth IRA funds - An Explanation with an Example
By investing in a Roth Gold IRA, you could see massive profits if the price of gold rises sharply between now and when you start taking withdrawals--all while owing zero taxes on your capital gains.
For example, if you contributed $100,000 total to a Roth Gold IRA over the years, and assuming that gold's value appreciates by 500%, here's what could happen: (It's not as unrealistic as it seems. In the first two decades of this century alone, gold prices went up from around $300 to more than $2,000.)
Many market analysts believe that the price of gold will continue to rise in the next decade, reaching values between $5,000 to $10,000 per ounce. Therefore, if you invest 100 thousand dollars into gold through your Roth IRA account today, it could potentially be worth half a million dollars in 10-15 years. The best part is that since this return on investment would come from a Roth IRA account, all of the money gained would be tax-free! This additional income wouldn't raise your taxes or put you at risk for not qualifying for financial aid programs like Medicaid.
A few other factors make Roth IRAs more appealing to investors than other options, such as traditional IRAs. For example, you are not required to take "required minimum distributions" (RMDs) from a Roth IRA at age 70 and a half like you are with a traditional IRA. If needed, you can also just allow your Roth Gold IRA to continue growing in value without taking any withdrawals until after your death, when it can be passed on to your children.
Did you know that if you need to access your retirement savings before age 59 1/2, the rules for taking a penalty-free withdrawal from a Roth IRA are more lenient than those for a traditional IRA? For example, you can take a penalty-free withdrawal for expenses related to buying your first home or financing higher education.
Doing a 401k Rollover to a Gold IRA
A Gold IRA rollover occurs when you create a new retirement account funded by transferring money from an old one, like a 401k or other IRA. You're "rolling over" the funds into another retirement account. The rollover is essential because?a self-directed Gold IRA has distinct IRS regulations that oversee how the account must be established and maintained, as well as what investment assets can be kept in the account.
A 401k is an employer-sponsored retirement savings plan that offers employees a convenient and easy way to save for retirement. With a 401k, you can have a specified portion of each paycheck withheld and deposited into your account. There’s also?a tax benefit, as the money invested in your 401k grows tax-deferred. You don't have any tax liability until you withdraw the funds from your account at retirement age.
Why Move Money from Your 401k?
However, many investors find it ideal to transfer at least some of their financial assets out of an employer-provided 401k account because a self-directed IRA offers more available investment options.
Most 401k plans offer a limited amount of investment choices, generally mutual funds or GICs (Guaranteed Investment Contracts). GICs are influx accounts that only grow at a very slow rate. They're present as an option in 401ks to provide a safe choice for investors who can't handle even the smallest amount of risk and wouldn't dream of investing their money any other way.
In other words, a 401k will likely suffice if you can stomach very little risk, though it probably won't provide the investment growth you're hoping for.
If you take money out of a traditional IRA, 401k, or other retirement account that has tax advantages, you normally have to pay taxes and may also face penalties. However, if you roll the funds over into another eligible account within 60 days as specified by the IRS, then no taxable event is created.
Types of Retirement Account Rollovers – Direct and Indirect
There are two ways that a 401k to Gold IRA rollover can be executed:
Direct rollover
The most straightforward method to move funds from your 401k account into your new Gold IRA is to do a direct rollover. After you establish a Gold IRA, just reach out to your 401k plan administrator--the person who manages that account-- and tell them how much money you want to transfer into the custodian trustee of your Gold IRA. (You will get a custodian trustee for your Gold IRA as part of the account setup process. YourGold?IRA trustee can give you all the necessary information needed to pass along to your 401k plan administrator.)
An IRS Form 1099-R will be sent to you that documents the 401k withdrawal/transfer, but on this form in box 7 there should be a distribution code of “H”. This code tells the IRS that the transfer is not taxable. So, 20% withholding doesn't apply to direct rollovers like this one--meaning no taxes will come out of your Gold IRA savings.
Indirect rollover
An indirect rollover occurs when your 401k plan trustee sends you a check for the funds in your 401k that you want to invest in a Gold IRA. You then have 60 days to deposit that money into the new account. Be careful to make sure that the money is credited to your Gold IRA within 60 days from when you received the funds from your 401k, as holding onto the money beyond that timeframe will result in taxes and penalties.
