How to Convert a 401(k) to Gold Penalty-Free
401(k) funds can be used to diversify your retirement portfolio in gold with a Gold IRA, as long as you are eligible. Former employer, current employer, and Solo 401(k) accounts can be rolled over to gold, with some requirements. Instead of buying gold directly, 401(k) assets must be rolled over from the 401(k) account to a self-directed Gold IRA.
Gold IRA Planners outlines converting your 401(k) to gold without penalties starting with what it is, to how it works in our guide below.
What is a 401(k) & Can It Hold Gold?
A 401(k) is a company-sponsored retirement plan where employees contribute part of their salary on a tax-deffered basis. You can't buy gold directly in a 401(k), but you can cash out, though this triggers taxes and penalties. To avoid that, you can roll over your 401(k) into a self-directed Gold IRA and invest in IRS-approved gold.
How a 401(k) to Gold IRA Rollover Works
A 401(k) can be rolled over into a Gold IRA without penalty by using a direct rollover, where funds move directly from your plan administrator to an Gold IRA custodian without triggering taxes. The rollover transfer process typically takes 7 to 14 business days from paperwork submission to funding, depending on your plan administrator and custodian.
A Roth 401(k) to a Gold IRA is also eligible, however to maintain its tax-free benefits, it must be rolled over into a Roth Gold IRA. If you have a brokerage-enabled 401(k), you may have more access to alternative assets, but to hold physical gold, you'll still need to roll those funds into a self-directed Gold IRA. Our 401(k) to Gold IRA rollover guide below details how you'll move 401(k) assets to physical metals.
401(k) Accounts Allowed in a Rollover
Not all 401(k) accounts have the same eligibility when rolling over funds into a Gold IRA. Different types of 401(k)s may only be allowed to a rollover at a certain time. Make sure to verify if you qualify for a gold backed 401(k).
Former Employer 401(k) Accounts
A Former Employer 401(k) account is the most common 401(k) eligible for a Gold IRA rollover, allowing you to roll over the full balance into a self-directed Gold IRA without restrictions.
Partial 401(k) rollovers are also possible and actually quite common, allowing you to roll over a portion of your assets into gold and precious metals. Your 401(k) administrator will be able to clarify if you are eligible for a partial rollover to a Gold IRA.
Current Employer 401(k) Accounts
If you are still working for the company, in-service distributions are possible, allowing you to move your 401(k) to gold while still employed. However, this strictly depends on your plan's rules and usually is only allowed if you're 59½ or older. Most active plans do not allow rollovers unless this is specifically permitted. Some may temporarily suspend payroll contributions after processing an in-service rollover, so check with your HR or plan administrator.
Solo 401(k) Accounts
If you are a self-employed individual with a Solo 401(k), all or part of the funds can be converted to a Gold IRA. If you are the plan admin, you'll have the most flexibility when rolling over this account.
Steps to a Gold 401(k) Rollover
There are three key steps to roll over your 401(k) to a Gold IRA, including:
1. Open a Self-Directed Gold IRA
First open a self-directed IRA with a reputable Gold IRA company. This account is required to hold the physical gold and other precious metals in your Gold IRA.
2. Rollover 401(k) Funds
Next, the company you work with will help you initiate a rollover of your 401(k) funds to the new Gold IRA. You have the 2 options for the transfer of funds in a 401(k) to precious metals with an indirect or direct rollover. A direct rollover is most common when converting to gold to avoid potential taxes or withdrawal penalties. An indirect rollover allows you to take possession of the 401(k) funds with a 60-day window of reinvesting them in a Gold IRA. Indirect rollovers automatically trigger 20% federal tax withholding, which must be replaced out-of-pocket to complete a full rollover.
3. Purchase IRS-Approved Gold & Silver
Once you've funded your Gold IRA with a 401(k), you will work with your Gold IRA company to select and purchase IRA-approved gold, silver, platinum, or palladium. Once bought, the metals are shipped with an IRS-approved custodian to a depository for secure storage (Personal physical ownership is not allowed). Options include gold coins, gold bars, and other metal variations in Precious Metals IRAs.
Costs to Move 401(k) to Gold
The fees structure paid to roll over a 401(k) account to a Gold IRA can vary depending on the company you choose to work with. Standard Gold IRA costs with a 401(k) include setup fees ($50 to $300), annual maintenance fees ($100 to $300/yr), and storage fees ($100 to $500+/yr).
However there is some good news, some Gold IRA companies offer zero-fee Gold IRAs, where the fees are waived as long as you meet their initial investment amount requirements of $50K. This allows you to maximize your 401(k) retirement savings when investing precious metals in an IRA and avoid additional costs. Find out how to get zero fees in our checklist guide.
Gold vs 401(k)'s Funds and Stocks
Your 401(k) account most likely is invested in paper assets like mutual funds, index funds, and stocks (All tied to the performance of the financial market). By incorporating gold in your portfolio by converting a 401(k) to a self-directed Gold IRA, you are investing in a physical asset which is not directly linked to the stock market, providing a way to diversify your retirement portfolio.
Holding gold in a self-directed IRA allows for tax benefits while including tangible assets in retirement. Your financial advisor can work closely with you in deciding the best way to use 401(k) funds to invest in gold and other alternative assets based on your risk tolerance.
Before Rolling Over Your 401(k), Plan Ahead With Gold IRA Planners
Before rolling over a 401(k) plan to a Gold IRA, there is important planning that comes first. Gold IRA Planners provides the best resources and guides to help get you ready for your new Gold IRA. Plan your Gold IRA now, and enjoy retirement later.