Retirement Investing

How To Move A 401K To Gold Without A Penalty15 min read

Oct 15, 2021 10 min
what is gold ira
Reading Time: 10 minutes
By setting up an individual retirement account, better known as an IRA, or contributing to a company 401(k) plan, you’ll have the correct vehicle in place to begin saving for your retirement in the future. Traditional IRA accounts and typical 401(k)s make it possible to postpone paying taxes until you take distributions in the future, or you can fund accounts with pretax dollars and keep all of the proceeds of your investments.

Even more exciting, it’s possible to create even greater portfolio diversity by taking a portion of your 401(k) and investing in gold.

Future retirees have many reasons why they begin investing in gold. Some of them see inflation rearing its ugly head, so they buy gold as a hedge against this wealth destroying monster. Others recognize the value of gold and they realize that it’s been legal currency for thousands of years, so they know it’s a stable investment that will not only retain its value but gain even greater levels of value in the future.

Still others like to invest in gold because of things like market volatility. Gold is never going to go bankrupt unlike a corporation potentially could. And no matter which direction the economy heads in, owning the physical asset of gold bullion and gold coins means having a valuable form of legal tender waiting for you in your protected and well-kept bank vault.

Once you’re committed to investing in gold, the next thing you need to do is determine the proper way to start down this particular diversified path. It’s certainly possible to purchase gold bullion and gold coins outright, but you’ll miss out on the advantageous tax benefits that your retirement account will provide.

Better yet, buying gold through your 401(k) allows you to deduct these contributions each year on your tax return. At some point in the future during retirement you’ll sell the gold, and at this time you’ll finally pay taxes on this income and any proceeds that it generated throughout the years or decades.

The Right Way to Invest in Gold through a 401(k) or IRA Account

So, you’ve come to the decision to buy gold for your retirement. I applaud you and encourage you to take the next steps. More than likely, the current 401(k) plan you have probably doesn’t allow you to buy physical gold for retirement. The majority of 401(k) plans have few and limited options for investing, so you’ll need a new plan that allows you do invest in gold directly.

At this stage is when you’ll need to initiate a 401(k) rollover. Why? This will allow you to avoid paying taxes and early withdrawal penalties as you transfer these funds to your new 401(k) or IRA account.

IRS rules require finishing the transfer in 60 days. If you do not deposit the proceeds of your previous 401(k) into the new account within 60 days, it’s looked upon as an early withdrawal and subject to early withdrawal penalties and taxes.

During the 401(k) or IRA conversion process, you’ll get to capitalize on a few additional benefits as well. Plans provided by employers usually require paying high fees and only offer limited options. This plan is typically provided by an employer to benefit their employees, but they aren’t necessarily combing through plans to find the best options for everyone involved. And because of this fact, you might want to open a new 401(k) plan if it’s a cheaper investment, because it could let you pay fewer fees and give you the ability to invest in physical gold.

Complete the following steps to initiate your rollover.

Choose Your New Retirement Investment Account

By initiating a 401(k) rollover, you open up to greater investment options and opportunities. It’s also possible that you’ll save on fees too. For the most part, employer plans usually have high fees, so changing plans may save you a decent chunk of money.

1 Traditional IRA – a traditional IRA is similar to a traditional 401(k) because it’s a retirement plan that’s tax-deferred.

2 Roth IRA – rolling over into a Roth IRA means you’ll pay taxes on the transferred funds. But the proceeds of this account in the future will never be taxed. They only tax contributions made to the account.

3 Traditional 401(k) – in a traditional 401(k) rollover, just complete the funds transfer within the allotted 60 days and you will avoid paying taxes prematurely.

Future retirees are allowed to have multiple IRAs and 401(k) plans. This is an important distinction to note because it means you have the ability to open a self-directed IRA, a solo 401(k), or another investment vehicle to buy precious metals. You’ll have a custodian acting as a trustee for the physical precious metals and your gold broker is also available to help.

Having a gold 401(k) or gold IRA means opening an account that you can use to buy and sell gold, silver, platinum, and palladium. There are rules and regulations set forth by the government that you must follow. And the biggest one is that you must store your physical precious metals in an approved depository. You cannot hold onto your precious metals at home.

Basically, a solo 401(k) and a self-directed IRA are the same. The biggest difference is the 401(k) allows you bigger contributions each year. Besides that, the rules and benefits are mostly the same.

Open Up the New Account

The simplest way to initiate an account setup is to do so online. Your best options are to choose a robo-advisor or go directly to an online gold broker. If you prefer someone else picking your investments for you, a robo-advisor is designed specifically for this task.