Note:?An indirect rollover is when your 401k plan administrator sends 80% of the requested withdrawal amount to you and withholds the other 20% to send it to the IRS, which covers any potential tax liability. The IRS Form 1099-R will show both the amount disbursed to you and money withheld for taxes.
However, to avoid any taxes on the withdrawal, you have to deposit the entire amount of 100% into your Gold IRA- not just 80%. In other words, you'll need an additional 20% from your own pocket. Fortunately,you will get that 20% back after filing taxes for that year as long as you make your deposit within 60 days and follow all other IRS regulations for a Gold IRA. Even though getting the money back might seem reassuring, it does little to help when you're struggling to come up with extra money in order to complete your rollover.
Most investors opt for the direct rollover because it is much simpler to do.
Rollover Eligibility
Although most 401k retirement accounts enable IRA rollovers, requirements and eligibility may differ from plan to plan. Checking with your administrator is crucial to know what specific guidelines apply to your account.
When you tell a professional what you want to do - in this case, rollover your 401k funds into a Gold IRA - they will be able to explain the process and what is allowed. If you are at least 59 1/2 years old or if you're at least 55 years old and no longer employed by the company that provided your401k plan, there generally shouldn't be any issues with transferring your 401k funds into a Gold IRA.
If you're still employed by the company that offers your 401k plan and are 54 years old or younger, then you may not be able to receive an "in-service withdrawal" without being taxed. If that's true for you, then either get older or find a new job – or look into obtaining the necessary funds from another source to open up your Gold IRA.
Although most 401k plans don't allow for withdrawals or transfers of funds while you're still employed, there may be an exception. Many401k plans have a "hardship withdrawal" exception that your plan administrator can use to disbursefunds to you if they're willing. Having such an exception is usually at the discretion of the plan administrator.
Setting up Your Gold IRA Account
To set up a Gold IRA, simply follow these easy steps. Firstly, choose the correct Gold IRA company since IRAs are a self-directed type of savings. Don't worry if you're unsure where to start looking-- dozens of financial service businesses offer this type of investment account.
While any Gold IRA company can set up a Gold IRA for you, it's important to choose a provider that offers the level of services and customer support that you need. When choosing a precious metals IRA company, be sure to consider:
Step One – Create your Gold Individual Retirement Account
The first step to starting a Gold IRA is to review different companies and choose one that you would like to set up your account with. With so many options, it can be difficult to decide, but we've got you covered. In the next section of this article, we compare and review the top three Gold IRA companies for you. Things such as level of investing experience or how much time you're willing spend managing your Silver or Gold IRA will play into your final decision.
As part of the account setup process, you must decide if you want a traditional IRA or Roth IRA.
Step Two – Initiate Your 401k Rollover
After you create your Gold IRA, the next step is to contact your 401k plan administrator and request that they transfer money from your 401k into your new IRA. A direct rollover, where the people responsible for managing your 401k transfers money to the those in charge of managing?your Gold IRA, is by far the easiest method--plus it guarantees that no taxes will be taken out of any part of the rollover.
You can choose to transfer all, or just some, of your 401k funds. In addition to meeting any minimum deposit requirements set by your Gold IRA company, you should decide how much to initially fund your account as part of your overall financial planning – and more specifically, retirement planning.
Committing a percentage of your total investment capital to precious metals is ultimately your decision, although many financial planners recommend 10%. Your personal level of aggressiveness with investments in gold and silver can vary. When making this decision, ponder inflation and the economy's expectations, how much risk you're willing to take on, as well as any other financial assets you have or plan to invest in.
Step Three – Meeting IRS Custodian and Storage Requirements
There are two vital IRS rules to remember regarding precious metals IRAs:
1 – In order to maintain your Gold IRA account, you must have a custodian trustee that is appointed by the IRS. The trustee will be in charge of executing all decisions related to buying and selling investments, as well as filing necessary reports with the IRS. Custodian trustees are usually banks or trust companies.
2 – IRS-approved storage is a must for your precious metals. This means that you can't simply keep gold or silver in a drawer at home. Some of the most reputable companies that offer this type of service are Brinks and Delaware Depository. There are some loopholes when it comes to a home delivery IRA , but that's a harder thing to navigate.
