While many people feel that their standard employer-provided 401(k) will be enough to sustain them through their golden years, more and more people are waking up to the fact that the value of our currency could plummet, devaluing their retirement accounts.
If you’re thinking of changing your 401(k) over to a gold IRA, there are specific steps you’ll have to take to do that.
To start, you’ll need to work with an expert in gold IRAs who can give you the latest information about gold bullion and other precious metals. They should also be able to work with you to collect all the necessary resources to start a direct rollover and open your account.
The next step is to open up an account with that custodian for them to purchase the bullion or other precious metals as needed and keep all of this in a secure facility.
The final step is to ensure the custodian has processed your rollover. Any funds you had in your old 401(k) get moved over to the new gold IRA, where you can use them to acquire the gold bullion for your new account.
Step 1. Find a Provider
Gold IRAs differ from regular IRAs in a few key ways. The most noticeable difference is that while standard IRAs have assets like bonds or stocks, a gold IRA mainly relies on the value of gold or other precious metals.Many investors know what they can do by investing in silver or gold, but an actual provider will have the expertise they need to set up a gold IRA.
A provider can give you the information you need to open your new account, contact a custodian, select the precious metals you’d like to invest in, and find a facility to store your new precious metals. Think of the provider as your guide throughout the entire process of setting up your new account.
Step 2. Identify Your Custodian
Believe it or not, it’s against the law for someone investing in a gold IRA to keep custody of the gold themselves. Therefore, you need a designated custodian to look over the gold for you.Usually, a custodian will be a company that can keep track of any transactions you and they have made. They can give you any information you need when reporting to the IRS.
The primary responsibility of a custodian is to buy and sell the metals you’ve put into your gold IRA. From there, they will carry out any transaction you want during the duration of your account with them.
When offering an IRA, most investment businesses don’t include things like precious metals or other tangible assets. Instead, they’ll try to get investors to put their money into the stock exchange. They do this for the sizeable commission they’re liable to receive.
This product will give you more agency than a traditional IRA.
Step 3. Open the Account
With a company and a custodian selected, your next move is to open up your new gold IRA account. Once you’ve done this, your provider and the custodian will have everything they need to invest your assets. They will work directly with the precious metals provider to sell or buy metals as required and as you see fit.After the provider understands what you’re looking to invest in, amounts, and quantities, they’ll confer with your custodian to physically transfer your new assets to a secure location. Your gold and silver bars and coins will then get put into safe storage for the duration of your account.
Not only does the custodian physically secure your new assets but also they will also ensure that you adhere to the Internal Revenue Service’s regulations. A custodian will handle essential details such as how your account will be managed and where you’ve stored the precious metals. A detailed record of the total amount of your purchase will be sent to you as well as copies of all documentation to you and the IRS.
You can open up a gold IRA with any amount you’d like to invest, so long as you meet the minimum amount for your chosen company. While some companies require a minimum of $5,000 to set up a gold IRA, other companies may need as much as a $50,000 investment to determine it’s a worthy account for them.
Step 4. Start the Rollover Process
After you’ve followed the first three steps, the next thing is to roll over all of your money and assets from your existing account to your new account. You can either do this through a direct rollover or an indirect rollover.In a direct rollover, the cash and other assets transfer directly from your original retirement account to your trustee or custodian. The company you’ve chosen for your gold IRA can assist with anything you might need from here, and they’ll work directly with your custodian.
An indirect rollover is a bit more involved and complex. With this type of rollover, the company will give you the funds from your old account, understanding that you will put them into your new gold IRA and not disburse the funds or use them for any other purpose.
Since an indirect rollover involves greater risk, it includes much more paperwork than a direct rollover. You’ll need to prove that you completed the rollover, so most investors opt for a direct rollover to cut out a few steps and eliminate the possibility of complications.
Most experts also recommend going with a direct rollover, as it makes the process easier for all parties involved.
You can bring money from any retirement account to a new gold IRA account. You can transfer the funds as long as you can access the account.
Among the IRAs eligible, you can transfer funds from a 401(k), 457, 403(b), and other qualified accounts. You can move from a Roth IRA, a SIMPLE, a SEP, and a regular IRA.
