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How Do You Move a 401(k) Into Gold?

Now that you have made the exciting decision to buy gold, the next step is figuring out how to actually carry out your plan. Most likely, your current 401(k) plan does not offer gold investment options. Many 401(k) plans offer limited investment options, so you need to find a new plan that allows you to invest directly in gold.

To avoid paying taxes on this transition, you will have to do a 401(k) rollover. A 401(k) rollover is when you transfer funds from your old 401(k) plan to a new one. You can transfer money to a new 401(k) or IRA.

According to the Internal Revenue Service (IRS), you must complete this transfer within 60 days. If you do not finish it in time, your transaction is treated like a 401(k) withdrawal. Unless you want to pay taxes and penalties on your withdrawal, you must follow the IRS rules.

When you convert to a new 401(k) or IRA, you can enjoy new perks. Employer plans generally have limited options and high fees. An employer typically offers the plan as a benefit to their employees, but they do not have an incentive to shop around for a great plan. Because of this, you may need to get a new 401(k) if you want cheaper investments, lower account fees and more gold investment options.

In order to convert your 401(k) plan to a gold IRA or 401(k), you have to do the following steps.

1. Pick the Account You Want

By doing a 401(k) rollover, you can get more investment options. Often, you can save on fees as well. Employer plans often have high fees, so switching plans can save you a lot of money.

The government allows you to own multiple 401(k) plans and IRAs. This is important because it means you are able to create a solo 401(k) or self-directed IRA for precious metals. The trustee will be the custodian of the physical metals and your broker.

When you use a gold IRA or 401(k), you can buy and sell gold. To do this, you must follow certain government standards. Self-directed 401(k) plans and gold IRAs do not allow you to physically hold the gold yourself.

For the most part, a self-directed IRA and solo 401(k) are essentially the same thing. The main difference is that 401(k) plans allow you to contribute more money each year. Other than this, they have fairly similar rules and benefits.

2. Open Your New Account

The easiest way to set up your account is by going online. Many people set up an IRA using a robo-advisor or an online broker. If you do not want to deal with the hassle of picking your investments, you can use a robo-advisor to automatically invest in a balanced portfolio.

With an online broker, you can get more control over your investments. You can choose which investments you buy, and you can divest whenever you want. Because fees and commission costs can quickly add up, you should find a provider that charges low fees. You also need to pick a provider that specializes in precious metals.

3. Talk to Your Previous 401(k) Plan About Doing a Direct Rollover

You will also need to talk to your old provider about transferring your funds. It is important to begin this step early because your provider might slow the process down because they do not want to lose you as a client. You should always ask your provider to do a direct rollover because the check needs to go directly to your new account instead of going to you.

The next step is incredibly important. Once the funds leave your old account, they must arrive in your new account within 60 days. Otherwise, you will have to pay taxes and penalties on your withdrawal. If you want to avoid a penalty, you need to complete your rollover as quickly as possible.

While the process can vary, most providers will require you to send in a few forms if you want to carry out a direct rollover. To find out how to do this, you should contact the administrator of your former employer's plan. After you send in the paperwork, they can send a check or wire transfer to your new account.

Technically, you can also do an indirect rollover, but this option is significantly harder to do. With an indirect rollover, the money is sent to your account. Then, you send the money to your IRA within 60 days.

An indirect rollover can end up complicating your taxes. If you do not complete it in time, then you may end up paying income taxes and penalties on the rollover. Many providers will withhold 20 percent of your withdrawal automatically as a tax payment. Because you must transfer the entire amount to your new account, you would have to furnish the difference from your personal account.

4. Decide on Your New Investments

Once you have completed your direct or indirect rollover, you can determine how you want to use your money. You can invest in physical gold, or you can look at index mutual funds. Diversifying your portfolio can protect it from market fluctuations.

Many people buy gold coins and bullion, but there are some drawbacks to these investments. You may have to pay broker commissions and fees for storing the gold. If you want to diversify your gold portfolio, you can invest in gold using other techniques as well.

When Does the IRS Charge a Penalty on 401(k) Rollovers?

According to the IRS, you must complete your 401(k) rollover within 60 days. If you withdraw money from your previous 401(k) and do not deposit it in your new account within 60 days, you will be required to pay a penalty on those funds. The best way to avoid this is by doing a direct rollover, so your funds are instantly transferred from one account to the other.

If you withdraw your funds before you are 59.5 years old, you will have to pay a 10 percent penalty. You will also be required to pay your normal income tax rate on early withdrawals. If you have to pay state income tax as well, you could easily spend 45 percent of your withdrawal on taxes and penalties.

How Can You Turn Your 401(k) Into Gold Without a Penalty?

Fortunately, you can easily avoid paying penalties and taxes on your 401(k) rollover. You just have to do a direct rollover. With this option, your provider handles the transfer so that your funds automatically show up in the new account.

If you have to handle the transfer yourself, you can do an indirect rollover. You just have to make sure that the rollover is completed within 60 days. If your previous provider held back 20 percent of the funds for taxes, you will have to replace these funds when you finish the indirect rollover.

For this plan to work, the new account must be a tax-deferred plan. You cannot deposit these funds in your bank account unless you are at least 59.5 years old. Otherwise, you will be forced to pay a penalty and taxes on your withdrawal.

Which Companies Can Help Me Convert My 401(k) Into Gold?

If you are trying to invest in a gold 401(k) or IRA, there are a few companies that can help you get started. Many companies do not allow you to invest in precious metals. Because of this, it is important to check with your new provider before you open a new account. With a little research, you can successfully begin investing in precious metals.

#1. Goldco