Should I Roll My 401(k) Into a Gold IRA?

401(k) to IRA rollover

Americans hold over $6.6 trillion in retirement savings in 401(k) accounts, making them one of the largest sources of retirement savings in existence. Americans also hold nearly $11.5 trillion in retirement savings in IRA accounts, making them the largest source of retirement savings. But with the possibility of recession becoming ever more likely, many people are looking at ways to protect those assets against loss.

One way of doing that is by rolling over 401(k) assets into an IRA, or by transferring IRA assets into another IRA that might have better investment options. In the case of people looking to protect their assets with precious metals, a 401(k) to gold IRA rollover is an increasingly popular option. So should you roll your 401(k) into a gold IRA?

What Is a Gold IRA?

A gold IRA is, like it sounds, an IRA (individual retirement account) that owns physical gold coins or bars. Whereas most IRA assets today are held in the form of stocks, bonds, or shares of funds, a gold IRA actually owns tangible, physical assets.

Many IRA custodians don’t offer gold IRAs as an option because they don’t want to have to deal with managing precious metals assets. So if you want to start a gold IRA and do a 401(k) to gold IRA rollover, you’ll have to work with IRA custodians who have experience managing precious metals assets.

What Is a Rollover?

If you haven’t ever moved money from one tax-advantaged retirement account to another, you might not know that it’s possible. But it is, and depending on your particular retirement plan’s rules, you can normally move funds from both 401(k) and IRA accounts into another IRA account. IRA accounts often offer a wider range of investment options than workplace 401(k) accounts, which is why IRAs are so popular with many investors.

Moving funds from a 401(k) account to an IRA account is normally referred to as a rollover, while moving funds from one IRA account to another IRA account is often referred to as a transfer.

These movements of funds are subject to certain rules and regulations which it’s important to keep track of. In most cases, a 401(k) to IRA rollover can be done tax-free, as funds are moved from your 401(k) plan’s custodian directly to your IRA custodian. The same goes for transfers of funds from an existing IRA plan to another IRA plan.

A rollover or transfer can help you take advantage of alternative assets that you might not be able to invest in with your current retirement plan. Take, for instance, the example of a 401(k) to gold IRA rollover.

If your 401(k) plan has any exposure to gold at all, it might only be to shares in gold mining stocks, or maybe to a gold exchange-traded fund. In order to actually buy physical gold with your 401(k) assets you would have to roll them over into a gold IRA, then use those assets to buy gold coins or bars.

How Do I Do a 401(k) Rollover Into an IRA?

A 401(k) to IRA rollover can be done relatively quickly and easily. The first thing you’ll have to do is set up an IRA. If you’re looking to set up a gold IRA, Goldco works with IRA custodians who have experience with precious metals assets and can help you set up your gold IRA.

Once you have an IRA account set up, you’ll need to contact your 401(k) plan administrator to begin the rollover process. In the case of an IRA transfer, you’ll need to contact your IRA custodian to start the process.

Each 401(k) plan or IRA custodian has its own rules for how the rollover or transfer process works. Some require you to wait a certain amount of time before they’ll allow you to begin the process. But in general the process begins with you providing your existing plan administrator with the name of your new IRA custodian, account number, and information for where to send your funds.

Your 401(k) plan administrator or old IRA custodian is then responsible for sending your funds to your new IRA custodian. Once funds have been transferred, your new IRA custodian should notify you that your funds have been transferred. Depending on what kind of forms you have to sign and the method of funds transfer, you can expect this process to take anywhere from a few days to a couple of weeks.

Some retirement plans may make it difficult for you to rollover your funds, as they get paid based on the amount of assets they have under management. Others may try to make absolutely sure that it’s you transferring your funds and not some scammer trying to impersonate you. So while you may be in a hurry to start a gold IRA and buy your gold, you’ll have to remember to be patient as this process works its way out.

Advantages of a 401(k) Rollover

Like any financial decision, there are both pros and cons when it comes to a 401(k) rollover. Here are a few of the pros.

More Control

In general, IRA plans are going to have more investment options available to them than 401(k) plans. And certain assets, like gold, just aren’t available through 401(k) accounts. If you want the maximum flexibility in what you can invest in, a 401(k) rollover might be the way to achieve that.