You can set up your new gold IRA like other IRA types. For instance, if you already have a Roth IRA, you can also set your gold IRA as a Roth. This will allow you to enjoy things like growth without taxation. Remember, of course, that you’ll have to adhere to the rules of a Roth and not access your funds for five years or more.
From there, you’ll need to transfer the funds to your trustee in 60 days or less. You should not incur any penalty if you can follow all of these requirements. If you take longer, though, these assets will fall under the distribution of funds and could be taxed.
Step 5. Buy the Gold
Now that you’ve taken care of the rollover process, you need to work directly with the company you chose to buy the bullion or other precious metals. They will have the knowledge and expertise to purchase the assets and carry out the gold rollover.You want to ensure your chosen company has relationships with facilities and trustees. With this in place, the company should be able to review all your options and help you decide which one is right for you.
It’s easy to get overwhelmed during this process. There are many choices and different companies, facilities, and trustees. On top of that, you need to ensure that you meet all IRS standards and only use the type of silver or gold they accept. Fortunately, a suitable gold IRA company can help through this entire process.
The IRS requires all silver and gold to meet specific standards of purity. For gold, the purity standard sits at 99.5 percent. The only exception to this is the Gold Eagle coin, which is less pure but still allowed. For silver, the purity standard sits at 99.9 percent. Anything less the IRS will not accept.
It’s important to remember that you get to make the final say with your gold IRA. You can decide what precious metals to invest in and what type and quantity. Also, your gold IRA company should give you a confirmation notice and provide you with every detail you might need regarding your transaction.
Why a Gold IRA?
Now that you’ve seen all the steps involved in rolling over your old retirement account to a new gold IRA, you may wonder why you should even do such a rollover.While a 401(k) will similarly invest your funds to ensure you have a comfortable retirement, it will invest those funds in the stock market to do so. The hope is that as the stock market flourishes, so too should your retirement account.
Many see a 401(k) as stable, but this is illusory. With a traditional 401(k), your retirement account only does as well as the stock market itself does. When the stock market crashes, so too does the value of your 401(k).
Once your 401(k) has dropped significantly in value, you’ll have no recourse apart from hoping the stock market will recover. A standard 401(k) requires you to be at the mercy of a fluctuating, often chaotic stock market.
A gold IRA offers a much more viable and attractive solution. By staking your account against the value of physical, tangible goods like precious metals, you remove the threat of an unstable market and have something of value against which to stake your account.
Many investors think they need to be financial experts to take advantage of this type of account, but that couldn’t be further from the truth. You don’t need to know everything there is to know about investing to reap the benefits.
What Is a Gold IRA?
At its core, a gold IRA isn’t much different from any other IRA type. The most crucial difference is that while a traditional IRA is at the mercy of the stock exchange, a gold IRA’s backing comes from the value of precious metals.While the stock market could surge—and likewise bring up the value of your 401(k)—it could also plunge and crater your investment. The stock market is often volatile, but the value of gold and silver, in contrast, is relatively stable.
Even though it’s called a gold IRA, you can invest in several other precious metals alongside gold. You can also invest in silver, palladium, and platinum. Regardless of the type of precious metal you go with, these will come sourced from a certified mint that ensures purification and verifies all metals to guarantee that they meet all requirements.
Your investment might come in the form of bullion, ingots, or metal bars that come with a purity guarantee. You might also receive your precious metals through rounds or coins. Whatever their form, the crucial thing is that the amount you receive matches your investment and meets all purity requirements.
Another thing to note is that your gold IRA will not exist in the same kind of retirement account that it would if it were a standard IRA. Since this type of IRA involves physical, tangible assets, the bookkeeping process differs slightly.
Along with a more involved bookkeeping process, you can expect to deal with more regulations regarding the maintenance of your assets and the assurance of their integrity.
What Are the Pros and Cons of a Gold IRA?
