How can I move my 401(K) into gold without penalties? Is there a defined process that I should follow to guarantee the safety of my funds, and to ensure that I do not run into trouble with the IRS? Welcome to today’s post in which I will be taking you through the basics of rolling over your funds in your IRA to gold and other precious metals, as I also answer other questions that you have in mind about this topic. Read on to find out more.
What is a Gold IRA?
A gold IRA is a type of long-term retirement investment account that allows for the account custodian to hold gold and other precious metal on behalf of the owner of the account. Although the term gold IRA is commonly used, this does not mean that gold is the only precious metal that you can hold in this type of retirement investment plan. Investors also have the liberty to hold IRS-approved types of silver, platinum, and palladium (though this is dependent on the Gold IRA service provider).
Note that you cannot simply collect any item made of gold, silver, platinum, and palladium, and place it in your gold IRA. The IRS requires that your precious metals meet the specified fineness requirements before you can invest in them through your gold IRA.
How to move your 401(k) funds to gold
If you have decided that you will purchase gold to gain exposure to all the benefits that it offers, then you need to do it the right way. Many 401(k) plans do not allow you to invest in gold (and other non-traditional assets), so you need to find an option that will enable you to invest in gold.
To avoid paying taxes during the transition, it is essential to do a 401(k) rollover. If you are not familiar with the term, a 401(k) rollover is essentially when you transfer the funds held in an old 401(k) to a newly-created 401(k).
The Internal Revenue Service (IRS) stipulates that 401(k) rollover must be completed within 60 days from the time one begins the process. Those who do not complete the transfer of funds within this timeframe make their transfers be perceived as 401(k) withdrawals. All withdrawals (depending on the type of IRA) are subject to taxes, and sometimes penalties, hence the need to follow all the rules set by the IRS.
To move your funds from your old 401(k) to a new IRA, you are required to follow the steps outlined below:
- Choose the type of account you want to open (ensure that the account allows you to invest in gold, and other non-traditional assets, for the purposes of diversification).
- Open your new IRA account by contacting IRA experts/representatives.
- Contact the provider of your old 401(k) plan to inform them about the direct rollover.
- Once the rollover has been completed, decide on the investments you want (in this case gold)
When does the IRS charge penalties on the 401(k) rollovers?
As already highlighted, the rules set by the IRS require that one completes the 401(k) rollover within 60 days from the time that they begin the process. The failure to deposit the funds from your previous 401(k) into the new account within this timeframe will lead to you being penalized by the IRS. The best way to avoid this is to do a direct rollover. With a direct rollover, your funds are instantly transferred from one retirement account to another.
Those who withdraw the funds from their old IRA/401(k) and do not transfer the funds to their newly-created IRA, and are aged below 59.5 years are usually required to pay a 10% penalty for the early withdrawals. Note that regular income tax rates also apply to all early withdrawals. If you, depending on your retirement account, have to pay state income tax as well, then you can end up paying more than 40% in terms of penalties and withdrawals, for not following the rules set by the IRS.
How can you turn your 401(k) funds into gold assets without a penalty?
If you are doing a direct rollover, it is easy for you to avoid having your funds eaten by the penalties and taxes. With this option, you leave everything to your provider so that they can automatically transfer the funds into your new account, in the right way and within the right time.
If you, however, decide to go the indirect rollover route, then you should know that you will handle the rollover transfer all by yourself. For starters, you will need to ensure that you complete the whole process within 60 days. If by any chance, your precious IRA/401(k) service provider held on to 20% of your retirement funds for the purposes of taxation, then you should be sure to replace those funds upon the completion of the indirect rollover.
For this plan to happen smoothly, then it is necessary for the new account that you open to be a tax-deferred one. You will not be allowed to deposit the funds from your previous IRA to your bank account unless you are aged 59.5. You will otherwise be required to pay a penalty and taxes on the withdrawn funds.
Evidently, a direct gold rollover is easily the best option for those who would like to move their 401(k) to gold without penalties. It is necessary to first educate yourself on what you are signing up for by proceeding with the 401(k) rollover so that you do not end up losing your retirement investment funds due to the lack of knowledge on some particulars. You can also opt to work with a well-established and reliable gold IRA service provider, such as the ones recommended below so that the IRA experts can do all the heavy lifting for you.
That will be all for today’s post, in which we have covered the basics of how you can move your 401(k) into gold without penalties. I hope that you found it helpful and that you now know what to do, to avoid having a rough start as a gold investor. Let me know if you have more questions about today’s topic, and whether you would need any guidance as you get make your entry into this industry – drop it in the comments section and I will get back to you ASAP.
I wish you well,
Eric, Investor and Team Member at Gold Retired!