How to Execute a 401(k) to Gold IRA Rollover

Rolling over a 401(k) plan into a traditional or Roth IRA is a fairly common practice. You’ll often do this when you’ve left your former employer and want to keep your retirement savings all in one place. But you may also be looking to diversify your retirement savings with assets that aren’t as closely tied to the economy. If that’s the case, you might consider executing a 401(k) to gold IRA rollover. A financial advisor can help you create a retirement plan that aligns with your needs and goals.

What Is a Gold IRA?

Made possible by the Taxpayer Relief Act of 1997, a gold IRA is a type of long-term retirement account in which a custodian holds precious metals for the account owner. Although gold IRA is the most common name, that doesn’t mean you can only purchase gold with the plan. You can also hold certain types of silver, platinum and palladium. Gold IRA plans are typically self-directed IRAs, which allow more diverse investments than a traditional IRA.

One important thing to note: you can’t simply collect anything made of those four materials. The IRS has a list of specific fineness requirements all precious metals must satisfy before you can have them in your gold IRA.

How to Open a Gold IRA

The process of opening one of these accounts is fairly straightforward. First things first, you’ll need to find a custodian. Because it’s illegal for you to keep the gold yourself, you need a custodian to hold the gold you purchase through your IRA. You can find one by contacting a nearby bank, credit union or trust company. Make sure to do your research and find a company that has a strong track record of well-performing gold IRAs.

You’ll also need a broker or metal dealer to sell you the gold. Often, the custodian will have a list of brokers it’s worked with that can serve as a starting place for your research.

When you’ve found a custodian and a broker you’re satisfied with, you can open your account and purchase your precious metals. Once it’s time for you to retire, you have the option either to collect the metals or liquidate them into cash. The IRS will tax either action as a distribution.

Why Invest in Gold?

Gold is a precious metal with an intrinsic value. Gold is seen by many as a hedge against the volatility of the stock market and other investments. Some also invest in gold because they believe a day may come when paper money and other investments lose their value because of some natural disaster or geopolitical catastrophe, leaving gold as one of the remaining valuable investments.

While this is understandable, it generally isn’t a great idea to make gold your only investment—instead, it makes sense as part of a diversified portfolio.

Gold IRA vs. Physical Gold

While investing in physical gold involves purchasing and holding gold coins or bars directly, a gold IRA allows investors to hold gold in a tax-advantaged retirement account.

Owning physical gold gives investors complete control over their assets, including how and where to store them. Unlike a gold IRA, physical gold is not tied to a retirement account, offering liquidity and immediate access if needed.

However, gold IRA owners benefit from potential tax deductions and deferments. Gold IRAs also require a custodian and approved storage, adding a layer of management and security. Physical gold, while offering more personal control, requires individual arrangements for secure storage, which can incur additional costs and risks.

Steps to Handle a 401(k) to Gold IRA Rollover

Once you’ve opened your gold IRA, you can contact the company managing your 401(k) account to begin the rollover process. You’ll first have to choose between a direct and indirect rollover. In an indirect rollover, you withdraw the funds from one account and then deposit them in another. With a direct IRA rollover, the funds move directly from one account to another. The direct option is usually much simpler, and it comes with less risk of IRS penalties.

With an indirect rollover, you have 60 days from the date you receive the funds to transfer the money to your custodian or gold IRA company. The funds become a taxable withdrawal if you don’t complete the transfer in the 60 day period. If you are 59 ½ years old or younger, a 10% early withdrawal penalty is also applicable.

With either rollover option, you’ll also have to make sure you’ve satisfied any special requirements the company might have for rollovers. Once you’ve met the requirements, the company will send a check with your funds to either you or your gold IRA custodian. By that point, you’ll have completed your 401(k) to gold IRA rollover.

How Can I Transfer My 401(k) to Gold Without Penalty?

To ensure that your transfer does not trigger income taxes, you’ll want to opt for a direct rollover. After opening a gold IRA account with a reputable custodian, request a direct rollover from your 401(k) plan administrator to your new gold IRA custodian. This step is critical as direct rollovers are not subject to withholding taxes.

Once the funds are in your Gold IRA, you can purchase IRS-approved gold and other precious metals. It’s important to select gold that meets specific fineness requirements to qualify for IRA investment. By following these steps, you can successfully diversify your retirement portfolio with precious metals while avoiding any tax liabilities.

Should You Do a 401(k) to Gold IRA Rollover?

Are you looking to diversify your retirement savings? Do you want a retirement option that doesn’t mirror the volatility of paper currency or the stock market? If either is the case, you should consider maneuvering a 401(k) to gold IRA rollover.

Gold IRA plans, or gold investments in general, can be appealing since the price of gold typically moves in the opposite direction of the stock market. So if your securities investments are performing poorly, your gold investments are probably on the rise, and vice versa. Many investors use gold investments to hedge against other investments. It’s uncommon for investors to have a portfolio of entirely gold, or any one asset class for that matter.

Gold sellers will often market gold IRAs by contrasting them with the volatility and risk of the stock market. What’s more, gold will undoubtedly always have some value to it. However, it’s important to remember that there’s no such thing as a risk-free investment. The price of gold is subject to its own rise and fall. Investing in physical assets also presents the possibility of theft, although most custodians will insure against that scenario.

Bottom Line

Investing in gold can be a good way to diversify your retirement plan across asset classes. This could mean purchasing physical coins and bars or stock in gold companies. If you’re looking for a new destination for the funds in your 401(k) and you want something that doesn’t closely follow the stock market or the economy, then a 401(k) to gold IRA rollover could be a good option.

That said, it’s always important to diversify your investments. Make sure your retirement strategy includes several different asset classes. That will help protect you from risk on all sides.

Retirement Savings Tips

Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
During the retirement planning process, it’s important to think about the retirement tax laws of the state you want to retire in. By minimizing your retirement tax burden, you can maximize the value of your savings in retirement.