Pros
The most considerable notch in the pro column for getting a gold IRA is that you have a degree of control here that you don’t have in any other type of IRA.While a typical IRA will bring the risk of the market crashing, currency seeing inflation, and the potential for a toxic political environment, a gold IRA isn’t subject to any of these effects.
With that said, you will want to thoroughly research several different companies to ensure they are trustworthy and capable of managing your new account.
You can also opt to have an automated advisor for portfolio management. You will usually have to pay a minor fee for this service, but there are ways to bring it down or eliminate it.
Cons
With all of the pros of setting up a new gold IRA, you should also know about a few cons. The most significant disadvantage here is that most retirement accounts try to stop you from withdrawing funds before age 59½.While every retirement savings company has different terms and conditions, most will charge you 10 percent for pulling your money before this age.
With that said, 401(k)s behave a little differently. You can waive fees on anything taken out by age 55 or older. This same logic does not apply to any IRA, however.
By far, the biggest con is that it’s frequently complicated and difficult to move your assets from your standard 401(k) over to your new gold IRA without any penalty. Or rather, it would be if you didn’t have this gold IRA rollover guide or a professional there to help you through the process.
What Exactly Is a Gold IRA Rollover?
A gold IRA is when you convert an existing part of your portfolio or retirement account into bullion, rounds, or coins of precious metals to hedge against market or political instability.Should I Do a Gold IRA Rollover or Gold IRA Transfer?
It’s easy for investors to get confused about the differences between a gold IRA rollover and a gold IRA transfer, so we’ve broken down the similarities and differences.Gold IRA Rollover
In a gold IRA rollover, you must transfer your funds within 60 days to avoid fees. In addition, you could incur a penalty for any early withdrawals, with some fees climbing as high as 10 percent. If you break the 60-day transfer requirement, your funds also become taxable. Along with all those regulations, you’re only allowed to do one rollover every calendar year, but you don’t need to withhold any tax as long as you’re transferring from a personal IRA.Gold IRA Transfer
With a gold IRA transfer, you don’t have to worry about transferring your funds within 60 days. You also don’t have to worry about early withdrawal penalties. On top of that, your funds are not taxable, you have no annual limits on transfers, and you don’t have to withhold taxes.How It Works
At its most basic level, a gold IRA transfer involves moving assets from one trustee to another. Because of the security of this process, the investor does not handle any of the money themselves. Instead, the assets get moved between the trustees and the trustees only. This process is far more straightforward, less risky, and involves little to no possibility of incurring fees.The main distinction between a gold IRA rollover and a gold IRA transfer is that with a transfer, the funds never go to your actual bank account.
Most investors prefer transferring because they eliminate the risk of human error. Many others choose it because they don’t want to deal with the money themselves, and others prefer not to deal with added complications and paperwork if they can help it.
From 401(K) to Gold IRA Rollover
Some investors think that they need to stick with a standard 401(k) and are subject to the effects of the stock market. This isn’t the case. You can roll over or transfer your assets from a 401(k), whether an employer has sponsored it or is self-directed by the account holder. With that said, the process is a bit different.If your 401(k) were employer-sponsored by one of your former employers, you likely wouldn’t encounter any issues during the rollover process. You’ll need to choose your custodian and then have them carry out the rollover.
If you’re trying to roll over a 401(k) that your current employer is sponsoring, you’ll have to jump through a few more hoops to get that into a self-directed IRA. For instance, some employer-sponsored IRAs explicitly prohibit you from investing in gold while still an active employee.
Deciding on Your Strategy
Just as every investor is different and has different goals and priorities, there isn’t only one approach that will work for every investor every time. Your goals will ultimately decide which strategy is best for you.For example, you might wonder how much of your portfolio should be set aside for precious metals investment. While an expert can give you their perspective and opinion, the final decision ultimately rests with you.
Like other investment options, the answer is how much risk you accept. Another important consideration is how close you are to retiring and how much you already have in your retirement account, among many other factors.
If you don’t want to take that much risk and are already close to retirement age, you might benefit from putting a more significant amount toward precious metals than someone younger and more risk-tolerant.
