Guide to Precious Metals 401(k) Rollovers
Today’s investors are looking for more alternatives. In an environment where diversification is becoming more and more important, investors are looking for other asset classes to put capital to work in outside of stocks and bonds. While stocks and bonds used to make up the bulk of a portfolio, other assets have gained in popularity in recent years, assets like real estate and physical precious metals.
For many investors, the bulk of their retirement savings may be held in a 401(k) account. 401(k) accounts provide employees a simple and convenient retirement savings vehicle. While one can take a close look at Internal Revenue Code subsection 401(k) for details regarding these retirement accounts, a standard pre-tax 401(k) account generally works like this:
- An employee of a company enrolls in the plan
- Employee decides on a regular contribution amount i.e. 1 percent, two percent, three percent, etc
- Employee picks investments among available choices within the plan
- The employee contribution is deducted from the employee’s pay on a pre-tax basis
- The company may or may not offer a “company match” on employee contributions up to a specified percentage
401(k) plans come with strict rules and guidelines that must be followed. It is important to carefully review such plans before enrolling. Any questions regarding 401(k) plans should be directed to your tax professional.
What are the Advantages of a 401(k)?
401(k) plans can offer investors numerous potential benefits. A few of the possible advantages that may come with a standard 401(k) account include:
- The opportunity for tax-deferred growth
- Convenience as contributions are automated
- Different investment options
- The ability to borrow funds from your account under some plans
- Company match when applicable
A standard 401(k) plan may offer investors various investment choices. These investment choices may be somewhat limited in scope, however. Many funds have choices of mutual funds or life-cycle funds, while others may offer investors additional options, such as money market funds, bond funds or stable value accounts. A standard 401(k) plan typically does not allow for precious metals ownership within the account.
The opportunity for investors to let their money grow on a tax-deferred basis is very important. Contributing money into a 401(k) plan on a pre-tax basis accomplishes two things. First, it may lower the amount of income tax you are paying right now as these funds are taken out before taxes. Secondly, deferring the tax to be paid on these earnings allows one to save more money faster. With more money invested faster, the effects of compounding are magnified.
The company match is another very important potential perk of a company sponsored 401(k) plan. While many companies used to offer pensions to employees, pensions have largely become a thing of the past. If a company offers a company match on employee contributions, the company will match that employee’s 401(k) contributions by a specified percentage up to a certain amount. This company match allows one to accumulate more money quicker and is a company’s way of offering their employees a retirement benefit.
The ease of beginning and investing in a 401(k) plan is also very attractive. Employee contributions are automated and are taken directly out of paychecks. The company sponsored 401(k) plan is a simple way for workers to make contributions to their retirement account on a regular and ongoing basis. The ease with which this can be done may help more workers save more over time, and may potentially put them in a better financial position once they reach retirement age.
One can even borrow money from themselves in some 401(k) plans, such as for a home purchase, economic hardship or for certain bills, such as medical. When borrowing funds from their 401(k) plan, they pay back those funds with interest to themselves. Loans usually have to be repaid within a set time period. While the ability to borrow from savings may be beneficial under some circumstances, there are very strict guidelines regarding these types of loans, and one should consult their tax adviser prior to borrowing from a 401(k) plan.
I Have a 401(k) With My Current Employer. Can I Buy Physical Gold or Silver?
With limited possible exceptions, standard 401(k) plans do not give investors the ability to hold physical gold or silver within the account. You may be able to buy shares of gold or silver funds, or perhaps shares of mining stocks, but one cannot usually hold the actual metal. If you wish to keep your 401(k) account with your employer, your options may be limited. You can request the plan sponsor to allow for physical metals ownership in some way, you can open a separate precious metals IRA account, or you can do a 401(k) gold or silver rollover.
What is a Gold or Silver 401(k) Rollover?
A gold or silver 401(k) rollover is simply the rolling over of 401(k) funds into a gold or silver IRA. If you are still employed by the company through which your 401(k) is held, you will need to check with them on eligibility for a rollover. For the purposes of this brief guide, we will discuss the rolling over of a 401(K) account from a previous employer.
If you have left a company that sponsored a 401(k) account for you, you have some options on what to do with that account. You may:
- Leave the account with the former employer without the ability to contribute further
- Cash out (This may trigger tax liabilities and penalties)
- Roll the old 401(k) plan into a new 401(k) plan at your current employer
- Roll the 401(k) plan into a self-directed gold or silver IRA account.
Obviously, you should discuss your options with your tax professional. If you wish to hold physical gold, silver or other precious metals within your retirement account, then you may elect to roll over the old 401(k) into a self-directed precious metals IRA account.
