How to Move Your 401k to Gold Without a Penalty
Avoid penalties when transferring your 401(k) to a Gold IRA. Read on to learn everything you need to know.
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Thinking of converting some of your 401(k) to gold? It could be a smart move to diversify your portfolio and preserve wealth.
But this process can be tricky, as withdrawing incorrectly can incur tax penalties. If done the right way, you can transfer your funds penalty-free and not lose out on tax benefits.
This guide will go over how to roll over your 401(k) to gold with no penalties. Plus, how to choose a legit Gold IRA provider.
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Can I Use My 401(k) to Buy Gold?
No, you cannot buy gold with a 401(k). Employer-sponsored retirement plans, like 401(k), usually only let you choose from pre-selected funds.
However, you can rollover your 401(k), either all or just a portion, to a self-directed Gold IRA. This will allow you to buy physical gold bars or coins for your retirement while retaining the tax benefits.
What Does It Mean to Rollover a 401(k) to Gold?
A Gold IRA rollover is when you transfer your 401(k) funds to a Gold IRA. This will be a self-directed IRA account where you can invest in physical gold and other precious metals.
You can only open an account with a specialized Gold IRA provider. They will set you up with a self-directed IRA custodian, help you purchase gold bars or coins, and store them safely.
Gold IRAs must follow strict IRS rules. For example, you can only buy specific coins, and you can't store them yourself. That's why you need to do the rollover through a Gold IRA company, because they'll make sure you stay compliant.
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2 Ways to Move 401(k) to Gold Without Penalty
There are 2 ways you can roll over your 401(k) funds to a Gold IRA without tax penalties:
- Direct rollover
This is when you transfer funds directly from your 401(k) to Gold IRA account without withdrawing them. This is the easiest, quickest, and most common way.Your Gold IRA provider will help with the rollover paperwork to get the funds sent directly to them.
- Indirect rollover
This is when you withdraw funds from your 401(k) first, so you actually take possession of the money. You must reinvest the funds into your Gold IRA within 60 days to avoid IRS penalties.[1]This method is riskier since you may miss that 60-day window. And you must initiate everything yourself.
Next, we'll go over the actual rollover process in more detail.
There's no limit on the amount you can transfer when rolling over funds from a 410(k) to a Gold IRA. However, if you want to add more in the future, you'll have to abide by the annual contribution limits.
How a Gold IRA Rollover Works
The process to roll over your 401(k) to gold starts with finding a Gold IRA provider. Here's what you can expect step-by-step:
1. Choose a Gold IRA custodian
This is an important decision because this company will be your partner in this journey. You'll be trusting them with your retirement savings. They will take care of everything from helping you buy gold, to storing it securely, to taking distributions.
Not sure where to start? Some of the most reputable and trusted Gold IRA companies are Goldco, Augusta Precious Metals, and Birch Gold Group.
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2. Choose direct or indirect rollover
You can either choose to directly send the funds from your 401(k) to your Gold IRA (direct), or withdraw them and then deposit them into the Gold IRA yourself (indirect).
You can roll over all, or just a portion, of your 401(k). But it's probably not a good idea to roll over everything, and we'll talk about why in a bit.
Most Gold IRA companies require a $10,000 to $50,000 initial investment to open an account. You'll also pay a one-time setup fee, usually ranging from $50 to $200. In addition, the custodial and storage fee typically cost $200 - $300 per year.
3. Start the rollover paperwork
You'll need to fill out paperwork to initiate the rollover. But don't worry, your Gold IRA company will help you with that. They'll even talk to your current 401(k) custodian for you, making it as painless for you as possible.
4. Fund your Gold IRA account
If it's a direct rollover, the funds will go directly to your Gold IRA custodian. They'll take care of getting it to your account.
If you chose an indirect rollover, your 401(k) trustee will send a check to you. It'll be your responsibility to deposit the funds in your new Gold IRA within 60 days to avoid taxes.
5. Buy gold bars or coins
Once your rollover is complete and your account is funded, you can use the cash to buy gold. Your Gold IRA company will have a variety of IRS-compliant gold for you to choose from.
They'll also make sure your gold are properly stored in an IRS-compliant depository, where they'll stay safe until you withdraw.
While it may only take you one business day to open a Gold IRA, the rollover itself can take longer. It can take your current 401(k) custodian up to a couple of weeks to transfer funds to your new Gold IRA account.
Are There Penalties to Be Aware Of?
If done correctly, moving a 401(k) to gold won't trigger a taxable event. But here are some ways you can incur a penalty:
- If you choose an indirect rollover and fail to deposit the funds into your Gold IRA within 60 days, it'll count as a withdrawal and you'll pay income tax on the amount withdrawn plus a 10% penalty.
- Taxes will apply if you roll over your 401(k) to a Gold Roth IRA, since those are 2 different types of IRAs. You'll need to pay income tax on the amount in the year you do the rollover.[2] But after that, qualified withdrawals from your Gold Roth IRA are tax-free.
