Investing
Many Americans today are looking for ways to protect their finances. Bank failures, high interest rates, and the prospect of recession are weighing on the US economy and making many people nervous about the future. No one wants to see a repeat of the 2008 financial crisis, but that’s a fear in the back of many people’s heads.
While the past several years have been pretty good ones for stock markets, the potential for a stock market crash has led to worries about the future. Markets lost over 50% of their value from October 2007 to March 2009, and a repeat of that could wipe out trillions of dollars of retirement savings.
More Americans are looking at alternative investments to protect themselves, including precious metals like gold. And for those looking to protect tax-advantaged retirement assets, a gold IRA is becoming an increasingly popular way to do so. But just how much money can you place in a gold IRA? Read on to learn more about gold IRA contribution limits.
Most people today are probably familiar with a 401(k), as that is the dominant form of employer-sponsored retirement savings account. But not everyone may be familiar with an IRA.
An IRA (individual retirement account) is a tax-advantaged retirement savings account whose development actually predates the 401(k). There are numerous types of IRA accounts, each with its own advantages and disadvantages. But these accounts were created to enable US workers to build up tax-free gains with their investments.
IRA accounts are managed by custodians, which could be a bank, a brokerage, or a custodian who specializes in alternative assets such as precious metals. The two primary types of IRA accounts today are a Traditional IRA, which uses pre-tax dollars to invest and which requires payment of taxes when you take a distribution, and a Roth IRA, which uses post-tax dollars to invest and in which you pay no taxes when you take a distribution.
A gold IRA is just an IRA account that invests in physical gold coins or bars. Most IRA accounts invest in financial instruments such as stocks, bonds, or shares in various funds. Relatively few IRA custodians are in the business of managing physical precious metals assets, which means that finding a custodian to start a gold IRA is a little more difficult.
Like any other IRA, a gold IRA can be either a Traditional IRA or a Roth IRA. This allows you the option to use either pre-tax or post-tax dollars to buy gold coins or bars and hold them in your gold IRA.
There are numerous benefits to owning gold. Here are four of the most important ones.
One of gold’s most important roles is portfolio diversification. Keeping all of your investments in assets that are impacted by Wall Street can lead to a concentration of risk within your portfolio. Gold is often considered to be a countercyclical asset, one that performs well when others don’t. And it can play an important role in diversifying your portfolio and altering your risk profile to help minimize losses during tough economic times.
Gold has been a safe haven asset for hundreds of years. Even today people flock to gold as a safe haven asset when the economy threatens to turn south.
And gold isn’t just a safe haven for individual investors either. Central banks today are one of the biggest buyers of gold, buying gold at a rate that hasn’t been seen in decades. They understand that when the economy tanks and currencies become devalued, gold is the ultimate monetary backstop.
Many people trust gold to act as a hedge against inflation. Over the years gold has maintained its purchasing power even though the dollar has become significantly devalued.
During the 1970s, gold’s annualized rate of growth was over 30% per year over the course of the decade, far outpacing inflation. If inflation becomes entrenched today, many investors are hoping that gold will repeat that type of performance over the next decade.
Finally, gold is an incredibly liquid asset. Gold markets operate around the world 24/7, and there are numerous sources from which you can buy gold and to which you can sell gold.
Gold can be sold almost anywhere, and many institutional investors will often turn to selling gold as a way to drum up some quick cash. If you’re in need of money quickly, selling gold can be one way of getting the funds you need.
While 401(k) plans dominate when it comes to employer-sponsored retirement plans, Americans actually hold more money in IRA plans. As of the end of 2022, Americans held $11.5 trillion in IRA plans, versus $6.6 trillion in 401(k) plans.
Seeing that, you might think that’s because investors can put more money into an IRA than into a 401(k). But the answer is no, and yes. How is that?
The annual contribution limit for IRA accounts in 2023 is $6,500, or $7,500 if you’re above age 50 because you’re allowed a $1,000 catch-up contribution. This is across all your IRA accounts, so if you have multiple IRA accounts, you can only contribute $6,500 combined to all those accounts.
For a 401(k) account, the annual individual contribution limit in 2023 is $22,500, or $30,000 if you’re over age 50 and take advantage of the $7.500 catch-up contribution. And the combined maximum individual plus employer contribution is $66,000, or $73,500 if you include the catch-up contribution.
In that sense, no, you can’t put contribute more money to an IRA than to a 401(k). So how do people have so much money in IRA accounts if the annual contribution limit for 401(k) accounts is 4-10 times higher?
That’s because IRA accounts can be funded through other means than just individual contributions. One of those is a rollover from a 401(k) account.
Once you have an IRA account established, you can roll over funds from a 401(k) or similar account into that IRA. Or if you have multiple IRA accounts, you can transfer funds among those accounts. These rollovers and transfers are of course governed by certain regulations and limits placed upon them by IRS.
But the 401(k) to IRA rollover allows you to use the existing retirement funds you’ve been accumulating at your employer and put them to use in an IRA account. Why might you want to do this?
For one thing, you might have an orphaned 401(k) at a previous employer that has just been sitting around doing nothing. Moving that money to an IRA could give you more investment options.
Other people might not like the limited options with their current 401(k) account and are looking for more or better investment options. And others may still feel limited by being able to invest only in financial assets, and might want to invest in alternative assets such as real estate, precious metals, or commodities.
Unlike annual contribution limits, there are no limits to how much money you can roll over from a 401(k) into an IRA. You could transfer $100,000, $500,000, or even $1 million or more. So in that sense, yes, you can put more money into an IRA than into a 401(k).
The only limits on rollovers and transfers are with respect to frequency, as these accounts are retirement accounts intended for long-term saving for retirement, not brokerage accounts. If you’re looking into rolling over or transferring your retirement assets, you’ll want to familiarize yourself with the IRS rules and regulations governing them.
The other thing to be aware of is that your 401(k) account has to allow outbound transfers in order to perform a rollover. Some 401(k) accounts may not allow in-service withdrawals, meaning that you have to keep your funds in that 401(k) as long as you remain with your current employer. In that case, your money has to stay in your 401(k) account until you leave your employer, or until your employer switches to another 401(k) plan that allows in-service withdrawals.
If you’ve decided that you want to roll over funds from your 401(k) into an IRA, the process is relatively simple. First you have to open up an IRA to receive the funds. Then you initiate the rollover process through your 401(k) plan. Once the funds have reached your IRA, you can use them to buy whichever IRA-eligible assets you want.
Goldco has helped thousands of customers over the years benefit from owning gold, and many of them have chosen to buy gold with a gold IRA. Our IRA specialists are ready to help you navigate the rollover process and get started with your gold IRA rollover. If you worried about gold IRA contribution limits being a barrier, the fact that you can roll over as much as you want into a gold IRA should be comforting.
For those who don’t want to roll over retirement assets, Goldco also offers direct cash purchases of gold coins and bars. No matter how you want to buy your gold, Goldco has options available for you.
With over $2 billion in precious metals placements and thousands of satisfied customers, Goldco has worked hard to become one of the most trusted names in the precious metals business. Call Goldco today to learn more about how you can protect your hard-earned savings with a gold IRA.
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