On the other hand, by dealing with an online broker you have more investment control. You get to pick the investments to purchase and you can choose to divest your investments whenever you want. Since commissions and fees add up quickly, you should find a gold broker who charges minimal fees in comparison to the competition. You should also consider picking a precious metals specialist as your provider as well.

Contact Your 401(k) Custodian to Initiate a Direct Rollover

You’ll have to contact your previous custodian to let them know about your desire for a transfer. This is an important step in the process because your custodian may act slowly on your behalf in an effort to prevent losing a client. Ask for a direct rollover to avoid having the check go to you. Instead, it will go directly to your new precious metals IRA or 401(k) account.

Please keep this in mind: after your 401(k) custodian initiates the transfer or rollover, the funds must reach your new account in 60 days. If not, you’ll pay early withdrawal penalties and taxes as I’ve mentioned earlier. You’d certainly prefer to avoid penalties, so make sure the rollover happens quickly.

The process certainly varies from provider to provider, but you may receive a couple of forms to fill out in order to initiate the direct rollover. Contact your administrator of your former plan and asked them for specific instructions. After sending in the paperwork, they’ll either send a check or wire the money directly to your new account.

Theoretically, an indirect rollover is certainly something you can do as well. But this is harder on you because the money will go directly to you and then you’ll need to deposit the money into your new account and it must happen within 60 days.

Indirect rollovers also create potential tax complications. If you missed the time frame, you might pay early penalties and income tax as noted. The majority of providers will hold 20% of your withdrawal to pay your taxes. But since you’re transferring the money to the new account with an indirect rollover, you must cover the difference if you miss your window of opportunity.

Discover Alternative Investments to Buy

After your rollover is complete, it’s time to begin considering ways to invest your money. You can purchase physical gold as one excellent alternative, or you may want to invest in index mutual funds. Portfolio diversity is a great way to limit your downside during market fluctuations.

Many investors purchase gold bullion and coins, but these investments definitely have their drawbacks. Broker commissions, storage fees, and administrative fees are some downsides you might consider. There are other ways to invest in gold as well that include:

Buying gold mining stocks

Investing in the refining business in gold mining stocks is a good idea. Research companies that you’re interested in prior to adding them to your portfolio. To lower your risk even further, buy mutual fund shares that also have gold mining stock investments.

Gold options and futures

A future or option contract is agreeing to buy or sell gold at a certain price at a future date. These contracts are regularly traded on commodity exchanges, so the federal government is providing tight regulation.

Gold ETFs

These exchange traded funds act like a basket of a particular asset class. In this example, a gold ETF might purchase physical gold, gold futures, gold options, and gold stocks. These investments are traded during regular market hours.

IRS Penalties: When Do They Impose Them On 401(k) Rollovers?

Based on information shared by the IRS, a 401(k) rollover must be completed within 60 days in order to avoid making an early withdrawal. If you take this money out of your previous current 401(k) and plan to put it in your new account, you better deposit the money within 60 days or you’ll pay taxes because it’s now considered income and you’ll also pay early withdrawal penalties. A direct rollover is the best way to avoid making this mistake because it instantly gets transferred from your current account to your new account.

The earliest recognized withdrawal age is 59 ½ years old. If you withdraw money prior to reaching this age, you’ll pay an additional 10% as a penalty. Plus, you’ll pay your normal income taxes at the current rate as well. And if state income tax is required, you also have to pay your state income taxes too.

Invest in Gold without Incurring a 401(k) Early Withdrawal Penalty

The good thing is it’s easy to avoid paying early taxes and unnecessary penalties during a 401(k) rollover. As I’ve said a few times already, a direct rollover solves this problem entirely. Your 401(k) provider handles the transfer on your behalf. The funds are sent directly to your new account.

An indirect rollover is the option to make the transfer yourself. Just focus on completing the transfer within the 60-day time limit. It’s possible that your former provider held back 20% of the funds for taxes tax purposes. Those funds must be replaced to complete the indirect rollover and avoid the penalty, so keep that in mind.

To make this plan work properly, you must have a tax-deferred plan on your new account. It’s impossible to avoid the penalty if you deposit the funds into your bank account, unless you’ve reached withdrawal age at 59 ½ years old. Or else, you’ll need to pay taxes and the early withdrawal penalty.