No matter what you choose, diversifying your portfolio with silver, gold, or any other precious metal will allow you to hedge against the volatility and instability of the stock market. The added benefit here is that precious metal prices tend to go up whenever the stock market is unstable.
As the economy fluctuates, investing in something more stable, like precious metals, is best. You can work with your company throughout your account to reallocate as needed, too, so what you decide today does not need to be what you stick with in the long term.
Choosing the Allocation
The amount of your portfolio you allocate to precious metals will depend entirely on your needs and wants. When choosing your allocation, you should think about a few things. Namely, how will the economy look in the next few years?Also, consider whether your portfolio has been meeting your expectations and, if not, what you’d like to see changed. It would be best to examine your reason for investing in gold or other precious metals. Is this to diversify your portfolio, manage your risk level, or make a profit? Lastly, how close are you to retirement age or your date for when you’d like to retire?
Diversification
One of the most common reasons to invest in gold or silver is to diversify your portfolio and protect it from the effects of a stock market crash or similar market fluctuation. Many investors who want to limit their potential losses will put a percentage of their assets into precious metals so that all is not lost in a recession or collapse.Inflation
Those concerned about the effects of inflation will often invest more of the total percentage of their portfolio value toward precious metals. This works exceptionally well since the value of gold has stayed remarkably consistent over the years, despite currency fluctuations elsewhere. Even as the dollar declines in value, gold remains stable in value.This mindset is understandably popular because the United States currently faces a severe inflation issue. The 1970s was another period of extreme inflation, and during that time, the value of gold rose significantly, even as the dollar declined.
Systemic Collapse
Those who feel the economy is headed in the wrong direction and might even be unsustainable should invest more in precious metals. When world events cause instability and the economy becomes volatile, silver and gold tend to rise in their overall value. Even in a market crash, precious metals tend to retain their value.Choosing IRA-Approved Bullion and Bars
As mentioned earlier, the IRS is quite strict regarding the purity and type of precious metals they allow in a gold IRA. Some products that meet the IRS’ standards include the American Eagle gold coins, the Valcambi Gold CombiBar, Canadian Gold Maple Leaf coins, Credit Suisse gold bars, and Johnson Matthey gold bars.It’s important to note that you cannot use gold and silver collectibles in a gold IRA. You cannot use any rare coin. The IRS does not consider a gold bullion bar a collectible for classification purposes.
Physical Gold Rollover vs. Paper Gold Rollover
You have two options for the type of rollover for your gold IRA. The first is a physical rollover. This is the more traditional option, and it involves securing actual gold bullion bars in a facility that a custodian will watch over.The second type is a paper gold rollover. In this option, you’re investing in a security based on gold. Some standard modern versions include investing in an ETF or some other type of mining stock for gold.
The most serious concern here is that an asset with greater liquidity can be more challenging to sell or buy quickly. For this reason, paper gold is far more uncertain and volatile a commodity than actual precious metals would be.
- Counterparty risk: With a standard stock that’s publicly traded, you run the risk of a company declaring bankruptcy or not honoring its obligations. You don’t have the same risks when investing in something tangible, like precious metals.
- Safe haven: When the worst-case scenario occurs, the market crashes, or the economy collapses entirely, and gold bullion retains its intrinsic value. Cash can lose its value entirely, but countries and entities will still honor gold.
- Ownership: A company or other entity can confiscate your stocks and bonds, but your gold bullion bars and other precious metals remain safe.
- Convenience: Gold bullion is easy to store and secure, but you can still move your assets elsewhere if needed. You can withdraw gold from your gold IRA via distribution whenever you want.
How to Find the Custodian for You
Investors who are used to the process involved in a traditional IRA probably expect something similar for a gold IRA. While some similarities exist, opening up a gold IRA account is more complex.For starters, your average brokerage won’t even support a gold IRA. They specialize instead in IRAs based on stocks and bonds. When you’re ready to open your gold IRA, you must research and choose a custodian.
The suitable custodian will be more than just a watchdog for your bullion. They’ll also work with you to ensure your precious metals’ safety and guarantee that you’re following all protocols and IRS regulations. Since breaking protocol can result in fees and taxation, the custodian you’ve chosen must have a firm grasp of IRS regulations.
