Retirement investments come in a lot of different funds including annuities, brokerage account investments, and though they’re rare now, even a few pension funds are still out there. But the most well-known accounts are 401k’s and IRAs. Most people have a 401k while not as many have an IRA, but if you already have a 401k and are interested in gold or silver as an investment, you might wonder if you can use your 401k to do so. The short answer is “no”, but the long answer involves a way that you can convert funds in your 401k to precious metal investments.
Differences Between 401k and IRA
If you’re going to invest in precious metals for retirement, you will need an IRA as will be covered later. But in your current situation, you need to consider why you might want to keep your 401k open, open an IRA in addition to it, or transfer all your funds to an IRA. Both a 401k and IRA have a lot of similarities with the big one being that all gains made in both 401k’s and IRAs grow without being taxed. A 401k has a few other advantages over an IRA:
- The employer sets it up so that all you have to do is just choose your deduction amount from each paycheck.
- Employers also can contribute matching funds to it which double your retirement savings.
- It’s possible to take out a short-term loan from a 401k fund, which you cannot do with an IRA.
But a 401k also has the following disadvantages:
- The account often has very limited investment options and investor control features.
- It often has management fees that can add up over time.
- When you hit retirement age and take a distribution, you’ll be hit with taxes, unlike with certain IRA options that can be distributed tax-free.
These reasons and more are why you should open an IRA, especially if you’re considering leaving an employer and facing a potential dormant account. But you do need to know your IRA options and become familiar with the 401k rollover options that come with it.
Differences Between Self-directed and Regular Custodian Managed IRAs
As previously mentioned, you will need to open an IRA to invest in precious metals, but not just any IRA gives you the freedom to do that. Bear in mind that while many IRA and brokerage accounts allow investments in gold or silver ETFs, this is not the same as investing in actual physical precious metals. To invest in physical precious metals, you will need to have an IRA with a custodian who offers a true self-directed IRA. You could set it up as either a traditional or Roth IRA, but it needs to be a self-directed IRA that allows you to make all the investment decisions and allows for purchasing hard assets like real estate and precious metals. Once you have an IRA, you will want to roll over funds from your 401k into an IRA and do so without being penalized. That will involve the following steps:
- Making sure you set up an IRA that will do direct rollovers so you can avoid penalties.
- The rollover will need to be completed within 60 days if it’s being done indirectly or you’re receiving a distribution.
- You need to make sure your 401k can be rolled over into a Roth IRA if you don’t want it rolled over into a traditional one.
Basically, rolling over 401k into an IRA directly is by far the easiest way to get your employer sponsored savings into gold or silver investments. You just need to cover your bases between the 401k plan rules and your IRA custodian.
Other Important Information on Precious Metal IRAs
In addition to completing 401k rollovers into a self-directed IRA that can invest in precious metals, you have to know the other IRS laws surrounding them. The main one is that your precious metals cannot be stored in your home, and you cannot contribute any bullion you’re currently keeping there into the account. All precious metals need to be purchased through your IRA, taken to an approved depository, and be untouched by you before and while they’re there. That’s why it’s of utmost importance to only buy them through a legitimate bullion dealer who has followed through product delivery.
In conclusion, a precious metals IRA that you fund through a 401k rollover is a great way to get started on retirement. You just need to make sure you’ve chosen the right custodian account and followed applicable tax advice to complete the transfer.
