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Most people in the US are familiar with the concept of a 401K. This is a special retirement plan that you sign up for through an employer. If many employees sign up to the same plan, you get special investment benefits. For example, your employer might match your contributions, which essentially leads to double the investment.
The other most common type of retirement account is an individual retirement account, or IRAs. These function very similarly to 401Ks, except that they're based on the individual. Rather than choosing something based on what other employees are signing up for, you have the freedom to pick something unique for yourself.
Diversification is a major deal where your retirement is concerned. The more diverse your investments are, the more combined stability and potential for growth you have. Certain higher risk investments can pull in dividends from quarterly profits, while lower risk investments can be a hedge against volatility.
Gold is one of these hedge investments. And you can put a portion of your 401K funds toward gold, silver, palladium, and platinum. But what exactly do you need to know before doing so?
About Gold in Retirement
One of the major advantages of an IRA is the tax benefits. When you put money into this retirement account, it won't be taxed at all until you take distributions. That means that you can invest larger sums and allow for greater growth over time. When the time to retire comes, you'll only pay taxes on the money that you withdraw from the account.
If you purchase gold or other precious metals with your retirement funds, you get access to these same tax benefits. But it's important to note that you must buy the metals with your existing funds. You can't take a coin collection that you already own and enter it into an IRA.
Another thing is that there is only one type of IRA that can hold gold. It's called a self-directed IRA. Traditional IRAs can't hold these types of assets. If your IRA has an investment manager that handles the entire portfolio, then it's probably a traditional account. So you'll need an all-new account that's compliant with the IRS regulations.
Then you have to fund that account. But there are strict rules regarding how. You can make a contribution from your savings, but that has an annual maximum cap. Your other option is to roll over the funds in your other retirement accounts. The paperwork to do so can seem overwhelming, so we've broken down some of the key pieces to be aware of.
How Do You Turn Your 401K into Silver or Gold?
Your 401K funds can only be used for a limited type of investments. Alternative assets like precious metals aren't on this list. So you can't just call up your investment manager and tell them that you want to buy precious metals. You need to create a self-directed IRA first.
Then you'll need to roll over your funds. A rollover is the term for when you take funds from one retirement account and put them into another. This can be done without any major penalties as long as it happens in the first 60 days after the account is created.
If you don't file and process all of the paperwork properly, then the funds will be withdrawn from the 401K like an early withdrawal. If you haven't yet reached the retirement age of 60, then you'll be subject to penalties. So it's important to make sure that you start the paperwork process as soon as possible.
There's a good chance that your existing 401K has some major drawbacks. You probably have highly limited options regarding which investments you choose. There's not much of an opportunity to direct how your money is spent. In addition, you'll typically pay a high percentage of the holdings to the investment manager. Many employers just get the cheapest 401K possible, instead of the best choice for their employees.
These are the main basic steps to keep in mind when you're transferring your funds:
Picking an Account
When you open up a new retirement account, you have access to more options. Not only can you look at different investments, but you can also find plans that have a low number of fees. Do you know how much you pay in fees to your current account manager? How does that compare to some of the other options?
It is possible to have many different retirement accounts. So if you create a self-directed IRA, you don't have to move all of your funds into it. You can use that account exclusively for precious metals if you want. Alternatively, you might use it for investments like real estate and cryptocurrency as well, since these also can't be kept in a traditional account.
If you don't want to open a self-directed IRA, then your other option is a solo 401K. This is a retirement plan typically used by business owners. It allows you to put an extra portion of your business income toward your retirement, acting as both employee and employer. These accounts can hold gold as well.
Opening the Account
It's gotten easier and easier to take charge of your retirement, especially with the advent of the internet. You can go online and find a custodian for your IRA. Then fill out an application online to create an account. There are even robotic advisors, which automatically generate portfolios balanced between the different assets you want to invest in.
That's an option that people often choose when they're not sure where to start. It's hard to create a balanced portfolio, particularly without a strong background in finance. That's why traditional IRAs are managed by a finance professional instead.
But no matter what company you use as your custodian, you will end up needing to pay certain fees. These fees can quickly add up, especially when they're based on a percentage of your account. Some custodians have hidden transaction fees that surprise people. Make sure you research your options thoroughly before committing to anything.
It's a good idea to look for a custodian that charges flat fees. These remain the same no matter how much you do or don't have in your account. Alternatively, you can look for a gold dealer that has partnered with these custodians. The gold dealer might be able to get you access to a better deal than you'd get otherwise, thanks to their exclusive network.
Rolling Over Funds
The next step is the actual rollover of the funds. This can seem like the most complicated part of the process, thanks to the combination of paperwork and coordination. You'll have to reach out to your old retirement account manager to start the process to transfer the funds.
This must occur as quickly as possible. Sometimes 401K providers will purposefully go slowly about the proceedings, just because they don't want to lose your funds. That goes especially for people who are transferring over all of their holdings rather than just a small portion.
It is vital that you directly roll over your funds. They should go right from your old account to your new one without ever being handled by you personally. If you receive a personal check, you will end up with the penalties for early withdrawal. On top of this, you'll be subject to the investment maximums when putting your savings toward a new account.
As soon as the funds have left your existing retirement account, they need to appear in the new account in the first 60 days after creating it. Anything past the 60 day mark will cause penalties to ensue. Typically, the paperwork filing process takes a few weeks.
There are usually some forms and applications to fill out in order to facilitate the rollover. You'll need to give your old provider information about the new account and custodian. To find out exactly what paperwork needs to be filed, you'll have to talk to your old provider. When the paperwork is filed, the funds can be transferred via a quick wire transfer or a slower mailed check.
There's another option called an indirect rollover as well. But this is extremely complicated. To do an indirect rollover, you have the money withdrawn to your normal account, then deposited into your IRA in the first 60 days after creating it.
