Disclaimer: We are reader supported. We may be compensated from the links in this post, if you use products or services based on our expert recommendations.
Gold has always been an appealing metal for collectors who love the shine and beauty of it. For investors, gold offers something more valuable. As one of the most popular precious metals, gold offers the ability to secure funds in a tangible product that will appreciate with age. Since it's rare and can produce significant returns on the initial investment, a larger number of investors are turning to gold.
Gold is considered to be a great method for protecting wealth because it becomes more valuable as the dollar grows weaker in a fluctuating economy. In this way, investing in gold helps you hedge against uncertain economic fluctuations.
Unfortunately, you can't directly invest in gold with the funds in your 401k account. While this doesn't mean it's impossible to use that money to benefit from the value of gold, you will have to learn more about the options you have for gold-backed investments.
With just a few small steps, you can open a self-directed gold IRA. This is the most popular method for investing in gold because it allows you to buy and hold gold products. Once you set up your gold IRA, you can roll some or all of your 401k funds over into that account. This will allow you to start buying gold immediately.
401k Basics to Know
Many employers sponsor 401k retirement investing plans that their eligible full-time employees can join. The employee determines what percentage of their gross pay will be diverted to their 401k account. That money will remain untaxed until the employee withdraws it at retirement age.
Making this type of plan even more desirable is that employers will match their employees' contributions. This gives the employee free money to put towards their retirement once their account is vested. If the employee contributes $100 to their 401k in each bi-weekly pay period, the employer will also contribute $100 towards that employee's 401k account every pay period.
As with any retirement plan, 401k accounts are subject to contribution limits set by the IRS. Otherwise, you can contribute as much as you want each year. A 401k wealth manager or custodian will oversee the accounts and provide access to a wide range of investments for every individual participating in the plan. This means you can use your 401k funds to invest in stocks, mutual funds, index funds, and a wide range of other paper investments.
If you participate in a 401k plan and want to start investing in gold, there are ways you can do so without physically owning precious metals. You can buy stocks or funds that focus on gold or silver. Since precious metals tend to appreciate over time, these are investments with lower risks and steadier gains.
Another option is to roll your 401k funds over into a self-directed gold IRA.
What is a Self-Directed Gold IRA?
While a 401k plan allows participants to invest in gold-backed mutual funds, ETFs, and commodities futures, that's as close to investing in precious metals as the IRS allows with traditional retirement accounts. If you want to secure your retirement wealth by buying gold bullion, coins, and other types of precious metals, you will need to open a self-directed IRA account.
Whether you just want to convert your 401k funds into a different retirement account or you have left your job, you can conduct a rollover without facing IRS penalties. This involves receiving your money through an "in-service withdrawal" from the 401k administrator. To avoid paying income taxes and early withdrawal penalties, the total sum must be deposited in another retirement account. Your paperwork notifying the IRS of the new account must also be received within 60 days of the payout to avoid those taxes and fees.
A traditional IRA is a choice that was always more common, but that's starting to change. As more people learn about the benefits of self-directed IRA accounts, these types of accounts are growing in popularity. A self-directed IRA is especially attractive to those who want to invest in gold or other precious metals.
A gold IRA or precious metals IRA allows you to buy physical products, such as bullion and coins, and store them in a secure depository. As long as you follow the rules set up by the IRS, this option allows you to directly invest in precious metals so you can benefit from the value and appreciation of precious metals directly.
Here are a few ways that investing in gold and other precious metals will benefit you:
4 Steps for Converting Your 401k to a Self-Directed Gold IRA
If you feel uncertain about transferring funds between your 401k account and a new gold IRA, you're not alone. Since this is something people rarely do more than once, it's natural to experience some confusion.
The biggest concern is ensuring your rollover is completed within 60 days to avoid IRS penalties. Your 401k plan administrator and the custodian for your new self-directed gold IRA can be helpful throughout this process. To further simplify the rollover, the following 4-step guide may be helpful.
Step 1: Find a Self-Directed IRA Company
Your first step is to find a self-directed IRA custodian with experience in handling precious metals. There are plenty of options available, making it important to research each company carefully. This is a long-term commitment so you'll want to make sure the company you choose will provide you with the level of service you expect.
One of the most important factors to consider is the fees charged by the company you choose. Each company will have a different fee structure, so don't assume that they will all charge similar rates. Look for a company that provides a transparent fee schedule upfront.
The best self-directed IRA companies will limit their fees, provide educational resources concerning precious metals investing, assist you in setting up your account, and help you roll over your funds. You should also choose a company known for providing lifelong assistance to their customers.
