Gold and precious metals investments are an increasingly popular way to diversify investments, with more and more people choosing to convert 401(k)s to gold based retirement accounts. Gold has a strong historic tradition of increasing in value when the value of cash based investment falls. Meaning that, regardless of which way the market swings, a portion of your investment will always be growing. Including both conventional investments like stocks as well as hard assets such as gold in your savings will help balance your account and protect it from market volatility.
Convert a 401(k) into a Self Directed IRA
The majority of IRAs are placed into traditional investment models such as stocks and mutual funds, as decided by the banks and other large financial institutions which hold the account. Self Directed IRAs, which can be set up under either the traditional or Roth system, allow the account holder to have far more control over how the money is invested. Although Self Directed IRAs offer more independence, all IRAs are required to be held by an IRS regulated third party, known as the account custodian.
Choosing to convert a 401(k) into a Self Directed IRA offers far more flexibility for investment in hard assets such as gold and precious metals than do traditionally offered 401(k)s. One of the easiest ways to incorporate gold into your investment strategy is to transfer your existing retirement savings into a Self Directed IRA with a gold brokerage firm acting as your new custodian.
The simplest way to make changes to your 401(k) is to do so as you are leaving your employment with the company with which you have established your retirement account. This is the point that will offer you the most freedom to convert your 401(k) to a gold based account. As long as you have paid off any loans you may have taken against your account, a well established gold brokerage will be able to work with you to quickly and easily transfer your 401(k) into a Self Directed Gold IRA.
If you do have an unpaid loan on your 401(k), the outstanding amount may be forgiven and taxed as if it is an early withdrawal. If you are under retirement age, you will also be hit with a 10 percent penalty. While you are free to take this route and use the leftover funds to convert the 401(k) to a Self Directed IRA, it may make more financial sense to repay the loan in full before removing the money from your former employer’s 401(k) provider to a gold IRA brokerage.
Including Gold In your Current 401(k)
If you plan to continue your employment, you may have other options available for investing your 401(k) into gold, silver or other precious metals. Many companies already offer a gold or silver option in their plan. If so, you can easily incorporate this into the existing framework of your plan without having to alter your account.
Nearly a third of 401(k) providers include a brokerage option as part of their plan. This option, also known as a Self Directed Brokerage, shares many similarities with a Self Directed IRA, including the possibility of an option to convert a 401(k) to gold. Both plans give the individual investor far more freedom to invest in a much wider range of options, including the potential of gold investment. The amount of your contribution that you are able to invest, as well as the degree of freedom allowed within a Self Directed Brokerage is up to your employer. Check the details of your account to learn more about how you may invest your funds under this option.
If you do not have a gold, silver or precious metals option or a brokerage option, you may be able to petition your human resource department for a special inclusion to the company wide plan.
How to Convert a 401(k) to a Gold IRA While Remaining Employed
Another option is to use an in service rollover to transition your 401(k) into a self directed IRA. This option is available only to employees who are over retirement age of 59 ½, and is provisioned for in approximately 70 percent of plans.
A rollover is a somewhat more involved process than a basic trustee to trustee transfer in which the account balance is simply handed over from one custodian to another. In a rollover, the money is issued to you, typically in the form of a check. Once the funds are dispersed, you have 60 days to convert the balance of your 401(k) to a Self Directed IRA. If you miss this 60 day timeline, the funds will lose their tax sheltered status and be considered income. However, if you hand over your funds to a high quality gold IRA brokerage firm as soon as a check is issued in your name, your brokerage firm will arrange for an expedient account set up to help you avoid any potential fees and extraneous taxes.
Working With a Gold Brokerage
Because of the steadily increased popularity and value of gold over the last two decades, many brokerages have risen to meet the demand to convert 401(k)s to gold retirement accounts. Be wary of any brokerages who seem to be more concerned about their own bottom line than the health of your savings account. The highest quality brokerages will typically have a long history in the industry, as well as high ratings from independent review organizations such as the Better Business Bureau and the Business Consumer Alliance.
An experienced gold brokerage firm will work as your ally to help you maximize your gold investment strategy. The best companies will offer a free initial phone consultation. Using this, you can take advantage of their highly specialized financial knowledge and one on one attention to fully understand the best method for how to convert a 401(k) to gold, and to help you decide if gold investment would be right for your specific situation.