The suitable gold IRA company will help you with your full rollover, from acquiring the precious metals to their storage in a facility and beyond. This company needs to guarantee transparency and give you all the documents and materials you need to finish the rollover process.
Beware of any gold IRA company that isn’t transparent or adds fees to your contract without explaining what they are.
The Company’s Reputation
You check reviews for most of the products you buy online, so you’ll want to check the reviews of the gold IRA company you choose. Be sure to look for reviews that specifically speak to overall customer satisfaction and level of service.The simple truth is that a gold IRA company without online reviews is not worth your time. Whether looking at the Better Business Bureau, Trustpilot, Google, or even on web forums, you should be able to find some review footprint before making a final decision.
Also, keep in mind that review sites exist that sell fake reviews. Look out for reviews that don’t make sense or sound like spam. Also, look for repetitive reviews or reviews that seem like minor variations on the same theme, as these could be copied and pasted from other sources.
Only a trustee or custodian approved by the IRS can operate a secure facility for precious metals. Put simply, if the trustee you’re looking at doesn’t have IRS approval, dump them and move on to the next one.
Their Limitations on Rollovers
An important consideration is that the IRS only lets you do one rollover within a calendar year. You can technically complete more than one, but those additional rollovers will incur fees. It’s essential, then, that you secure the exact amount you want to roll over.Their Fees
In most cases, you will pay somewhere in the neighborhood of $100–325 to store your precious metals.What Are the IRS Rules About Gold IRAs?
The IRS rules for gold IRAs are pretty strict and precise. Most important, you must prove that you’re using a custodian and that this custodian has IRS approval to operate. Without this requirement met, you cannot open a gold IRA.A similarly essential but not well-known point is that you cannot purchase precious metals on your own. You have to have an administrator who carries out the transaction for you.
You can set restrictions on how much is purchased, what type of precious metal to buy, and more, but the administrator must be the one who arranges the purchase itself. The IRS also requires the administrator to organize and ensure the shipment.
Your new trustee or custodian will accept the shipment of your precious metals and then transport them to a secure facility approved and sanctioned by the IRS. You can choose your facility, so long as the IRS approves it, or ask your custodian to select an approved facility.
Does a Gold IRA Produce Higher Returns?
When planning for retirement, the sooner you start, the better. While the market contains many investment options, not all investments may be lucrative or suited for retirement planning. Many believe that one of the best ways to minimize risk within your investment portfolio and diversify your holdings is with a gold IRA (Individual Retirement Account).Can You Store Your Gold IRA at Your Home?
It’s important to note that the IRS has not approved the home storage of precious metals for a gold IRA and is unlikely to do so. Since an IRA is a partnership between you and the Internal Revenue Service, they require specific standards of custodianship that you cannot meet with home storage.Can I Use Platinum Instead of Gold in a Gold IRA?
While many consider gold as a sort of value standard, the fact remains that platinum has more value than gold. You can quickly test this by walking into any jewelry store and comparing a comparable platinum and gold item. Without exception, the platinum item will cost more.While platinum often has a higher value than gold, it doesn’t have as great of a demand. As a result, you might face some difficulties down the road if you want to liquidate your assets.
Another complication has to do with the automotive industry. In times of financial crisis, the demand for new vehicles drops sharply. Since the automotive industry remains the largest market for platinum, a market downturn could lead to the devaluing of your assets.
What Could a Gold IRA Cost Me?
You can expect to see three different fees when you open up a new gold IRA. The first fee is a one-time fee to set up your account. This fee is usually small and no greater than $150. Some gold IRA companies waive this fee entirely.The second fee you can expect to pay is the trustee or custodian fee. This can also go as high as $150, but the total amount will depend on the overall size of your account.
The third fee you can expect to pay is for storage. While this can be as high as $300 per year, it could also be as low as $50. Again, the total amount, in your case will depend on how much you’re storing.
One crucial thing to remember is that most gold IRA companies out there will not charge you a commission when you either buy or sell your precious metals. That said, they will likely add an amount to the final sale for markup.
