I’ve gone over in great detail how gold has been considered a safe-haven investment that should be a part of every portfolio to fend off times of market volatility an market economic uncertainty. In today’s guide, I’ll share some glaring examples of that happening in the past before I dive into how you can complete a 401k to gold IRA rollover and add gold and other approved precious metals to your retirement account.
The 1970’s was a high-inflation period that saw the price of gold surge from under $300 in 1970 before crossing $2,700 per ounce in January of 1980. This hedge helped investors against rising costs of goods, much like we saw in the recent COVID-19 pandemic.
Fast forwarding to 2008’s economic and housing market crash, where we saw the S & P sink to extreme lows, gold showed significant appreciation. Starting the year at just over $700 per ounce, gold surged to over $1,000 in just one year before continuing it’s upwards trajectory. Today gold trades around $3,300 per ounce.
I’ve been covering precious metals investments since 2011 and I personally invested in a gold IRA as I realized the importance of a diversified portfolio – one that helps me deviate from the risks that come with investing in traditional assets like mutual funds, stocks, and bonds. What most investors are beginning to find out is that most 401(k) plans do not offer a direct investment into physical gold.
If that’s your case, you should consider a rollover of your funds into a Gold IRA.
Having gone through this process personally, I’ll guide you how the process of a 401(k) to gold IRA rollover works as well as explain the important steps that must take place to avoid tax penalties.
What is a Gold IRA?
Commonly known as a “precious metals IRA,” but mostly called a Gold IRA since most investors flock to gold as it’s the most traded of all precious metals. A Gold IRA also allows investors to purchase physical silver, platinum, and palladium in the form of coins or bullion. For transparency, I own both gold and silver in my Self Directed IRA, so let’s take a second to understand what that is.
Self Directed IRAS (SDIRA) are the legal way to invest in physical gold and other tangible assets using your retirement savings. Again, since a 401(k) doesn’t allow you to buy physical assets, this is the structure you need to keep things 100% legal.
For even further transparency about my own SDIRA, I not only own precious metals, but have direct investments in real estate, private equity, and cryptocurrency.
What to Keep in Mind Before Executing a 401k to Gold Rollover
The simple way to complete a 401(k) rollover to an IRA is by using funds inside a former employer’s 401(k) plan. A 401(k) plan won’t allow you to remove funds from the account while you are still employed by the company unless you have reached the age of retirement.
There is one caveat, being that if your plan administrator allows for “in-service withdrawals” you’ll be able to rollover capital to an IRA while you remain employed. If you are interested in using your retirement account and still employed by that company where the funds exist, you’ll have to consult with your plan administrator.
Direct Rollover vs Indirect Rollover
There are two types of common rollovers: the direct rollover and the indirect rollover.
Here’s how each of these scenarios work:
Direct Rollover
With the direct rollover, you’ll get your funds transferred from your 401(k) plan directly to your new SDIRA. You will never take possession of the capital at any time – this is important! If you do not take possession of any of the funds, you’ll steer clear of any taxes or penalties. It’s the most direct method of getting your gold IRA rollover started and it mitigates any risk of making a crucial mistake.
Indirect Rollover
If you are organized and willing to move your 401k to gold with some more responsibilities on your shoulders, than an indirect rollover is another option to get started.
In this scenario, you will have the funds distributed directly to you and you’ll have the task of depositing them within 60 days into your SDIRA. Assuming you follow that one rule, you’ll have zero tax implications.
This will trigger a 401(k) distribution that comes with a mandatory 20% federal tax withholding. To avoid taxes and penalties, you’ll have to deposit this full amount into your SDIRA (even the 20% I referenced). It’s possible you’ll have to source the 20% from another source. Using a reputable gold IRA company is my best advice, because they are specialists at this transaction and help investors do this on a daily basis with ease. My full list of vetted companies is below.
The only risk with the indirect rollover is that you miss the 60-day window or fail to contribute the full amount, which can lead to tax penalties.
401(k) to Gold IRA Rollover Steps
Here’s a quick guide of what steps you’ll take to get your SDIRA set up and begin the process of starting a Gold IRA. At some point along the way as you become educated about this process, you can decide how much of your retirement savings you want to invest in precious metals. Most people use a range of 5-20% of their retirement portfolio to create a diversified portfolio. However, I do suggest you get professional financial advice.