Meeting these two requirements is part of the process when setting up a Gold IRA, but we've listed them as "step three" since they don't matter until your account is funded and ready to invest.
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Step Four – Invest!
The next, and arguably most fun, step is to invest in gold and silver once your account is all set up. You have the option of investing in bullion, coins, or both!
You can buy gold bars--or bullion--that weigh 1/10 of an ounce to several ounces. You can also buy coins minted from silver and gold in different sizes, but the most popular option is the one-ounce size.
The IRS only allows certain types of precious metal investments in your Gold IRA that meet specific purity, or “fineness” requirements.
*Exception:?The American Gold Eagle coins have an exception to the normal purity requirements set by the IRS. These 22-karat gold coins, produced by the U.S. Mint, gained popularity with investors upon their introduce in 1986. Compositionally, 91.67% of a gold American Eagle coin is pure gold while the rest of it is a mix silver and copper Alloys
Popularity doesn't define everything--IRAs don't count collectible, or numismatic coins as valuable investments. The IRS requires a certain level of purity for metals, and these types of coins didn't meet the requirements.
What Should You Buy for Your Gold IRA – Bars or Coins?
Although gold and silver coins, which often have famous designs, are more appealing to look at, they generally aren't as good of an investment in precious metals than gold and silver bullion. That's because coins normally have a higher value above the spot (cash market) prices of gold and silver, compared to bars of bullion.
When you purchase gold bullion (or silver, platinum, or palladium), you can be confident that your purchases will meet IRS approval by only purchasing bullion bars minted by a well-known and respected minter. The purity of thebullion is clearly stamped on their products.
Credit Suisse, Johnson Matthey, and the Perth Mint are all reputable gold and silver minters. Credit Suisse specifically mints gold bullion that is extremely pure at 99.99% purity. In addition to producing bars of bullion, the Perth Mint also creates a variety of gorgeous gold and silver jewelry items.
The vast majority of online companies that deal in gold and silver will have a current list of IRA-approved products, regardless of whether or not they offer Gold IRAs.
Step Five – Continue Investing with Regular Contributions
Every year, you can contribute up to $6,500 to a traditional or Roth IRA. If you're 50 years old or older, you can add an extra $1,000 annual contribution.
However, how much additional money you invest should be based on your total financial planning and current investment portfolio.
You can buy more precious metals for your IRA whenever you want by sending a "buy direction letter" to your custodian trustee. This letter tells them what to buy, where to get it, and how much to pay.
The Top Three Gold IRA Companies
The best Gold IRA companies make it easy for you to invest in precious metals. They will guide and advise you every step of the way, carefully explaining all the procedures so that you understand everything about your Gold IRA.
They offer custodian trustee services and IRS-approved storage services to make investing in precious metals simple. You just have to tell them which ones you want to invest in – gold, silver, platinum, palladium, or “all of the above” – and they will give you a range of options for coins and bullion bars that all meet the IRS requirements for fineness (purity).
It's essential that you read Gold IRA reviews and compare companies before making a decision. Consider the advantages and disadvantages of each company, remembering that distinct providers will offer numerous levels of service, have contrasting fees, and require different minimum deposits.
Always use a licensed and insured company as your Gold IRA provider. Three of the best companies, all with great reputations, are:
#3?Noble Gold
Goldco Precious Metals ?puts its customers first by giving them all the information they need to make an informed decision. That's why it's our pick for best customer support among gold IRA companies.
Pros & Cons
Pros
Cons
Why We Selected It
Goldco Precious Metals is a step above the rest,intending to gain their customers' full confidence by presenting investment information in an organized and objective way. With customer support as a priority, this company has rightfully established itself as a leader in the field since 2006.
Goldco offers "white-glove service" to its customers, which includes direct access to a specialist who can guide them through every step of their journey. Goldco also has an extensive education center on its website that covers a wide range of investing topics. Customers are encouraged to take full advantage of all the resources available to them.
Our consistent focus on the customer is what has earned us nearly perfect reviews on both Consumer Affairs and Trustpilot.
Goldco provides plenty of resources to its customers,pells out minimum fees and account custodians clearly. They also offer a free guide if you're interested. If you are, all they'll need is your name, email and phone number. Setting up an account with Goldco is quick too--it's primarily done online. Lastly, know that retirement funds can be transferred over easily as well; 401(k) rollovers included!
