“How do I invest in gold with my 401(k)?” If you came up to me with this question, I’d be more than delighted to offer a few tips about it or point you in the right direction so that you can get help from the experts. For a great number of investors, the allure of investing a portion of their wealth in precious metals such as gold and silver is irresistible. Gold is actually one of the most sought-after and well-recognized investments in the entire world, and it has the potential to give lucrative returns when placed in any investment portfolio.
Gold has over the years been perceived as a safe investment that can be relied upon to hedge against the forces of inflation. This is best exemplified in the way the price of this precious metal tends to go up every time the U.S dollar starts to go down. From the look of things so far, the U.S. dollar has not been showing the promise of stability, which makes sense why every investor would need to consider owning gold.
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When it comes to the ownership of gold, one of the most common approaches is usually the use of funds in a 401(k). The one thing to note, however, is that most 401(k) retirement plans will not allow you to directly own physical gold (or gold derivatives e.g. options and futures). There are, however, some indirect ways in which you can purchase gold using your 401(k) as we shall see.
The basics of 401(k) that you need to know
A 401(k) plan is an employer-sponsored retirement savings plan that is used by many Americans to take advantage of tax benefits to put together investment plans that grant them the capability to live their retirement years comfortably.
As a 401(k) owner, you can divert a portion of your salary on a pre-tax basis towards your long-term investments. Your employer can offer to make partial or full matching contributions to the money that you channel into your 401(k). For example, if you are an employee and you invest about $250 per paycheck into your 401(k), your employer will contribute an extra $250, if they have agreed to fully match your contributions.
Plans usually come with contribution limits that are established by the Internal Revenue Service (IRS). In the year lasting between 2020 and 2021, employees are allowed to save $19,500 in their 401(k). Employees aged 50 and above can make catch-up contributions amounting to $6500 annually, into their plans.
Such plans are usually handled by fund managers, or in other instances by financial services groups. Companies present their employees with a given number of different investment options, to enable them to diversify their investments – this mostly happens through the selection of mutual funds. Enrollees can pick assets from a wide variety of funds ( comprising of small-cap and large-cap funds, as well as bond and index funds), all of which have varying growth potential.
Because the 401(k) plans are very important, their owners can benefit from major opportunities in the market. This is why you will find some investors wanting to shift a portion of the funds in their 401(k) accounts to precious metal assets such as gold, to tap into the underlying unique benefits.
401(k) and gold investments
One of the best, and very highly recommended approaches to profit from gold investments is to purchase the physical commodity. There is, however, a catch when it comes to 401(k)s since only very few plans allow their holders to invest in alternative assets such as gold bullion. Actually, a great number of the 401(k) plans do not accommodate investors who’d like to invest in any type of precious metal, in any form. This means that as a 401(k) account owner, you cannot head out there and buy gold bullion or coins, and have them as part of your retirement investment portfolio.
Investors who are eager to invest their money in gold still have several options to do so. One of the best methods to achieve this is through a 401(k) to a self-directed IRA rollover.
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Self Directed IRA rollover
All employees whose 401(k) plans limit them from accessing gold for investing in a bid to meet their investment goals can opt-out of that plan into a self-directed investment retirement account ( SDIRA). With an SDIRA, one can invest in a wide array of gold investments, including:
- Gold stocks
- Gold mutual funds
A gold IRA, or precious metal IRA as is popularly known, is a special type of IRA that lets you invest in physical gold. You can, as such do a 401(k) to a gold IRA rollover, is you are looking for ways to own physical gold in the form of gold coins or gold bullion. You must ensure that you only purchase approved precious metals, for use in your gold IRA. You cannot just walk around and purchase gold of any purity level and expect to use it for investment through the gold IRA that you will open. All assets, including precious metals, have to meet the requirements set by the IRS.
When an investor with a 401(k) leaves their job, maybe through retirement, they have the option to roll over the funds in their 401(k) into a gold IRA. If the 401(k) is overseen by their current employers, then the investor can request the employer to carry out what is referred to as an in-service withdrawal. This simply refers to a process through which an employee can get their 401(k) funds before retirement, or through any other specified triggering event.
There’s no tax penalty, provided the employee ensures that they invest the funds obtained from their employer in the newly formed IRA or another 401(k), within 60 days. Regular IRAs do not allow gold investments. If the employee still wants to open a traditional IRA, then they can only invest in gold through gold stocks and funds. If they, however, want to hold physical gold in their portfolio, then they can turn to self-directed IRAs, which they can open through the companies recommended below:
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That will be all for this article in which we have tackled the question, “How do I invest in Gold with my 401(k)?”. I hope you have an answer, and that with the recommendations given you can get started more easily. Let me know if you have any questions with regards to the subject matter- drop it in the comments section so that I can respond to you ASAP.
I wish you well,
Eric, Investor and Team Member at Gold Retired!
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