Before we get into the nitty-gritty of converting a 401K to gold, let’s talk about why you should consider making the switch in the first place.
Investing for your retirement is the best gift you can ever give yourself in this lifetime (read more). A lot of people put off retirement plans because they’re young and they feel like they still have a lot of time left to think about such things later on in life. However, time really stops for no one and it only goes towards one direction: forward. Before you know it, you are halfway through your most productive years and you still haven’t figured out how you can live comfortably after you retire.
Instead of going back and forth about when to invest and waiting until you feel more financially stable, just start. It doesn’t matter how big or small, or how elaborate your retirement portfolio is, all you have to do is take that first step and get things rolling. You’ll find yourself more aware of better investment opportunities as soon as you get some money in the pot but you’ve got to get in the arena first.
What Is A 401K?
One of the most commonly known retirement funds is the 401K. You’ve probably heard about it too, or you may already have it if you’re currently employed. It’s a type of retirement account with tax advantages which is why it’s a good, low-risk investment for many of the working population. Basically, a portion of your monthly income is directly deposited by your employer to your personal 401K account and they often match a portion of your contributions as part of your benefits for working for the company.
You can decide how much goes into your 401K contributions annually. Check out how much you should be investing here: https://fortune.com/recommends/investing/how-much-of-your-income-should-go-toward-investing/. Furthermore, you can decide whether you want to go with a Traditional or Roth 401K account. Here’s the difference between the two:
- Traditional – This means immediately depositing your contributions first to your 401K account and deducting it from your paycheck. This helps lower your taxable income considerably. You pay out regular income tax when you withdraw the funds later on.
- Roth – This is the opposite of a Traditional 401K where they take out the income taxes first before depositing the funds to your account. By the time you retire and would like to withdraw your funds, you no longer have to pay income taxes for each withdrawal. Roth 401K gives you an advantage if you expect to be in higher tax brackets by the time you withdraw the funds.
You can choose to invest in only Traditional, Roth, or both – depending on whatever feels best for the lifestyle you envision for yourself later on (check this out). You can grow your money inside your 401K account by reinvesting it into either mutual funds, exchange traded funds. You are often given extensive investment options and you are the one to choose where you would want your money to go.
Now, on to the main thing: Is it possible for you to convert your 401K to a Gold IRA?
What Is A Gold IRA?
A Gold IRA which stands for Individual Retirement Account, refers to an investment account that is focused on the procurement of gold. Precious metals, gold especially, appreciates in value over time. Throughout history, we’ve seen gold used in many ways, particularly as a currency for high value trades. Gold has not once significantly declined in value; it’s a stable investment that is expected to appreciate in value steadily over time.
This is why more and more people are switching to a gold-focused retirement account as there is considerable advantage to investing in gold for the long-term. If you are one of these people who are interested in making the switch, let us walk you through the process of converting your 401K to a Gold IRA account.
Converting Your 401K to a Gold IRA Without Penalties
Here are 4 easy steps on how you can transition to a Gold IRA account:
- Find A Reliable Partner – In order to make this switch happen, you first need to find a Gold IRA company that is reliable and trustworthy to work with. They will help facilitate much of the process as well as offer sound advice as to how you should approach precious metal investments. Look for a company, like Digital Financing Taskforce, that is compliant with IRS regulations (this is a must), transparent with their fees and charges, and offers unrivaled customer service.
- Open A Self-Directed IRA – This part is very important. You need to have direct control over your IRA to purchase precious metals such as gold. Having a self-directed IRA can help you play an active role in your investments and choosing which ones to acquire. You can easily diversify your investment portfolio when you have full command over your investment account.
- Make The Switch – You can convert your 401K account to gold through a process called a rollover. There is Direct Rollover and Indirect Rollover, which we will further explain below:
- Direct Rollover: This refers to directly transferring your funds from the 401K to a Gold IRA without withdrawing the funds.
- Indirect Rollover: This refers to taking out the funds out of the 401K and manually depositing them to a Gold IRA Account.
Between the two, direct rollovers are more often preferred as it’s simple and there’s little room for mistakes. If you do decide to do an indirect rollover, make sure that you redeposit the amount within 60 days to avoid tax implications and penalties.
- Start Buying Gold – Now for the most exciting part, once your account is fully-funded you can start purchasing precious metals of your choice. You can either use up your funds on gold only or diversify with other precious metals like silver.
Now, how can you sidestep penalties when converting your 401K account to a Gold IRA? Here are three things to note:
- Make sure that you work with a capable financial adviser that specializes in rollovers.
- Stay within the recommended tax windows to avoid penalties, especially when doing an indirect rollover
- Make sure your account is no longer active
To explain the last point further, your account is considered “Active” if you are 54 years of age and below and your 401K account is still linked to an employer which means that you are still currently working for them. Your account is considered eligible for the rollover without penalties if your 401K account is no longer linked to any employer or you are at least 59.5 years old and above.
