Generally, 401(k)s are good things. They are retirement plans set up by your employer and are qualified for tax breaks, such as tax-deductible contributions and tax-free growth. They also allow employers to make contributions to your account on your behalf.
IRAs are also tax-advantaged retirement plans that you set up directly, independent of where you work. A physical Gold IRA is a self-directed account that allows you to purchase physical precious metals – gold, silver, platinum and palladium – in the form of approved coins and bars.
You can easily transfer, or rollover, assets from a 401(k) to a physical gold IRA.
Here are five reasons to do so:
Ownership of Gold:
Most 401(k)s are not set up to allow you to purchase physical precious metals. This means your retirement account doesn’t receive the benefits of diversifying into physical gold and silver, such as protection against inflation, maintenance of value, low correlation with paper-based assets and as a store of tangible wealth. A self-directed Gold IRA, on the other hand, is set up to hold precious metals, because the custodian you select buys, sells and store physical coins and bullion on your behalf.
Real Gold, Not Paper Gold:
Unfortunately, some 401(k) account holders think they can get the benefits of physical gold by holding a surrogate form of the metal, such as Gold exchange-traded funds (ETFs), mutual funds or shares of gold mining companies. Some 401(k)s, but not all, allow you to buy gold “substitutes.” The problem is that these surrogates are all paper-based assets, in this case share certificates.
These forms of investment can have problems that cause their value to diverge from that of gold. For example, a gold mining company can go bankrupt and lose its value. Gold ETFs have paper-based shares whose prices can be distorted by market forces. When you own physical gold and other precious metals, you are protected from these additional risks, and you have access to a source of wealth that will hold its value even in the most chaotic economic and political conditions. Since a 401(k) rarely allows you to hold physical gold, a rollover to a physical Gold IRA is the best way to add precious metals to your retirement portfolio.
Transfers Are Tax-Free:
You can move your money and other assets from your 401(k) to your Gold IRA tax-free, but only if you do it the right way. Normally, there are two ways to move assets:
- Rollovers: A rollover occurs when you withdraw assets from your 401(k) account and then, within 60 days, deposit the assets into an IRA. There are two problems with this method. The first is that, if you miss the deadline, your withdrawal becomes a taxable distribution that adds to your annual taxable income. You can no longer roll over the 401(k) money after the 60-day window expires. The second problem is that when you withdraw assets from your 401(k), your employer will withhold 20 percent to pay the income taxes, even if your intention is to roll over the money into an IRA. In short, rollovers are risky.
- Transfers: The easy and risk-free way to move assets from your 401(k) to your Gold IRA is through a trustee-to-trustee transfer. In this procedure, the money and other assets are moved directly from the old account to the new one, without first going to you. There are no deadlines and no withholding taxes under this procedure. It’s fast, easy and tax-free. All you do is fill out some paperwork and the custodians take care of the rest.
You can take the opportunity when transferring your 401(k) to an IRA to convert it into a Roth IRA. True, you will have to include the amount transferred in your taxable income, but in return you get tax-free growth and withdrawals. Furthermore, you can keep your assets in your Roth IRA indefinitely – unlike the case for 401(k)s and traditional IRAs, you don’t have to start taking required minimum distributions from you Roth IRA when you reach age 70 1/2 (or any other age). Also, your beneficiaries don’t have to pay any taxes when they inherit your Roth IRA.
Protection From Creditors:
It’s true that 401(k)s provide good protection from creditors. But so do IRAs. The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act protects up to $1 million in IRA assets in the event of bankruptcy. That means that your retirement assets (including your physical gold IRA) are protected by law from confiscation from creditors. During times of economic and political upheaval, many folks are forced into bankruptcy. It’s good to know that your IRA assets, including your precious metals, are protected.
Moving assets from your 401(k) to a physical gold IRA provided by one of our recommended companies is a great way to add precious metals to your retirement portfolio. Best of all, you can transfer the money anytime – you don’t have to wait until you separate from your job. Get started today!