- If you're under 59½ years old at time of distribution, any taxable portion not rolled over will have a 10% additional tax penalty.[3]
- If you're still employed, some plans may not let you roll over your 401(k). Typically, you have to be a certain age (usually 59½) and must have had the account for a certain length of time. If you're not eligible, you may trigger a tax penalty since it'll count as an early withdrawal.
Why Convert 401(k) to Gold?
Pros:
- Gold helps diversify your portfolio and preserve wealth as you near retirement.
- A Gold IRA offers the same tax advantages as regular IRAs.
- Gold is a tangible asset you can convert to cash.
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Cons:
- Gold IRAs have more fees than regular IRAs.
- Gold can be harder to liquidate.
- Gold doesn't generate interest or dividends.
- You must store IRA gold in IRS-approved depositories (not at home).
Best Gold IRA Rollover Companies
Here are some of the most reputable Gold IRA providers. We urge you to do further research before committing to one. Take advantage of their free Gold IRA kits to understand each one better.
Goldco
Goldco is one of the most popular Gold IRA companies. They often offer a silver coins promo when you open a Gold IRA. And they have a highest buyback price guarantee, which can help you feel more confident about the purchase.
| Minimum investment | $25,000 recommended |
| Precious metals offered | Gold, silver, platinum, and palladium |
| Eligible rollover accounts | Traditional IRA, Roth IRA, 401(k), 403(b), 457, Pensions, TSP |
| IRA custodian used | All major Self-Directed IRA custodians |
| Depository used | Delaware Depository |
| Buyback program | Yes |
| BBB grade | A+ |
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Augusta Precious Metals
Augusta Precious Metals is known for superior customer service. Before you even open an account, you can get a free 1:1 web session just to learn about Gold IRAs (no obligation).
If you do open a Gold IRA with them, you get lifetime account support from their entire team of gold specialists.
| Minimum investment | $50,000 |
| Precious metals offered | Gold and silver |
| Eligible rollover accounts | Traditional IRA, Roth IRA, 401(k), 403(b) |
| IRA custodian used | Equity Trust (recommended) |
| Depository used | Delaware Depository (recommended) |
| Buyback program | Yes |
| BBB grade | A+ |
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American Hartford Gold
Check out American Hartford Gold if you only want to roll over a little bit of your funds to a Gold IRA. Their minimum is just $10,000. They will assist you with the paperwork for the rollover.
| Minimum investment | $10,000 |
| Precious metals offered | Gold, silver, platinum, and palladium |
| Eligible rollover accounts | Traditional IRA, Roth IRA, 401(k), 403(b), 457, TSP |
| IRA custodian used | Equity Trust |
| Depository used | Delaware Depository, Brink's Global Services, International Depository Services |
| Buyback program | Yes |
| BBB grade | A+ |
Birch Gold Group
Birch Gold Group is one of the oldest precious metals IRA companies with over 20 years in the business. It has a solid reputation and has lower minimums and fees than some competitors.
You'll be matched with a specialist for the entire lifetime of your account for personalized service.
| Minimum investment | $10,000 |
| Precious metals offered | Gold, silver, platinum, and palladium |
| Eligible rollover accounts | Traditional IRA, Roth IRA, 401(k), 403(b), TSP, SEP, annuity |
| IRA custodian used | Equity Trust, STRATA |
| Depository used | Delaware Depository, Brink's Global Services |
| Buyback program | Yes |
| BBB grade | A+ |
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Other FAQs
How much of my 401(k) should be in gold?
Most financial experts recommend that gold should make up only a small portion of an investment portfolio. The exact percentage can vary based on several factors, such as your financial situation, investment objectives, and risk tolerance.
You don't want to invest too heavily into gold because you'll miss out on the growth opportunities from other investments. And since gold doesn't generate income, it may be harder to achieve a sustainable income stream to support you in retirement.
However, having a small amount in gold will help diversify your portfolio and preserve wealth.
Which is the best option to rollover a 401(k)?
The easiest and quickest option is to do a direct rollover of your 401(k) to an IRA. This is when funds are directly transferred to the IRA account without withdrawing them, so there are no IRS tax penalties.
Bottom Line
Moving money from your 401(k) to a Gold IRA is easy if you follow the IRS rules, and it will not trigger tax penalties. Your Gold IRA company will be an important partner because they will do most of the heavy lifting for you.
Here are some final tips:
- Choose direct rollover for the simplest and fastest way
- Decide carefully how much you want to roll over
- Work with a reputable Gold IRA company and be careful of scams
To learn more about Gold IRAs, their pros and cons, and the process, start with a free Gold IRA guide. Get a better understanding of this type of investment with no obligation.
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References
- ^ Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions, Retrieved 5/6/2024
- ^ Internal Revenue Service. Rollover to a Roth IRA or a Designated Roth Account, Retrieved 7/22/2024
- ^ Internal Revenue Service. Topic no. 413, Rollovers from retirement plans, Retrieved 7/22/2024
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