Should you go with a 401k or gold IRA when planning for retirement? It’s a popular question. There is no objectively “better” choice, though most professionals agree that investing in gold is smart. If you’ve already got a 401k plan through your employer, you can issue a 401k to gold rollover. You can convert IRA to physical gold with your own IRA account. Whether doing a 401k to physical gold IRA rollover or converting an existing IRA, our gold 401k rollover guide can help you.
401K or Gold IRA?
Before discussing 401k to gold rollover, let’s discuss whether you should go with a 401k or gold IRA. First things first: 401ks are employer-sponsored. You can’t have one if your employer doesn’t offer a 401k plan. There’s no option for an independent 401k like an IRA.
Now, if you work for yourself, that’s a bit different. If you’re self-employed, you can open what’s referred to as a Solo 401k. It doesn’t matter what sort of business you’re in. If you’re your boss, you can offer yourself a 401k. A Solo 401k allows for much higher contributions than a traditional employer 401k.
Which is Better?
When it comes to the question of 401k or gold IRA, there are definite pros and cons to each. It’s not a simple choice because they both offer unique benefits. For example, IRAs provide more investment options. In this case, they allow you to invest in precious metals. On the other hand, 401k plans let you make higher annual contributions, and it’s not even close.
In 2023, the annual contribution limit for an IRA is $6,500 if you’re under 50 years of age and $7,500 if you’re over. By contrast, the yearly limit for a 401k is a whopping $22,500 for people under 50. If you’re over 50, you can contribute $30,000. When you then consider that many employers match 401k contributions (some up to 100%), it’s easy to see the appeal of a 401k plan.
For many people, the deciding factor when deciding between a 401k or gold IRA is whether or not their employer matches their contributions. If they don’t, people will likely go the IRA route.
Why Not Both?
An important thing to keep in mind is that you don’t have to decide between the two. You’re allowed to have both a 401k plan and an IRA. A popular option is to fund the IRA first, given the lower annual limit, and then begin funding your 401k program once the other is maxed out. So yes, having two accounts is not only allowed but is a smart option.
Here’s the critical question: what if you’ve already started a 401k plan but want to convert that money to an IRA? That’s where a 401k to gold rollover comes in.
401k to Gold Rollover
If you’re not going to maintain two accounts, both a 401k plan and an IRA, then there’s no real reason to postpone a gold 401k rollover. If you focus on your IRA account, your money will do better in that account rather than just sitting in your 401k, collecting dust. Plus, you’ll need that money to purchase more metal if you want to invest in gold or other precious metals. For the record, you cannot invest in gold through a 401k. These plans only allow for “paper investments,” which means stocks, mutual funds, and paper currency. Precious metals are something of an alternative investment, along with cryptocurrency and real estate.
Fortunately, a 401k to physical gold IRA rollover is an easy process, especially considering that you don’t have to do much. You don’t have to do anything if you do a direct rollover.
Direct Rollover vs. Indirect Rollover
When conducting a 401k to physical gold IRA rollover, there are two types of rollovers: direct and indirect. As you can probably guess, direct rollovers are the easiest. If you’re doing a direct gold 401k rollover, you don’t have to do anything on your part. When you set up your gold IRA, they’ll assign you a custodian trustee. Your existing 401k plan also has a trustee as the plan administrator.
To complete a direct rollover, all you need to do is ask your 401k plan administrator to transfer the funds to the custodian of your gold IRA. The actual 401k to gold rollover will occur entirely between the two individuals.
The other benefit of a direct rollover is that the standard 20% tax withholding rule doesn’t apply, so the entire transaction takes place tax-free.
With an indirect rollover, you’ll be active in the ordeal. The process is also considerably more complicated. When doing an indirect rollover, your 401k plan administrator cuts a check for the amount you want to transfer into your new IRA and gives it directly to you. You have 60 days to open a gold IRA and deposit it before it’s subject to taxes and tax penalties.
This is where it gets even more tricky. The check you receive will be for 80% of the requested funds. The other 20% will be sent directly to the IRS by the 401k plan administrator to cover any tax liability that might come up. Fortunately, you will get that 20% back after you file taxes. The complications don’t end there, though!
Although the check you receive for your 401k to physical gold IRA rollover is only for 80% of the amount requested, you still need to deposit the complete 100% into your new IRA account. You must come up with the other 20% out of your pocket.
A direct rollover is a more straightforward, affordable way to do things. Only go with an indirect rollover if the direct option isn’t available.
Convert IRA to Physical Gold
We’ve talked at length about a 401k to physical gold IRA rollover. What if it’s not a 401k you want to roll over? What if you have an existing IRA account that you want to turn into gold? Fortunately, it’s not difficult to convert IRA to physical gold. It works much the same way as a gold 401k rollover.
Transferring money from an existing IRA into a new precious metals IRA works like a direct 401k rollover. Each IRA is going to have its custodian. Generally speaking, it’s not illegal to have multiple IRAs with the same custodian/institution. However, different types of IRAs, in this case, a traditional and a precious metals IRA, have different kinds of custodians.
Since you’ll have two different custodians, the transfer happens between them. Just like a 401k to gold rollover, all you need to do is ask the custodian of your existing IRA to transfer money to the new custodian. You can transfer some of the money or all of it. There’s an argument for both.
On the one hand, it’s essential to diversify. Any investment professional will tell you the same. Gold is a great way to diversify. Many professionals recommend putting roughly 10% into gold while keeping your old account intact.
Be aware that the annual IRA contribution limits apply across all accounts. That means your contributions will be split across all your IRAs. That certainly doesn’t mean you’re going to be losing out. It’s just something to keep in mind so that you can plan out your distributions.
Once they transfer the money, you can talk to your gold IRA custodian about available products. The IRS must approve the products, but a wide variety of coins, bars, and more are available to invest in. Any metals you buy will be stored in an IRS-approved depository for safekeeping. Happy investing!
Grab Our Free Guide
In this article, we’ve covered some of the basics of a 401k to gold rollover, but that’s just what they are: the basics. If you want to learn more, grab our free 2023 Gold IRA Kit. As the name says, it’s completely free, including shipping and handling. We’re looking to help you invest your money, not spend it.
Once you request your free kit, we’ll give you a quick phone call to ensure we have all of your information correct, and then your kit should show up in just a few days. It includes a printed, audio, and video guide, so you can choose the one that will benefit you the most.