Most 401k’s are backed by a combination of stock, bonds, and mutual funds. This practice makes their earnings fluctuate with the changes in their stocks’ value. Stock values are affected by the economy. A majority of 401k plans do not allow you to invest in gold directly.
Some self-directed 401k’s include real estate investments in their portfolios. Earnings fluctuate with the changes in real estate markets.
These are why many people are converting to Gold IRAs (individual retirement accounts). Some people believe paper money or other investments will lose their value. Therefore, they invest in Gold.
Long-term retirement accounts tied to Gold and other Precious Metals
These IRAs are backed by gold, silver, platinum, and other medals. Gold and other precious metals are not as readily affected by changes in the economy. Gold IRA plans allow the owner to make their own investment choices.
The IRA account owner does not have the metals. A custodian holds the precious metals. The custodian ensures the metals you buy meet government standards. They also set up your self-directed 401k or IRA.
Steps needed to set up a Gold IRA Account
- Find a qualified custodian or trustee
It is illegal for you to keep the gold yourself. Not all IRA accounts allow gold investments. So you will have to find a custodian to hold the gold or precious metals. This person must be qualified to set up your Gold IRA account. Banks, credit unions, or trust companies can put you into contact with a valid custodian.
Get the names of several companies that provide custodian services and research them. You want your IRA to perform well and give a good return on your investment.
- Find a broker or metal dealer
You will need to buy your gold or other precious metals from a broker or metal dealer. The custodian may have a list you can check out. Ask other people who have Gold IRAs from whom they buy their precious metals. Again, research each company you consider.
The broker/metal dealer will transfer the gold and precious metals to your custodian. The custodian will hold the gold on your behalf. Sometimes the broker/metal dealer is also the custodian.
- Set up a Solo Gold IRA
The custodian or trustee you choose will set up the Gold IRA under your direction.
- Contact your 401k account manager
Contact the company managing your 401k. Find out what they require from you to begin the rollover process. They may have special requirements you must fulfill before they transfer the money.
- Doing a direct rollover
Set up the transfer from your current 401k to the new IRA account. This transfer would be from the old trustee to the new trustee or custodian. This type of rollover does not involve penalties or withholdings.
- Doing an indirect rollover
With an indirect rollover or transfer, you withdraw the funds from one account. And then deposit them in your Gold IRA account. You have 60 days to deposit your money with your custodian or Gold IRA company. The money is taxable if not deposited to the new account within those 60 days.
- You are finished
After the money has been moved into the new Gold IRA account, you are done. You have completed your 401k to Gold IRA rollover. For more information on moving a 401k to gold without a penalty, check out the article linked.
Things to consider
Some things to consider before buying a Gold IRA with the funds from your 401k.
- A Gold IRA has higher fees.
- A Gold IRA can hedge against inflation. However, it concentrates your assets in one investment class.
- Some mutual funds hold gold or gold mining stocks through their 401ks.
- Exchange-traded funds (ETFs) hold baskets of assets, including gold, futures, options, and shares.
- Gold futures and options are contracts that provide for the purchase or sale of gold at a fixed price. They trade on commodity exchanges.
- You can buy shares of gold mining and refining company stocks. There are risks involved.
- You can establish both a Gold IRA and a regular IRA with a brokerage firm that handles a wide variety of assets.
- You can transfer only part of your 401k to the new Gold IRA account, leaving a balance in your 401k.
Whatever you decide to do, get familiar with your retirement account(s). Doing this will help you track your funds. Check your account statements regularly. Ask questions of your account representatives. Understand how your retirement accounts work. Doing these things helps you make better choices.