Augusta Precious Metal's ?pricing transparency is a huge benefit for customers, who always know how much they're paying and what they're paying for. That's why we've named Augusta the best gold IRA company.
Pros & Cons
Pros
Low-cost, transparent fee structure
Cons
Why We Selected It
Augusta Precious Metals offers a completely transparent and straightforward fee structure and pricing scheme, making it our choice for the best gold IRA for transparent pricing.
Augusta, a family-owned business, has since 2012 established itself as a company of integrity and openness. BCA bestowed its highest ratings on Augusta.
To build its customers' confidence, Augusta offers a money-back guarantee for new customers and guaranteed pricing along with seven-day price protection. You must contact the company?for details on setup, annual, storage, and other fees. Additionally, Augusta has an excellent buy-back program.
Augusta partners with the well-known Delaware Depository for their customers' storage requirements, featuring vault locations across America. As the account is self-directed, there are zero management fees.
Although Augusta offers great customer service, with specialists who help customers with all the paperwork they need for transactions and onboarding, purchases can't be made online.
Augusta's primary downfall is that it only offers a limited number of metals options. If potential customers are interested in investing in platinum or palladium, they will have to look elsewhere, as Augusta focuses strictly on gold and silver bullion and coins. Although relatively pricey, Augusta remains attractive for easy IRA rollovers because of its transparent pricing scheme.
#3?Noble Gold
We believe Noble Gold is the best gold IRA company for smaller investors, due to their low minimum investment requirement and extensive educational resources.
Pros & Cons
Pros
Low minimum investment
Cons
Why We Selected It
Although it was only established in 2016, Noble Gold has become a fast favorite as the best gold IRA company for new investors due to its low minimum investment requirement and extensive educational resource.
Noble Gold has quickly gained a reputation with consumer rating agencies, receiving a five-star rating from Consumer Affairs and BB rating from BCA (with only one complaint in the last three years).
At Noble Gold, not only do you have access to plenty of educational resources, but you'll also receive an initial consultation. This allows us to get a sense of your needs, preferences and objectives. After that, you'll be assigned a trusted advisor who will guide and educate you throughout the process without any unwanted high-pressure sales tactics. While our fees might not be the lowest, they are competitive nonetheless.
Although new customers do not have to pay a setup fee, all accounts are required to pay an annual service fee of $80. In addition, the annuaI storage fee is $150 per customer account. Fortunately, these fees are charged flatly to all accounts—regardless of size—and thestorage fee includes costs for segregated storage (unlike other companies that offer commingled storage).
With Noble Gold's large supplier and partner network, customers always get low prices on gold purchases. And if a customer ever changes their mind, Noble offers a "no-questions-asked" buy-back policy.
Noble Gold entrusts their clients' assets to Equity International for ultimate security. You can easily view your account information by logging onto their website. In addition, Noble employs the use of high-tech storage facilities from International Depository Services (IDS) with locations in the U.S., Canada, and coming soon Germany! choosing IDS also means that your possessions are insured under a policy from Lloyd's of London.
At Noble Gold, we want you to spend as much time on our website as you need in order to make an informed decision about opening a gold IRA account with us. You can begin the registration process online, but one of our representatives will need to help you finish it. We believe that this level of customer service ensures that everyone who opens an account with us is confident and knowledgeable about their investment.
Who Should Do a 401k Rollover into a Gold IRA?
There are several benefits to rolling over funds in a 401k account into a self-directed Gold IRA, including:
A Gold IRA has multiple tax advantages in comparison to other types of IRAs. As a self-directed IRA (SDIRA), you are given more options and freedoms when it comes to investment choices. With the current global economic uncertainty, investing in physical gold assets could offer you high ROIs that aren't found elsewhere. Furthermore, compared to other financial assets, such as stocks or cash, gold is less likely to be confiscated by the government or seized by creditors.
A Gold IRA can be a great investment, but speak to a financial advisor about whether it's the right move for you. They will help you decide between traditional and Roth IRAs, then compare different providers to find the best one for you.
I hope you found this Gold IRA Rollover guide helpful. While I can't guarantee that gold will make you rich, I can tell you that it's an investment that the ultra-rich hold in great numbers.