The Top Companies Managing 401(k) to Gold IRA or Gold 401(k) Rollovers

Are you interested in initiating a 401(k) rollover to invest in gold? I’d like to tell you about three gold investment companies that are ideal to work with. Too many companies aren’t equipped to let you invest in gold and other precious metals. That’s why it’s necessary to talk to your desired new provider prior to opening an account. Make sure self-directed gold IRAs or 401(k)s are an option.

Goldco

The pros and cons of investing with Goldco are as follows:

Pros

Cons

Goldco is a well-respected gold brokerage. The company is known for having excellent customer service, they manage IRA custodian paperwork well, have excellent storage facility connections, and work with well with other retirement account providers.

Since Goldco is a broker, their only job is to buy and sell gold and other precious metals on your behalf. They do not have the ability to serve as the custodian to your account and they do not own their own storage facilities. But they can help you with all of the paperwork and make sure everything meets IRS approval. They also obviously help their customers purchase IRA approved bullion and coins.

Birch Gold Group

The pros and cons of investing with Birch Gold Group are as follows:

Pros

Cons

Birch Gold Group is a California-based company originally founded in 2003. This company has nearly 20 years of experience as a precious metals broker. They focus on helping their customers purchase gold, silver, platinum, and palladium.

Birch Gold also helps their clients open gold IRA accounts. And they diligently focus on helping their clients receive a precious metals education, through teaching about risks and how to correctly invest in gold. All investing has a degree of risk, so knowing these risks is necessary as an investor.

The company makes it possible to purchase gold and other precious metals in your retirement account. They’ll guide you toward choosing the correct precious metals with gold IRA approval. Besides purchasing physical precious metals for your retirement account, it’s also possible to buy raw land, mutual funds, offer private loans, buy stocks, bonds, real estate, and more diverse investments.

After you pick Birch Gold as your broker, they’ll quickly help you discover the best custodian to meet your needs. Or, they’ll work with your custodian if you already have one. This company also has connections with approved depositories including Delaware Depository and Brinks Global Services.

Augusta Precious Metals

The pros and cons of investing with Augusta Precious Metals are as follows:

Pros

Cons

To gain access to tax advantages provided by a precious metals retirement account, contact Augusta Precious Metals. You can buy gold, platinum, palladium, and silver in this type of retirement account in physical form. And the company recommends trusted custodians including Kingdom Trust, Equity Trust, and Goldstar Trust, of which they have a great working relationship with all of them.

Once you’ve set up your self-directed precious metals IRA account, you’ll enlist the help of Augusta Precious Metals during the gold buying process. It’s their job to direct you to the best IRA approved bars, rounds, coins, and bullion. They also sell commemorative coins and collector sets, but these investments do not have IRA approval, so keep that in mind.

Additionally, Augusta Precious Metals has a price protection program in place for their customers. Within seven days of the order, if the price changes once the order is confirmed, they will honor the initial rate if the price went up. Even better, Augusta is known for providing discounts to customers who purchase bullion orders in bulk.

The company also has many different promotions going on at all times. One promotion is they give customers $2000 worth of silver if they make a qualifying investment within their new precious metals IRA account.

Lastly, no matter the reason, you can cancel your order within seven days with no questions asked.

  • Read more about Augusta Precious Metals.

FAQs:

Switching retirement plans is definitely a huge decision. But the 401(k) rollover and conversion process are easy to understand. Here are some common questions to consider:

It’s possible but unlikely. Your current plan might not let be eligible for gold investments. Certain plans allow them and certain plans do not. Find the right company that offers gold 401(k)s or gold IRAs and make the switch.
It’s more than possible and perfectly legal to rollover a 401(k) to a gold IRA without incurring early withdrawal penalties or triggering tax consequences. But it’s important to perform the 401(k) rollover the right way in order to avoid paying taxes and other fees. Contact your 401(k) administrator to begin the rollover process. The process typically takes a few weeks to a few months to finish, so get started right away to begin investing in gold as soon as possible.
Account holders of traditional 401(k) plans and traditional IRAs have tax-deferred accounts. What does this mean? It means you aren’t responsible to pay taxes until you take distributions in the future. In retirement, when you begin withdrawing your money, you become responsible for the taxes on each withdrawal. If you own physical gold, you will not receive tax breaks. The only way is to purchase gold within your precious metals IRA or 401(k) account.
It’s absolutely legal to buy physical gold within your 401(k) as long as you have the right plan. This is a tricky process because a third party is needed to store your physical gold. And the investor is not personally legally allowed to keep the gold at home. IRS rules state that 401(k) plans can buy physical gold if the gold is stored with an approved depository. You can have access to the storage facility, but you cannot maintain possession of physical gold if you own it within your 401(k) or IRA account.

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