While a rollover may sound complicated, the process is actually quite simple and hassle-free. Here is how it works:
- Choose a self-directed IRA custodian
- Fill out all necessary paperwork from IRA custodian who will initiate the transfer
- Once the custodian has received your funds, you can shop for precious metals
- Decide on what gold and silver products to purchase and where to buy from
- After the transaction is agreed upon by you and the dealer, the dealer will invoice the IRA custodian for payment
- The IRA custodian and dealer will arrange shipment of your gold or silver to the approved depository of your choice
- You will then receive regular statements of your account from the custodian
It will be up to you to choose a self-directed IRA custodian, an approved depository for your precious metals, and a dealer from which to buy your precious metals. Fortunately, these days this can all be accomplished from the comfort of your own home or office. Some of the major areas of comparison when it comes to choosing these components of your transaction include:
- Fees and expenses
- Time in business/customer reviews
- Prices and shipping rates for dealers
One should do their due diligence beforehand to help ensure a smooth and pleasant transaction.
Another important consideration is the notion of ongoing contributions. One can easily and conveniently contribute additional metals to their account on an ongoing basis following applicable tax code guidelines.
When you are shopping for precious metals, most dealers will have sections with IRA account approved bullion and coin products. One should note that there are strict guidelines as to what gold, silver or other precious metals may be held within an IRA account. These eligible coin and bullion products are some of the most liquid and well-recognized products out there, and typically carry reasonable dealer premiums. In terms of gold and silver, some examples of eligible products include:
- American Gold or Silver Eagle Coins
- South African Krugerrand Coins
- Canadian Gold or Silver Maple Leaf Coins
- Austrian Gold Philharmonics
- Chinese Gold Panda Coins
- Mexican Silver Libertad Coins
- Various Silver Rounds of minimum purity fabricated by an approved mint or refiner
- Various Gold and Silver Bars of minimum purity fabricated by an approved mint or refiner
One can easily compare various dealer prices on IRA eligible precious metals side by side in order to try and get the best value for their investment dollars.
The guidelines on IRA eligible gold and silver are very strict and must be adhered to. Most precious metals dealers should be able to show you what products they carry that are IRA approved.
What are the Benefits of a 401(k) Gold or Silver Rollover?
Rolling over an old 401(k) account into a precious metals IRA account may have several potential advantages. Some of these possible advantages include:
- The ability to own physical precious metals on a tax-deferred basis
- The ability to make ongoing annual contributions within limits and per tax code rules
- Ownership of physical, tangible metals
- Security of your precious metals in an approved precious metals IRA depository
Of course, no two investors are alike. Investors may have different investment objectives, risk tolerances and investment timelines. That being said, there are some common reasons that investors desire physical gold or silver ownership within their retirement accounts. Some of these reasons may include:
- Peace of mind: Physical gold or silver ownership can bring with it significant peace of mind in an ever changing world. Gold and silver have been transacted and considered a reliable store of value for thousands of years. Their value has stood the test of time and they are recognized all over the world for their value.
- Gold and silver have no counterparty risk: Unlike paper investments, an ounce of gold or an ounce of silver cannot go bankrupt or default on obligations.
- Gold, silver and other precious metals may add portfolio diversification: Gold and silver often exhibit little correlation to stocks or bonds. This makes them a potentially useful tool for additional portfolio diversification.
- Precious metals may potentially hedge falling paper currency values: Paper currencies, known as fiat currencies, typically lose value over time. Gold, silver and other precious metals may potentially hedge against declining currency values.
- Precious metals may hedge against inflation: Inflation is simply a sustained increase in the cost of goods and services. As goods and services get relatively more expensive, a unit of currency buys less goods and services. Gold and silver are considered by some to be an effective hedge against run-away inflation, as their values may potentially remain more stable.
- Precious metals may potentially increase in value during times of economic or geopolitical crises: Because of their history and world recognition as a reliable store of value, precious metals may possibly rise in value during uncertain economic or geopolitical times.
The list of potential reasons one may wish to own physical precious metals in their portfolio is a long one. Physical gold, silver or other precious metals ownership is easily accomplished today. If you decide that owning physical gold or silver is right for you, the process to acquire these metals has never been more convenient than it is today.
At Silver.com, we will be happy to help you with the process. Simply view our IRA page or call us at 1-888-989-7223 to help you get started now.
If you are considering a gold or silver 401(k) rollover, do your homework first. Consult your tax professional to help ensure that all applicable rules and guidelines are followed. This brief guide is for informational purposes only. No investment advice is being given or implied.