In times of economic and sociopolitical turbulence, nations and their citizens often preserve their wealth in precious metals, especially gold. For thousands of years, gold has been a choice store of value for many people who want to safeguard some of their wealth from the uncertainty and instability of paper currency.
When it comes to retirement funds, many diversify some of their holdings into gold investments to prevent losing all their assets in times of stock market crashes and other economic upheavals that could wipe off the value of currency-backed investments.
Gold investments can come in the form of buying physical gold products such as gold coins or bullions, buying shares of gold mining companies, buying gold-backed ETFs or mutual funds among others.
If you have a 401K retirement plan, you may also be able to invest some of your savings in the account into gold assets, but there are limitations to what you can do with a 401k retirement account. However, you can convert your 401k assets into gold investments through some of the options below.
Review Your Current 401K Options
Individual 401K accounts offer a wide range of investment opportunities, the majority of which are tied to the stocks markets including stocks, bonds, mutual funds, cash reserve investments and others.
Your job is to determine whether your plan allows you to invest in any form of gold assets such as a gold-backed mutual fund or gold ETF. If your 401K plan provides for such investments in gold assets, then this is the most direct and easiest way of diversifying your retirement savings into precious metals.
You can invest all or a part of your plan into gold assets, but it’s better to use only a percentage of the funds to protect yourself from huge losses in case the value of gold drops.
Does Your Plan Allow for a Self-Directed Investment Option?
Also known as brokerage window, the self-directed investment option allows you to choose the investment options you want your custodian to buy on your behalf. With this, you can direct your administrator to invest all or part of your retirement plan in gold products such as physical gold or gold shares and mutual funds.
If you are using this option, it’s important to know that buying physical gold such as coins and bullion may require storage at a third-party depository as well as insurance, which you will have to pay for from your retirement savings. Your custodian might also charge extra fees for carrying out the transactions on your behalf, and these can quickly eat into your retirement funds.
The limitations of a 401K retirement plan are largely due to the investment options which your custodian permits in your plan. This means that they may be able to allow you to invest in gold if you can convince them to include it in your plan if it’s not there in the first place. This becomes easier if many other employees in your organization are also interested in diversifying their retirement funds into precious metal assets.
However, be sure to understand the cost implications of getting your custodian to invest in gold on your behalf as it can attract extra fees that may hurt your account in the long run.
Perform A 401K-Gold IRA Rollover
If you are leaving your employer or want to have unfettered freedom to invest your retirement savings, one of the best ways is to rollover your 401k plan into a gold-backed IRA. To do this, you have to find out if your employer allows you to move out your funds into an IRA while still in their employment.
You can roll your 401k plan into traditional and Roth IRAs or gold-backed IRAs, but the most flexible of all retirement accounts when you want to invest in gold is a Gold IRA or Self-directed IRA.
When you want to rollover your 401k into a Gold IRA, you need to do some due diligence. You will have to open a Gold IRA account and rollover funds from your old account before you can start investing in gold.
Opening A Gold IRA account
The first step is to open a Gold IRA. Gold IRA accounts are so-called because they allow investors to buy gold assets with their retirement plan. Additionally, a Gold IRA account also allows you to invest in other precious metals such as silver, platinum, and palladium. You can also invest in a wide range of other assets that are not allowed in 401Ks and traditional and Roth retirement plans.
With a Self-Directed IRA account, you can invest in regular stocks and bonds, mutual funds, as well as physical and paper gold, commodities, real estate, private equities, and others. The flexibility and freedom of investment offered by Gold IRA accounts are unprecedented. However, you also need to be careful when buying assets, so you don’t lose your retirement savings and jeopardize your plans for life after work.
Gold IRA administrators are specialized bodies. They can be banks, brokerage firms, and other financial institutions. Self-directed IRA administrators need to be specialists because the vast number of investment options allowed in the plan makes management complex. With the complexity of management comes higher administrative costs.
The ideal Gold IRA administrator should have a proven track record of excellence, good customer relations, offer excellent investment options, insurance cover, and affordability. You should make sure the custodian you choose permits investments in the type of gold assets you intend to buy. Once that is settled, and you have opened the IRA account, you can go ahead to fund it by performing a rollover from your 401K retirement plan.
How Do I Perform A 401K Gold IRA Rollover?
When you want to rollover your funds from a 401K plan to a Gold IRA, you can either perform a rollover or direct transfer. The two will move your savings from the 401k into the Gold IRA but have some differences.
In a rollover, your 401K administrator offers you a check for the funds you want to move, and you have a maximum of 60 days to deposit the funds into your Gold IRA account. If you haven’t deposited the funds into the recipient account after 60 days, the IRS will tax the money as an income, and you will also be fined a hefty penalty for withdrawing your retirement funds before attaining the required age.
During the 60-day grace period, you can spend the money on anything you like, but make sure to deposit it into your IRA before the end of 60 days. The rollover is considered a short-term loan from your retirement funds because of this reason.
As for a direct rollover, your 401K custodian transfers the funds directly to the custodian of your Gold IRA account through a check or electronic wire transfer.
For both procedures, you need to fill out paperwork that will be provided by your Gold IRA custodian who processes it and sends to your 401K custodian. You will have to pay processing fees and other applicable charges.
Investing In Gold
Once your Gold IRA account has been funded, you can now set out to investing in any assets that your IRA permits, including gold and other precious metals. All you have to do is find assets that you are interested in and instruct your custodian to invest in those assets with a given percentage of your retirement funds.
However, you can’t keep any physical gold you buy with your retirement savings. These will be kept in storage at an IRS approved depository. You will have to pay for the services of your custodian for managing your account on your behalf, and you also need to pay for the storage of your precious metals. Check out these fees as they vary from custodian to custodian.
These payments are deducted from your retirement funds, and can quickly add up within a short time. While this offers more freedom to invest in gold and other assets, it may be costlier if you don’t invest wisely. It’s highly recommended you work with a company that has a good track record and whose fees are reasonable.
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