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The 401(k) is one of the best ways to build your retirement savings, but all of this becomes useless when the stock market crashes. Market crashes happen every few years and can last several months at a time, and when you notice the indicators of a stock market crash, you should consider where you can move your 401(k) account instead.
This article will cover other types of accounts and investments to which you can move your 401(k) before a market crash. We also provide tips for 401(k) account holders expecting economic downturns. Continue reading to know more.
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How Does a Market Crash Impact a 401(k)?
A stock market crash occurs when a sudden and significant drop in stock prices occurs, usually resulting in financial losses. If most of your retirement assets are stocks, the value of your 401(k) account will also drop.
Most people use their 401(k) account to invest in stocks, so when the price of stocks rapidly releases, it leads to losing your retirement funds. This will be alarming for those nearing retirement or planning to use their 401(k) as their source of income when retirement comes.
If a market crash affects your 401(k), you might consider delaying your retirement or coming up with new plans. But, you should consider moving your retirement funds to another account and working with a financial advisor. This way, your journey to retirement will remain on track.
Where to Move your 401(k)
When a market crash occurs, it negatively impacts investors, including banks and business owners. It has a ripple effect throughout the economy that goes further than your 401(k) account. This is why you should consider moving the funds from your 401(k) account to an alternative account.
We recommend using a self-directed IRA to invest in precious metals or move your money to mutual funds, index funds, bonds and target-date funds. Investing in real estate will also be a good idea before a market crash. Let's take a closer look.
Precious Metals IRA
Not many investors can resist the opportunity to invest in precious metals, especially gold. Precious metals are a safe investment, even before and during a market crash. They also protect your funds from inflation because, as the dollar's value goes down, the price of precious metals goes up.
You can't directly own physical gold or gold investments on your 401(k) retirement plan. Instead, there are indirect ways to invest in gold, and the best way is to roll over your 401(k) account to a self-directed IRA. You can also find ETFs and mutual funds that allow account holders to hold gold and gold mining stocks.
A self-directed retirement account allows individuals to invest in stocks, ETFs, mutual funds, real estate, and commodities. With a precious metals IRA, you can add gold bullion or coin, and other approved metals, like silver, palladium and platinum, to your portfolio. If you want to protect your retirement investment before a market crash, this is the best option.
How to Invest in Precious Metals From Your 401(k) Account
The best way to start using a precious metals IRA from a 401(k) account is to roll over. If you're already a retired employee, you can roll over the money from the 401(k) into the IRA and start investing in precious metals. But, if you are currently employed, you can request an in-service withdrawal from your employer. This is when the employee withdraws their 401(k) funds before retirement.
If you remove money from your 401(k) account, there are no fees or tax penalties as long as you re-invest the funds in the precious metals IRA within 60 days. If it passes the 60-day period, you must pay taxes on the withdrawal. Follow the steps below to roll over from a 401(k) to a gold IRA.
Ensure you meet any special requirements for rolling over funds from your 401(k). Once you meet these requirements, the company will send you or the gold IRA custodian the funds.
Remember that the price of precious metals increases during the economic downturn, so you should invest in gold or silver before the price gets too high. This way, you can also benefit from the increased prices during the market crash.
Best Companies for Gold Investments
If you're planning to invest in gold after moving money from your 401(k) account, you should work with a leading custodian in the industry. Researching the best gold IRA provider is essential since the company will store your precious metals. Any mistake can lead to losing your retirement funds, especially since gold bullion and coins are physical products.
To save you time, we compiled the best companies that you can work with to start investing in precious metals from your 401(k) account:
Augusta Precious Metals (WINNER)
Augusta Precious Metals is a good place to start if you're interested in opening a gold IRA from your 401(k) account. It is one of the few gold IRA companies with only positive reviews on the BBB. The company is the best choice if you have at least $50,000, as it requires a high minimum investment.
It's also a good choice for beginners since it will guide you through every step. With the company's extensive focus on educating its customers with a private video chat and guide, you can learn more about what investing in precious metals entails. Augusta Precious Metals also provides lifetime support, so you can protect your 401(k) retirement funds and work with a helpful, dedicated agent.
#2. Goldco
Another recommended gold IRA company is Goldco, with over a decade of helping customers protect their retirement savings. If you're looking to invest in precious metals with the funds from your 401(k), you can make use of the diverse products and services offered by Goldco.
The company offers a specialist to help you with your investments by guiding you through every step of the way. One of the highlights of Goldco is its affordable fees, as the company charges a flat fee on your precious metals per year. Most companies require you to pay a percentage of your assets instead. Goldco also has an A+ rating from the Better Business Bureau.
Consider working with American Hartford Gold to invest in precious metals before a market crash reduces the value of your 401(k) account. American Hartford Gold has a solid gold IRA product for its investors, and it's great for those on a tight budget since it does not require a minimum investment.
Even if the funds in your 401(k) account are small, you can start investing in gold and other precious metals offered by American Hartford Gold. The company also provides a free rollover to a gold IRA when purchasing a minimum of $10,000. It also provides free maintenance and insurance for up to three years on a rollover.
Index Funds
Another good investment option to protect your 401(k) funds is an index fund. This consists of a basket of funds in a particular market index. For instance, if you invest in the S&P 500, you can hold stocks in the best 500 companies.
The best part of index funds is that they give you access to a wide range of stocks, companies and industries. If one of the stocks loses its value before or during a market crash, you won't have to worry because you will have invested in many companies simultaneously. There are low fees involved in investing in index funds.
Mutual Funds
It would be best to consider investing in mutual funds. This is when an investment company collects your money and invests it strategically in different securities like stocks and bonds. You can consider moving your funds to bonds mutual funds as they are less risky. This also means that you deal with a low cost.
But remember that a market crash will most likely affect mutual funds. It's a better option for young investors since they have more time to go through potential losses. Also, you will have to pay management fees, which slightly reduce your returns.
Bonds
To minimize your risk before a market crash, you can move your 401(k) to bonds. Companies and governments provide bonds. It involves providing a loan to the company or government and receiving periodic interest payments.
Bonds offer a low risk, which means they are lower than stocks. Due to their stable value, they don't fluctuate based on market conditions, so you won't lose money during a market crash. If you want to reduce the risk on your 401(k) investments, consider bonds, especially when nearing retirement.
Target-Date Funds
Target-date funds are like mutual funds, but a time frame is placed on them, which reduces your risks and increases your returns. As the name implies, it allows you to set a target date on when you receive your investment. Then, the fund will give you an asset type based on age and risk tolerance.
Target-date funds are an excellent choice for young investors as they can benefit more long-term. When your target retirement date gets closer, the investment ratio of the funds shifts towards bonds to protect you from a market crash.
Real Estate IRA
Real estate is an effective hedge against inflation, and it's a good choice to move to a real estate IRA before a market crash. You can do so through a self-directed investment retirement account which allows you to hold real estate in time for your retirement.
The IRA allows you to buy, hold and sell real estate assets. Instead, you can roll over your 401(k) funds to the real estate IRA and protect your retirement funds from a market crash.
Tips That 401(k) Account Owners Should Consider in a Market Crash
Here are some tips to keep in mind when moving your 401(k) before a market crash:
Conclusion
To protect your 401(k) account from the negative impact of a stock market crash, it's essential to take some specific steps. The best thing to do is adjust your asset allocation by transferring your funds to another asset, like precious metals and real estate. You can also consider spreading it across different investments through bonds or funds. Regardless of your choice, remain calm while anticipating a market crash so that you can recover nicely.
