As you get older, you may start looking into the many ways in which you can stash money aside for retirement. If you have an old 401(k) from an employer that is sitting idle, a 401(k) rollover is a popular option. You may not be aware, but the company managing the fund takes fees from your 401(k) even when you are not contributing. Over time this amount can add up to a significant amount if you’re not continually contributing money to grow it. When retirement savings are moved by means of a 401(k) rollover to an IRA, your investment choices will broaden.
Moving your retirement funds into a Self-Directed IRA gives you the opportunity to invest in non-traditional investments such as real estate, bonds, private lending, and precious metals like gold and silver. Rolling over your 401k to physical gold and other precious metals has become a very popular option due to the time-tested use as a store of wealth for thousands of years. Precious metals can be seen as a hedge, or portfolio insurance. Recessions are cyclical; it is not a matter of if, but when the next one will happen. Many were caught in the Great Recession of 2008 and are still recovering to this day. Because the price of precious metals tends to increase during tough economic times, your portfolio will remain stable even during recessions. Even if you choose to leave your job, it is possible to keep the funds you have earned in one place as long as you carefully select the 401(k) rollover option that best suits your circumstances.
If you have another form of an employer-sponsored retirement plan, you may still be eligible for a rollover. Check out our Gold IRA Rollover guide to get more information about the qualified plans, as well as a more in-depth step by step process about opening a gold IRA with Goldco. Our specialists are standing by to guide you, so don’t hesitate to reach out by filling out the form on the right-hand side of the page or by calling us at (855) 465-3472.
What is a 401(k) Plan?
A 401(k) is a section of the Internal Revenue Code that allows individuals to make contributions in a tax-deferred manner. This means that they will not be taxed on that contribution as part of their salary until they take a distribution when they retire (at age 59 1/2 or later). Some companies may provide match benefits that allow individuals to save additional money for retirement.
401(k) plans come with many benefits:
- Allows employees to save money easier by automatically withdrawing from their paychecks into their retirement accounts.
- Many companies will match employee contributions to help employees build their nest egg for retirement.
- The money that employees contribute to their retirement accounts is tax-deferred. This means that the money they contribute to their 401(k) will not be taxed. If you are making $45,000 a year and you contribute $5,000, you will be taxed on $40,000 rather than the full $45,000 meaning you pay lower taxes on your income. You will, however, need to pay the taxes when you take the withdrawal in retirement.
- Under certain circumstances, you can borrow from your 401(k) – to pay for: unforeseen medical emergencies, burial or funeral expenses for the family, education, towards the purchase of your principal residence, to prevent eviction, and to repair damage to your principal residence after certain casualty losses.
Indirect vs. Direct Rollover
An indirect rollover is a process of transferring assets from a tax-deferred plan to a traditional IRA. Funds are sent by check to the owner of the account and must be transferred to the traditional IRA within 60 days to avoid IRS penalty. There are some rules that apply – this method is typically not recommended due to withholding rules which cost the individual 20% of the amount to be transferred. This method should only be used if you absolutely need your money during those 60 days. You also are allowed only 1 indirect rollover per 12- month period.
A direct rollover is a process of transferring an individual’s retirement funds from trustee to trustee (or custodian to custodian). Since the assets never touch the individual, this method is penalty free and not taxable. Typically any rollover from a 403(b), governmental 457, qualified plan (such as a 401k, profit sharing, money purchase) qualifies for a direct rollover and this is the recommended method. There is no limit to the number of direct rollovers that can be performed on an individual’s account.
A Lack of Choice
While 401(k) plans have their benefits, one major drawback is a lack of choice. 401(k) plans tend to give you a small selection of funds to choose from. When you open a self-directed IRA, you are in control of your retirement. You pick what you want to invest in, and you control how those funds are directed. You can invest in real estate, bonds, private lending, precious metals, and more. Fortunately, if you complete a direct rollover of your retirement assets, you can do this penalty free and you will be free to open a Self-Directed IRA and start investing in the assets we mentioned above.
Long Gone Are the Days of Pensions
Pensions in the United States have been around for over 160 years. They were designed to allow individuals to have guaranteed income when they retired. Over time this proved to be a burden on companies because the life expectancy of humans has increased significantly over the last 200 years so companies had to pay excessive incomes. This continues to be an issue today. They have become phased out in favor of the 401(k) (except for public sector employees and select companies) – most individuals are now forced to be in charge or their own retirement income.
Social Security – Gone by 2037
Social security in the United States was signed into effect by President Franklin D. Roosevelt in 1935. Social Security is a government-sponsored program that allows retirement-age individuals to have some form of basic income in retirement. This program is funded by payroll taxes and designed to help prevent poverty for Americans that are no longer able to work. Every tax-paying employed individual in the United States contributes to this program. In 2015, Social Security accounted for 750 billion in expenditures; this is only expected to increase due to the average life expectancy increasing. Analysts are predicting that Social Security funds will be gone by 2037 and along with this, the benefits. Because of this, individuals are becoming increasingly responsible for their own future and retirement.
Don’t let your 401(k) sit idle and let the fees eat away at your portfolio. Contact a Goldco representative and rollover your 401(k) to gold today.