The three top companies in today's market are:
Augusta is praised for its transparency in regard to the fees they charge as well as for the vast supply of educational resources they offer. Customers find their online webinars especially helpful. The company maintains a staff of professional economists to help their customers evaluate their investments and retirement goals.
There are several reasons that Goldco has earned a strong and positive reputation among investors. To begin, their prices are very competitive and they provide enough information to help their customers feel confident with their purchases. The staff is knowledgeable and customers find them to be patient and communicative.
The thing that sets American Hartford Gold apart from other companies is that they don't require a minimum initial investment. Even though they forgo that minimum, they don't let that interfere with the high quality of customer service they offer. The company has built a strong reputation by ensuring their customers have positive experiences with them.
These companies have been in business for several years and consistently maintain high ratings with consumer protection agencies, such as the Better Business Bureau. They each have excellent customer ratings, and you can read reviews for them online.
Step 2: Create Your Self-Directed IRA
Once you have chosen a company, you're ready to open your self-directed IRA. Before starting this process, contact the company's customer service team to ask questions about the setup process. In particular, you should know if there's an account setup fee or other charges you'll have to pay in advance.
Once you're aware of the fees, you can set up your account. Most companies will allow you to do the account setup online, but others may require an in-person visit. Once you have your account initiated, you can move forward with the next step in the process.
Step 3: Fund Your Account
This may be the most complicated step in the process since it will require you to roll your 401k funds over into your new self-directed IRA. One method for doing this involves a direct transfer of funds from your 401k account to your self-directed IRA. Since you won't touch the money, this process is the easiest in terms of meeting the IRS' 60-day deadline.
The second alternative is to receive the in-service withdrawal, which is simply your 401k administrator issuing you a check. You must complete the rollover by depositing all of the funds in your self-directed IRA within that 60-day time frame. This is a more complex process and requires more involvement on your part. For this reason, most people choose the direct wire transfer.
You can roll over all of your 401k funds or a portion of them. How much you choose to roll over will depend on your retirement goals, the amount you have in your account, and the minimum required purchase established by the gold IRA company. Consider your options before starting the rollover.
Step 4: Start Buying Precious Metals
Once your rollover has been processed and your funds have been made available, you can start buying gold and other precious metals. Since you'll have to buy products that meet the IRS' guidelines for purity standards, it's a good idea to work with a representative from your gold IRA company. They can help you buy qualifying precious metals that will help you meet your retirement goals.
The IRS approves companies that provide gold products that meet their standards. For these purposes, gold must have a minimum of a 99.5% purity rating. To make sure your purchases do meet these standards, check the documentation for each purchase.
Another thing to consider is where your gold will be stored. Since the government won't allow you to hold your gold in your own home, you'll need to use an IRS-approved depository. Most gold IRA companies partner with one or more depositories. It may be easier and more cost-effective to use one of your company's recommended depositories.
You will also want to ensure that the delivery method is secure and insured. Doing your due diligence in focusing on these factors will help you make sure your gold reaches your vault in the depository safely and on time.
Gold IRA Alternatives
Some people find the process of setting up a self-directed gold IRA to be overwhelming. If you would prefer a simpler and more indirect way of investing in gold, there are a couple of options open to you. These options allow you to indirectly invest in gold via your 401k or traditional IRA.
Gold Mutual Funds
If you don't want to physically own gold, you can still invest in precious metals via paper investments. There are mutual funds that specifically focus on gold and companies that work with gold.
If you have had your 401k account for any length of time, you already know that you can choose mutual funds based on a specific industry or sector. Just as you might buy funds that focus on telecommunications or real estate, you can also opt for gold-related funds. These mutual funds typically invest in companies that mine for gold or other precious metals.
For instance, Fidelity Investments offers their Fidelity Select Gold Fund, which is an active mutual fund focused on greater value and higher returns. The fund concentrates on companies that locate and source gold.
Gold Exchange Traded Funds
If your 401k plan offers a brokerage option, you'll have access to a broader range of investment types. This may include the ability to invest in a wide selection of gold investments.
One option that might be available to you is to invest in gold ETFs. For example, Black Rock offers the iShares Gold Trust ETF. By buying shares of this ETF, you'll benefit from the gold bullion owned by the company. This means you can enjoy the benefits of owning physical gold without having to worry about storing it yourself.
Your participation in a 401k brokerage account will also make it possible to buy stock in companies that work directly in the gold industry.
Since an economic downturn can significantly drain your retirement wealth, having a tangible alternative is a worthwhile option. Owning gold can help you store your wealth in a way that will stand up against dollar devaluation. Since the value of our currency is uncertain, gold holdings can serve as a strong and reliable insurance policy. In fact, gold and other precious metals will increase in value when the dollar is worth considerably less. In this way, buying gold will help you safeguard your retirement wealth.