The 401K is one of the best retirement plans for many people. This is because it offers a wide range of benefits such as easy payroll deductions, long-term plan for a secure retirement, steady growth and so on. But the high rate of downsizing among businesses has forced many people to move from one job to another in search of the best deals, and this makes it hard to enjoy the benefits attached to a 401k. For this reason, the IRA account has grown in popularity. If you now have a gold IRA, you can roll over your savings in your old 401k into your new gold IRA.
What Is A 401(k) Gold Rollover?
A gold rollover involves the transfer of a 401(k) account from a former employer into a gold Individual Retirement Account. Here are some of the important rules you should know about this option:
- You may not be able to rollover funds from your 401K account into a gold IRA if you are still in the employment of the organization that sponsors your 401k plan. You should ask your employer if it is possible to rollover funds from your old 401K into a gold-backed IRA.
- It is possible to continue using your existing 401k plan while operating a separate gold IRA account.
- You can rollover your old 401k into a self-directed IRA or another 401K plan with your new employer.
Types Of Rollover
There are different ways of rolling over your old 401k plan into a gold IRA or any other precious metal-backed IRA account. They include:
Direct 401k Rollover
This is a straightforward method that involves transferring funds in your old 401k account into your new gold IRA account without having to pay any tax on the funds. Also, your former employer is unable to hold back anything from your account as everything goes straight into the new IRA. All you have to do is to complete the paperwork.
Indirect 401K Rollover
In this method, your former employer sends a check for the balance in your 401K to you. The disadvantage of this method is that you must rollover the check within 60 days, or the IRS will consider it has income and you will be required to pay income tax on the check.
Gold IRA Custodian
Here, a gold IRA custodian uses the funds in your IRA to invest in gold.
For the purpose of this article, we will discuss how to rollover your funds in a 401k into a gold IRA using a custodian IRA.
How To Rollover Your 401k Into A Gold IRA
Rolling over your old 401k account into a gold IRA is not a complicated affair, and can be done within a short period. Here is a breakdown of the process.
- The first step is to select a self-directed IRA custodian. There are many banks and other financial agencies that offer IRA accounts. Ensure that the IRA you are opening supports gold or precious metal investments.
- Complete the necessary documentation and paperwork required to transfer the funds to your existing 401k account into your new gold IRA account.
- When the custodian receives the completed paperwork and the funds have been deposited into your IRA, you can instruct your custodian to use a specific amount of money in your IRA to purchase gold.
- Your custodian is responsible for buying the precious metals which will be kept at an IRS-approved third-party depository.
- You will receive regular account statements on your gold investments from your IRA custodian.
If you are planning to rollover your 401k plan into a gold IRA account, you need to consider the following:
The IRA Custodian
There are many IRA custodians to choose from, but you must consider factors such as the company’s years of experience, fees and expenses, and customer reviews. You may check out custodians via the internet or visit their office to get a first-hand feel of their business.
The Depository
The same applies to depositories. Compare the insurance cover provided by different depositories, the fees, expenses, as well as the security.
The Gold Products To Invest In
The IRS has strict rules regarding the types of gold products that can be invested in an IRA account. Gold that can be invested in an IRA account must be 24 karats purity, but an exemption is made for the American Gold Eagle Coins which are 22 karats. Other gold products that can be bought include
- Austrian Philharmonics
- Canadian Gold Maple Leaf Coins
- British Gold Britannia Coins
- South African Gold Krugerrand Coins
- American Gold Buffalo Coins
- Chinese Gold Panda Coins
- Gold Bullion bars of minimum purity produced by approved mints.
Most of the gold products that can be purchased within a gold IRA are liquid and have lower premiums when compared to other products.
Why People Invest In A 401k Gold Rollover
Different individuals have different reasons for investing in a 401k gold rollover. But here are some common reasons:
Devaluation Of The Dollar
One of the main reason why many people invest in gold and other precious metals is to protect their fortune against the dollar devaluation. Different occurrences in the economic and political environment can cause upheavals that can crash the value of the dollar, leading to a loss of value of the paper currency. It is safer to tie down wealth in precious metals such as gold and silver because they are denominated in US dollars, and they usually increase in value when the dollar is depreciating. The downside of this is that the value of gold and silver may decrease when the dollar is gaining value.
Protection Against Inflation
Inflation is a situation where the cost of goods and services continue to increase, effectively reducing the purchasing power of money. To protect their fortune from the eroding effect of inflation, investors often purchase gold, silver, and other precious metals to shore up their financial assets. Many investors believe that investing in precious metals such as gold and silver is an effective way of hedging against inflation because gold and silver react inversely to the dollar. In times of galloping prices, an investment in gold or silver may help keep your fortune intact.
Diversification
One of the reasons for allowing people to invest in precious metals with their IRA account was to allow for the diversification of investment. While stocks and bonds are popular investment options, investors also want other assets apart from bonds and stocks. Investing in gold and silver provides that alternative for many investors.
Reliability
From time immemorial, civilizations have preserved the wealth of their nations in gold and silver as precious metals are acceptable for transactions all over the world and never lose value over time. More so, the value is constant in every part of the world.
Peace Of Mind
Investing in precious metals protects the investor from all the headaches caused by the volatility of stocks and bonds which react to every slight disturbance to the economy and politics.
The ease of rolling over your 401k into a gold IRA or any other precious metal IRA depends on the type of rollover you want to use. But whichever method you are going for, be sure to be familiar with the IRS regulations about the various procedures and what is allowed and disallowed in a precious metal IRA. Strictly adhering to the rules will make the rollover as smooth as possible.
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