Rolling over your 401(k) to a gold IRA is a great way to protect your retirement fund from future economic uncertainties, while still enjoying the advantages of a tax-deferred retirement account. A gold IRA affords you access to more investment options, in addition to making it possible for you to reduce the fees and costs, associated to a 401(k), which normally end up reducing the value of your investment over the long term.
Here’s a breakdown of what you need to know when it comes to rolling over your 401(k) to a gold IRA.
What Is A 401(K)?
Designed to help workers plan for their retirement, a 401(k) is a retirement plan sponsored by employers. In this plan, employees get to contribute a certain amount of their pay, before taxes are taken out, towards their retirement plan. When drawing money from this account, holders are required to pay the associated taxes.
It is common for employers to match the contribution of their employees into the 401(k) up to a certain limit.
It is also worth noting that self-employed people can also open their own 401(k) plans.
What Is A Gold Individual Retirement Account (IRA)?
On the other hand, an individual can hold a variety of precious metals, including physical gold, palladium, platinum and silver, in addition to regular paper investments, in a self-directed individual retirement account referred to as a precious metal or gold IRA.
You can choose to go with a ROTH IRA or a Traditional IRA when setting up your gold IRA.
Why Should You Consider Rolling Over Your 401(K) To A Gold IRA?
From charging huge penalties on early withdrawal, high account costs and fees, to having limited investment options, 401(k) plans are said to have a variety of disadvantages. Enter gold IRAs.
A gold IRA not only gives you access to more investment options, as previously stated above but also makes it easier for you to pass assets along to heirs, affords you saver’s tax eligibility and most importantly protects your retirement fund against the negative effects of inflation. In fact, given the negative relationship between the price of gold and paper assets, a gold IRA can help you balance your investment portfolio over the long run.
How To Roll Over A 401(K) Into A Gold IRA
1st Step: Open A Gold IRA Account
You need to start by approaching a custodian or trustee and opening a Self-Directed IRA through them.
2nd Step: Transfer Funds From Your 401(k)
The next step is to roll over your 401(k). This step entails funding the gold IRA you just opened. To avoid paying hefty early withdrawal penalties and incomes taxes, you can move the funds from your 401(k) to the IRA through Direct transfer or Indirect transfer. In the former, you transfer the money, in its entirety, by removing it from the 401(k) and depositing it, within 60 days, into your gold IRA. In an in indirect transfer, the funds are transferred automatically without the need for you to handle it directly.
3rd Step: Choose The Precious Metals You want To Invest In
Once the transfer is complete and the funds are in the Self-directed IRA, you can then choose the types of precious metals you want to invest in. These precious metals will be held, on your behalf, by the custodian or trustee you chose.