While it's possible to do this without penalties, you have a much higher chance of incurring penalties. There are more regulations to follow, and more chances for delays. You could end up paying both penalties and taxes. Your provider might also remove 20% of the holdings to pay taxes automatically. This won't be an issue if you simply use a direct rollover.
Choosing Your Investments
Once the money is finally in your account, then you actually get to shop! You can pick exactly which investments you want and how you want to allocate your funds. If you want to invest in things other than precious metals, you can. Just keep in mind that every asset has specific IRS regulations that you must follow.
These regulations can be hard to keep track of, especially if you don't know a lot about retirement planning. That's part of why there are so many expert companies that help people to buy products and store them in ways that comply with the IRS.
If you invest in gold or silver, you will need to meet certain purity standards. Bullion coins must be from approved sovereign mints. You won't be able to store collectible rare coins in your account. You'll also need to open a storage vault with an IRS-approved depository, which complies with the lawful security regulations for an IRA.
It's illegal to store IRA gold at home or outside of an approved depository. This means that you'll pay annual fees to keep your vault open, as well as maintenance fees. The precious metals won't earn dividends like stocks and other investments will. But they are considered an important hedge against inflation.
In addition to buying actual physical gold, there are several other ways to invest part of your funds into the precious metals industry.
One choice is to invest in gold options and futures. Rather than being purchases of gold, these are contracted agreements to sell or purchase gold at set prices in the future. There are tight regulations regarding these contracts, and they can be difficult to navigate if you're inexperienced. But they are a means of making money that many investors on Wall Street swear by.
Another option is to buy stock in gold mining companies. There are mining companies all over the world, several of which own mines in many countries. The largest of these establishments have enough operations that one problem won't be enough to impact profits. Unlike with traditional gold investments, you actually do get dividends from these. But you also have the risks that come with company management and stockholder speculation.
There's also the potential for investing in gold ETFs. ETF stands for exchange-traded fund. This type of fund covers a whole host of different assets. You might have different gold products, stocks, and other items. You can trade ETFs at any time when the market opens. But since you don't personally own everything in the fund, there is some risk if the company behind the ETF goes belly-up.
When Are There Penalties on Rolling Over Your 401K?
Rollovers in general are protected from penalties, as long as you comply with the regulations. You don't have to do any sneaky filing or paperwork to use this option. But you do need to have the funds move from one account to the other in 60 days. That's the one major regulation.
The easiest way to ensure that you meet the requirements is by using the direct rollover practice. The funds will go right from your old account into the new one with no middle man. They'll never touch your personal account. If you pay with a bank wire transfer, that's much faster than mailing a check. Checks can get lost in the mail, and even when they arrive, it takes several days for them to clear.
The minimum retirement age is 60. When people take funds out of their retirement accounts before they are 59.5 years of age, they are subject to a 10% penalty on the withdrawal. That's on top of needing to pay income taxes at both the state and the federal level. Depending on your state tax laws, you could end up spending 45% or more of this withdrawal just on the penalties and taxes.
How Do You Turn A 401K into Precious Metals Without Penalties?
All you have to do is facilitate a direct rollover. You'll talk to your old account manager, fill out the paperwork, and have the funds transferred. It really is that simple.
If you're concerned about getting all of the paperwork in order, there are companies specifically designed to help with this. Not only do they walk you through the account setup process, but they can talk to your custodian for you. If your custodian is dragging their feet, your company representative can hound them. It's a great way of protecting your precious free time and energy.
Our Top Recommendations for Converting Retirement Funds into Precious Metals
These companies will all take you through the entire IRA process. Not only will they set up your account, but they'll explain the rollover paperwork. Some of them will handle every interaction with your custodian so that you don't have to. Then, once your funds have been transferred, they will help you choose IRA-eligible gold at a decent price.
Goldco is our top pick because of their incredible customer service. There is no company that has an approach quite as streamlined as Goldco's. When you call to get started, you'll be given one dedicated representative. This person will see you through the whole process and make sure that you get exactly what you need.
Goldco has also partnered with a top custodian and several depositories throughout the US. They have transparent pricing and expectations when you're deciding what you need.
To get started with Goldco, you just have to pick up the phone and talk to a representative. The company does ask that you have at least $25,000 to invest.
Augusta Precious Metals is the second-best company to help you roll over your funds. Like Goldco, they will match you with a dedicated representative. And like Goldco, this person will take you through the entire process, including communicating with the custodian for you. That saves you tons of headache and hassle.
On top of this, Augusta has an incredible ongoing commitment to customer education. They often host webinars, which are one-on-one sessions for clients to learn more about retirement and the gold industry. You can log into your account and get insights whenever you want. You'll also have access to the thoughts of Harvard-trained analysts regarding different global economic occurrences.
The one major drawback is that you need at least $50,000 to use Augusta's services. That puts them out of reach for many people. But if you can afford the minimum, go for it!
American Hartford Gold is our top pick for people on a budget. This company has a high level of integrity and honesty, and they have awesome customer service. Past reviews indicate that their clients are very satisfied with their experiences.
The AHG approach isn't quite as streamlined as Goldco's or Augusta's. You might need to talk to your custodian yourself, although your representative will help you with the paperwork. Even so, AHG will be there to help if your account manager drags their feet about sending your rollover funds.
The major advantage to AHG is that they don't have an investment minimum or a setup fee. So if you can't afford Goldco's $25,000 investment, this is a great place to start instead.
It should be easy to roll over your 401K into gold without penalties. But sometimes your account manager will make things difficult on purpose. They might cause delays and take ages to process your request, forcing you to play phone tag.
That's why companies like Goldco are so valuable. They will chase down your custodian and handle all of these interactions, helping to guarantee that your funds are secured without any headache.