How can I do a gold 401k rollover? What do I need to have in mind as I do this? There are many reasons why you might want to take your money out of your current 401k plan, but the primary motivation is usually that you need the cash for some reason. In this article, I will take you through some of the main things that you will need to know as you plan to carry out the rollover process. Read on to find out more.
While it might not exactly be possible to transfer or roll over your funds into a gold IRA account, it is possible to have your assets transferred into a custodian account, which you can then use to buy gold.
Most people who are interested in doing this will go for the one-time transaction of selling their existing 401k plan and repurchasing them using funds outside the IRA system. However, if you have enough time on your hands, it might be possible to use a 401k loan or withdraw your funds on a regular basis.
First Approach-Borrow Money From Your IRA
The first alternative you have is withdrawing the funds using a 401k loan, which involves borrowing money from your own savings. However, you will need to repay this amount not only with interest but also by taking out an additional loan in connection with your retirement.
You will also need your 401k provider’s permission to withdraw funds or take out a loan as well as certification of financial need, so this isn’t exactly an easy process and you should expect some paperwork to fill out if you want to go down this route.
However, there are tax advantages associated with using loans in this fashion, so it can be a viable alternative if you want to move your funds to a gold IRA. Once the loan is repaid, you will have to pay taxes on the amount you have borrowed, but not all at once.
The IRA custodian account that has been created for this purpose can also purchase physical precious metals in addition to any other investments you wish to make, so there is no need to transfer the money out of the IRA account unless you want to take it out.
Disadvantages of this approach
Of course, there are some disadvantages associated with this approach as well because if you terminate your employment or lose your job, then you will be forced to repay your outstanding loan quickly. If you cannot get access to a 401k loan, then you might be able to withdraw your cash and pay the 10 percent penalty tax.
However, it is possible to avoid this by withdrawing assets from your account in regular installments instead of doing a one-time transaction. Using this approach, you would receive 1099-R forms at the end of each year that detail any withdrawals made.
It is also even possible to do a partial withdrawal by choosing not to take out an entire asset all at once but instead breaking it up into smaller units. Of course, this will come with the same tax penalties as a one-time transaction would, but that’s a risk you need to be willing to take if you want access to your money.
When you do a gold 401k rollover, you need to be aware that the Internal Revenue Service (IRS) will consider it an early distribution regardless of whether or not you actually took the money out of the IRA plan and invested it in another vehicle yourself.
The key difference is that if you transfer funds into another gold IRA retirement plan, then these will not be considered early withdrawals by the IRS. However, if you do a 401k rollover into another type of account that is not an IRA one, then this will be counted as an early withdrawal and subject to tax penalties.
Of course, if you want access to your money immediately or feel that transferring the funds into another IRA won’t be possible, then you can choose to sell your assets instead. However, the key to making this work is establishing a fair market value for what you intend to sell and ensuring that you are paid this amount because if not, it could lead to additional tax penalties.
When doing this, make sure you fully understand all local, state, and federal laws because it can be easy to miss something and end up paying higher penalties than necessary.
How can I do a gold 401k rollover in the best possible way?
If you want to withdraw your 401k funds for whatever reason, then you’ll probably have two choices: wait until retirement age and pay taxes and penalties, or take out a 401k loan and pay interest. Another option that’s often overlooked is to do a gold rollover into your IRA account which will give you access to your money right away without paying additional taxes at this time.
The second Approach -Trustee-to-trustee transfer
You can rollover gold from your IRA into another retirement account. This is called a ‘trustee-to-trustee transfer,’ because the gold physically stays with your current IRA trustee or moves to a new one. The most popular choice for this is to roll over into a self-directed IRA LLC, which enables you to invest in other types of assets in addition to gold.
In addition, the rules for a rollover from an IRA to another type of retirement account are different from those for a direct transfer from one IRA trustee to another. In a trustee-to-trustee transfer, you can include any after-tax contributions you made to the first IRA when calculating the amount that can be transferred tax-free to the second IRA.
Say you have $75,000 in your gold IRA and another $5,000 in a separate traditional IRA. You would like to move all of that into an account with one brokerage firm where you can invest in a variety of assets. The amount you can transfer tax-free is $80,000.
If you were to roll over the assets directly, the most you could transfer would be $75,000 because that is what is in your gold IRA. The remaining $5,000 would be taxable. However, if you do a trustee-to-trustee transfer and leave it with your current IRA trustee, then the transfer is tax-free because it remains in the IRA.
More Things to Consider – Frequently Asked Questions
If you transfer your gold out of your IRA, what will happen to the income taxes you owe on the gold?
This is a great question. For some reason, many people believed that once you transfer your coins out of your IRA, the income tax would be eliminated. This is not true.
The income tax liability associated with your gold still exists. You can eliminate (pay) it by selling your coins and buying back coins at the new lower price.
However, if you do not sell your coins directly, you will still owe taxes on them because your retirement account is treated as if it were cash. Your IRA custodian will issue an IRS Form 1099 for each gold coin in your IRA that reports its value to the IRS and treats it like any other investment in your retirement account.
What is a 90-day rollover and how can it be done?
Typically, when you take a distribution from your traditional IRA or Roth IRA, the proceeds must be used to purchase a ‘qualifying’ retirement investment within 60 days.
This is known as a rollover and if not done will result in taxes and penalties. The IRS has one exception to this rule: You can take up to $10,000 out of an IRA and put it into a new IRA, and then wait 90 days to repurchase the original investment (the one you took the distribution from) without penalty.
If necessary, you can get multiple $10,000 loans. However, by doing so, you are putting yourself in danger of being taxed on this money if you do not replace it in your IRA within the 90-day window.
If you do not replace it in time, the IRS will automatically consider this money distribution and you will end up paying tax on it. Additionally, if you are under age 59 ½ and don’t meet certain conditions (explained below), you will owe an additional 10% penalty.
This 90-day rollover provision is only available when the distribution you are taking out of your IRA is not a qualified distribution.
Why does this happen?
Under normal circumstances, there would be no reason to take money out of an IRA because when withdrawals are made before the Retirement Age (59 ½) they are subject to ordinary income tax. However, if you are taking out a distribution that is not considered ‘qualified,’ these funds are taxed as ordinary income PLUS you will owe an additional 10% penalty.
If it turns out that the money was not used to purchase another qualifying investment within the required time period, then this can result in some very hefty penalties.
Are you ready to roll over the retirement savings in your IRA to a gold IRA? Check out these top recommended solutions below:
I hope that you now have the answer to the question “How can I do a gold 401(k) rollover?”. If you still have more questions that you’d want me to address, with regard to how you can invest in gold for your retirement years, then do not hesitate to drop them in the comments section so that I can respond to them ASAP.
I wish you well,
Eric, Investor and Team Member at Gold Retired!