#1: Choose a Gold IRA Company:
Having covered this industry for nearly 15 years, I’ve seen firms come and go. That’s why I put together this list of precious metals companies that are not only award winning, but very successful. Many firms on the list above have done billions of dollars in transactions and have won awards by the most respected financial publications.
I’ve written gold IRA reviews about many companies in this space. You can request a free gold IRA kit from any of them and begin to interview them to see who you feel most comfortable with.
#2: Open Your Self Directed IRA
The gold IRA company will assist you in this process and help you find a gold IRA custodian, which is required for this transaction.
#3: Choose Your Rollover Type to Begin the Process
Decide if you are going to do a direct or indirect rollover depending on where your retirement savings currently is located and what process makes the most sense for you. You can even use a traditional or Roth IRA if you have one. It doesn’t have to be funded from a 401k plan, but most people who are employed by someone else have 401k plans and it’s the most common retirement savings vehicle.
#4: Choose Your Precious Metals
Once your chosen gold IRA company ensures you are qualified for this transaction, you will be presented with many precious metals investments you can make. I hold a mix of gold and silver coins and I stuck to the most popular and traded coins as they trade right near the spot price.
#5: Choose a Gold IRA Custodian
The gold IRA custodian serves as an administrator for your account. I chose Equity Trust Company as I already had a SDIRA set up when I made real estate investments with my retirement savings. Your custodian will lead you through the next step, which is choosing a depository.
#6: Choose Where to Store Your Precious Metals
There are many places you can store your precious metals, but know upfront that it can not be at your home. This negates the purpose of gold IRA investing and if unless you want to pay income taxes on your retirement savings, this is something to avoid. Depositories have small annual fees that vary depending on which one you choose, the size of your precious metals investments, and if you choose to have your assets segregated, or non-segregated.
#7: Sign All Paperwork and Wait for Your Precious Metals to Be Delivered to the Depository
Once I funded the account and chose my precious metals, the gold IRA company sent me a docusign and the entire process was completed. Gold IRA investing is rather easy if you use the right company.
Gold IRA Rules
There are a few rules that do come into play when starting a Gold IRA.
The first thing to know is that your precious metals MUST be IRA eligible.
The IRS only allows certain types of precious metals in a Gold IRA. They must meet specific purity standards:
- Gold: 99.5% pure
- Silver: 99.9% pure
- Platinum & Palladium: 99.95% pure
Approved examples include:
- American Gold Eagle coins
- Canadian Maple Leaf coins
- Gold bars from approved refiners
Not allowed: Collectibles, rare coins, and home-stored gold.
Use a SDIRA
Another rule is that you must use Self directed iras ONLY. Traditional and Roth IRAS do not allow you to hold physical gold. Do note that you can ask about a Roth Gold IRA, which would allow you to use your Roth IRA to hold physical gold. A gold IRA company representative can assist you with this so you set it up properly and avoid tax penalties.
You Must have a Custodian
his custodian holds your assets, ensures compliance with IRS regulations, and facilitates reporting.
No Personal Possession
You cannot store the gold at home. All metals must be stored at an IRS-approved depository (like Delaware Depository or Brink’s). Home storage violates IRS rules and could trigger penalties.
Contribution Limits
Gold IRA contribution limits follow standard IRA rules:
- 2024 Contribution Limit: $7,000 ($8,000 if over age 50)
- Combined across all IRAs (Traditional, Roth, SEP, Gold, etc.)
Taxes and Distributions
- Traditional Gold IRA: Tax-deferred, taxed as income upon withdrawal
- Roth Gold IRA: Funded with after-tax dollars, withdrawals are tax-free (after age 59½ and 5-year rule)
You must start Required Minimum Distributions (RMDs) at age 73 (for Traditional IRAs only).
Early Withdrawal Penalties
Withdrawals before age 59½ are subject to a 10% penalty plus regular income tax (exceptions apply, such as disability or first-time home purchase for Roth IRAs).
Rollovers & Transfers
You can move existing IRA or 401(k) funds into a Gold IRA via:
- Rollover (60-day rule): You take possession and redeposit within 60 days
- Trustee-to-trustee transfer: Safer and not reportable to the IRS
Roll Your 401(k) to a Gold IRA
Hopefully this guide gave you an idea of how this process works. To begin adding gold to your 401 k and diversifying your retirement account, choose a company below and learn more about physical gold by requesting more information.