Making Use of Orphaned Funds

Many people leave a job without taking their 401(k) funds with them. Those funds may just be sitting there in a money market account earning relatively little. Or in a worst case scenario they may be invested in high risk funds and losing money. With a 401(k) rollover, you can move those funds into an IRA and get more control over how those funds are being used to ensure that you’re maximizing their value.

Withdrawal Flexibility

Some 401(k) plans may have strict rules over when you can withdraw funds and how much. By comparison, most IRA accounts are subject to less restrictive rules, and you can exercise greater control over when and how much money to withdraw.

H2: Disadvantages of a 401(k) Rollover

401(k) rollovers aren’t without their disadvantages either. Here are a few of them.

Exposure to Lawsuits

Employer-sponsored retirement plans such as 401(k) accounts are generally protected against creditors under federal law. But IRA accounts have no such protection and are dependent on state laws for their protection. If you expect to face lawsuits that could target your assets, a 401(k) account could offer greater protection than an IRA.

Early Retirement Benefits

In general, taking distributions from a 401(k) account before you turn age 59½ will subject you to a 10% penalty in addition to any taxes you owe. But there’s a little-known “rule of 55” that applies to 401(k) accounts.

If you lose or leave your job in the year you turn 55, or in years after you turn 55, you can begin taking distributions from that job’s 401(k) plan before age 59½ without paying the 10% penalty. This doesn’t apply to other 401(k) plans from previous employers or to funds you have in an IRA. Those still can’t be touched penalty-free until you turn 59½.

No Loan Option

Finally, there’s no option available to take a loan from an IRA account like there is from a 401(k) account. While many financial experts advise against taking loans from a 401(k) account, some people may find it necessary to tap into a 401(k) for some emergency cash. You can’t do that with an IRA.

Rollover Rules to Remember

In addition to weighing the pros and cons of a 401(k) rollover, there are a few rollover rules you need to remember. Probably the most important one to remember is the difference between indirect and direct rollovers.

In a direct rollover from a 401(k) to an IRA, or a trustee-to-trustee transfer from one IRA to another IRA, the funds from the old account are sent directly to the new account. The money never touches your hands and you don’t have to pay any taxes.

In an indirect rollover, the funds are sent to you from the old account and you have 60 days to deposit them into the new account in order to keep from paying taxes. However, you will have 20% of your funds removed to cover taxes, and you’ll have to come up with that money from other funds in order to ensure that the whole amount you withdrew from your old account makes it into your new account.

In addition, you’ll need to remember that IRS has instituted a one rollover a year rule. This means that you can’t make more than one rollover from an IRA in any 1-year period. You also can’t make a rollover from the IRA to which you sent funds.

There are a few exceptions to this rule, including:

  • Roth conversions from a Traditional IRA to a Roth IRA
  • Direct trustee-to-trustee transfers from one IRA to another IRA
  • IRA-to-plan (e.g. 401(k), 403(b), etc.) rollovers
  • Plan-to-IRA rollovers
  • Plan-to-plan rollovers

If you’re just going to roll over funds from a 401(k) to an IRA, you probably won’t need to worry about this. But if you want to start moving funds from that IRA after the rollover, you’ll want to consult with your tax advisor to make sure that you’re not opening yourself up to potential tax and penalty liabilities.

So Is a Rollover the Right Thing for Me?

Ultimately the question of whether or not rolling a 401(k) into an IRA is a good idea is something that you’ll have to answer for yourself based upon your specific circumstances, financial goals, and financial needs.

If you want to gain extra flexibility above and beyond the choices in your 401(k) plan, a rollover could be an option. And if you want to invest in physical gold coins or bars such as those you can hold in a gold IRA, then a rollover from a 401(k) into a gold IRA may be the way you want to do it.

Many Americans have already rolled over portions of their 401(k) and other tax-advantaged retirement assets into gold IRAs. The ability to protect existing retirement savings with a tax-free rollover is certainly appealing. And given gold’s recent performance, and expected future performance if the US economy falls into recession, it’s no surprise that demand for gold remains strong.

If you have assets in a 401(k), 403(b), TSP, IRA, or similar account that you want to protect against loss in the event of recession, now is the time to start exploring and learning more about your options. Educate yourself on the rollover process, the assets you can invest in, and look for partners who can help you achieve your financial goals.

Goldco has significant experience with the 401(k) to gold IRA rollover process, and we’ve helped thousands of customers benefit from owning gold. Call Goldco today to learn more about how you can roll over your 401(k) into a gold IRA.

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