Over the years people keep searching for the best investment for their golden years. This is because a lot of people have lost their money to wrong investment. In not too recent times, precious metals have been promoted as a very viable investment for retirement with Gold topping the chart. However, it is important to understand this investment (and in fact any other investment) before venturing into it.
One way of investing in precious metals for retirement is by investing in Gold IRA. This is an Individual Retirement Account through which one can buy precious metals in either the physical form or other gold-backed assets.
People who have different retirement plans such as 401(K), Solo 401(K), Roth IRA, SIMPLE IRA, Defined Contribution Plan, and Traditional IRA may feel that they are already too committed to a plan to engage in the Gold IRA. However, you can actually roll over some of these plans to a Precious Metals Individual Retirement Account. If you already have a 401K plan, this rollover guide will show you how to change to a Precious Metals IRA. Just stay with us as we go through the basics in this article.
What Is Gold IRA?
Like we hinted above, Gold IRA is s blanket term for retirement investment in precious metals. Therefore, this account can be used for gold, silver, palladium, or platinum. This account is self-directed which means that you are in sole control of the type of investment that you want to make; you do not need a mutual fund manager however, you must work through a custodian.
With a self-directed Individual Retirement Account, you can choose whether you want mutual funds, stocks, or bonds. That is the major advantage of this account over 401K plans which are usually more restrictive with limited options.
Precious metals investments are considered the best long-term hedge against inflation and also best for diversification of one’s portfolio. There are IRS requirements for the storage of the approved metals. Some custodians have their own storage facilities where their clients can store their metals while others would refer their clients to third party depositories.
What is 401K?
This can be said to be the most popular retirement savings plan in the US. It is an employer sponsored scheme in which the employee pays in a percentage of their income into a designated account for their retirement and the employer matches this percentage or part of it. This is a tax advantaged plan for the investor.
Major features of this plan include the following:
- It is employer-sponsored.
- There are 2 major types of this plan, and they are Traditional and Roth. The difference is in how they are taxed.
- The employees’ contribution in a Roth 401K is made with income after tax while the traditional is made with pre-tax income. The withdrawal for the pre-tax contribution is taxed while the withdrawal for the after-tax contribution is not.
- Employers can contribute to both Roth and Traditional 401K.
You can visit https://www.irs.gov/ for more information.
Steps to Gold IRA Rollover
Before you rollover a 401K to Gold IRA, there are certain rules that are laid down by the IRS that must be adhered to, and they include the following:
- Although the account is self-directed, a Custodian is required to manage the account. You make the decision on what to buy and sell but the custodian executes the decision. The duty of the custodian includes handling all the paperwork and reporting for the account. These Custodians can be banks, trust companies, or other financial institutions.
- The precious metals must be kept in a storage facility or depositary that is IRS-approved. This therefore means that you cannot just store the metals anywhere you like.
- You can roll over any amount you like; there is no maximum.
- If you withdraw early before you are 59½ years old, you will pay a 10% penalty.
- People who are over 50 years plus have to pay an annual limit of $7,500 per annum while those under have a limit of $6,500.
Bearing the above in mind, the steps for rollover are quite simple and they are as follows:
- Create a Gold IRA Account – Research as many precious metal companies as possible and choose the best option.
- Initiate your Rollover – Contact your 401K administrator to transfer funds to the Gold IRA account. It is best to do a direct rollover from your administrator to the custodian so as to avoid tax penalty. Although there is no maximum, there is a minimum amount that you cannot go below.
- Choose a Custodian and Storage that Meets IRS Requirement – Most times the precious metals company can also recommend a reputable custodian to work with.
- Invest – After you have gotten a custodian and storage, go ahead and make your investment. Click here for tips on investing in a Gold IRA.
We have shared just the basics of 401K, Gold IRA, and Rollover. We recommend that you do not carry out this venture in a hurry, take time and carry out extensive research on precious metals companies and custodians. We have shared tips that will help you in this research so take advantage of them so that you can have a successful investment.
Jason is the Marketing Manager at a local advertising company in Australia. He moved to Australia 10 years back for his passion for advertising. Jason recently joined BFA as a volunteer writer and contributes by sharing his valuable experience and knowledge.