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401k to Gold IRA Rollover Guide

Intro to Gold Investing

In today’s world, most successful investors use gold as a hedge against uncertain economic times mainly brought about by inflation and political upheaval. Most professional investment advisors would also advise you to mitigate the overall risk of your portfolio by incorporating such commodities as gold in your investment.

If you decide to invest in gold, you can either opt for gold bars (bullion), jewelry, mutual funds, futures, or mining companies. However, most often than not, you can only directly invest in bullion, a few specialty funds, or futures.

We have compiled this informative guide to help you understand the dynamics of turning a chunk of your 401k retirement plan into a gold investment. This process is popularly known as gold IRA rollover.

What is a Gold IRA Rollover?

A gold IRA rollover is the diversion of your 401k from dollar-bound standard assets like stocks to gold investments. It is an essential strategy of protecting your wealth against currency debasement and economic turmoil. In a nutshell, generally, the value of gold appreciates as that of the dollar plummets.

You should note that whereas the direct ownership of gold or gold derivatives is not allowed by most 401k plans, there are various indirect ways you can use to acquire gold in your 401k retirement plan.

Some IRAs, like gold IRAs, also exist with a major specialization in handling retirement savings that consist of precious metals. A good example is GoldCo. GoldCo is a reputable company that offers Self-directed Gold IRA services to any investor that wants to hedge their portfolios.

But, if investment in physical gold isn’t allowed by your 401k, you may have the option of gold investment through exchange-traded funds (ETFs) and mutual funds.

Table of Contents

Gold Exchange Traded Funds (ETFs)

If you have a brokerage account with a 401k brokerage firm, then you have the freedom to invest in any gold option. As an employee with a 401k, one of the best ways for you to get exposed to gold investment is through exchange-traded funds (ETFs).

An ETF enables you, as an investor, to get shares in a fund that is holding physical gold bullions. You can also invest in the stocks of firms active in the gold industry if your 401k retirement plan has a brokerage option.

Gold Mutual Funds

Mutual funds, or “paper gold”, is another option if you are unable to invest your money in physical gold. Investors can go through your 401k plans’ fund descriptions to find various mutual funds that have the potential of offering a gold exposure that is significant enough. You get the gold exposure when you hold stocks of companies involved with the mining of gold.

Self-Directed IRA Rollover

You can choose a self-directed IRA rollover if, as an employee, your 401k retirement plan fails to provide the freedom to freely access gold investments that will help attain your investment goals.

A Self-Directed IRA Rollover option such as the one provided by GoldCo gives you the freedom to indulge in almost all types of gold investments, including ETFs, stocks, mutual funds, options, and commodity futures.

Can I roll my 401k into gold?

If you have just left your job, like in the case of a retirement, and you have a 401k retirement plan, you have the option to roll over to gold from 401k. Gold, as we mentioned earlier is one of the best ways of protecting your retirement savings.

Note that your rollover from 401k into a gold IRA is non-taxable and incurs no penalties. Once you have left a company, you can rollover your funds into a Traditional Self-Directed individual retirement account (IRA); then, you can buy silver or gold from the IRA.

You can also roll over your 401k while you’re still working for a company. If your 401k plan option allows you to, you can change your 401k funds into tangible gold investment through the in-service distribution option.

In-service distribution entails the distribution of funds that you can rollover into an IRA. The funds distributed are not a loan. Plus, you will not incur any tax consequences if you execute the rollover within 60 days.

However, in the case of in-service distribution, you need to check with your 401k plan provider to see if they support this option.
We have included a brief step by step guide on how you can rollover from 401k to gold IRA below:

How you can rollover to gold IRA from 401k

Step 1: Choose a suitable gold IRA type

You can set up any type of gold IRA depending on the method you want to use for your IRA funding. This first step has two options: conventional gold IRA (uses pre-tax dollars) and Roth gold IRA (uses post-tax dollars). Most 401k to gold rollovers incorporate accounts funded with pre-tax dollars.

Step 2: Pick a custodian

There are numerous custodians that you can pick for your 401k to gold IRA conversion. However, you should note that most custodians only allow you to engage in traditional investments. You need a custodian with self-directed IRA options.

Trustees of self-directed accounts allow you to pick from various investment options that are compliant with IRS rules. These investment options include silver, gold, and other precious metals.

If you want to invest in precious metals, opt for a custodian that offers accounts allowed to hold precious metals. An ideal custodian should also organize storage since IRS is against investors possessing tangible IRA gold.

Step 3: Eligible funds rollover to gold IRA

Once you have opened an account with a suitable custodian and submitted all the required paperwork, it is now time for you to roll over 401k eligible funds into IRA. You can start this process by contacting your 401k administrator and informing them of your intention to roll over to a self-directed IRA.

Your plan administrator may then ask you to fill out the necessary paperwork before your IRA account gets funded. Remember, once you have received the money, you have 60 days to put it into your self-directed IRA account if you want to enjoy a tax-free rollover.

Step 4: Purchase precious metals

Once your self-directed IRA account has received the rolled-over funds from 401k, you can now purchase precious metals.

Note that you should only purchase bullion gold with not less than 99.5% purity. Or you can choose to buy non-collectible coins that have gotten approval from the IRS.

Step 5: Shipment to the storage facility

Once you have decided to make a purchase, your precious metals dealer will send an invoice asking your IRA custodian for payment. Shipping will kick off after payment has been made by your custodian, from the dealer to a secure storage facility run by your IRA custodian.

Check when the dealer released your precious metals and whether they have received safe shipping into your custodian’s depository.

And, just like any other transaction, make sure you have a record of receipts. Also, keep track of statements from your custodian to make sure you are aware of your investments and holdings.

What are the disadvantages of rolling a 401k to an IRA?

A 401 rollover to gold is not for every investor. Some of the disadvantages of rolling over include:

• Stable value funds

Stable Value Funds are special funds that are accessible to company 401k plans. These funds share various similarities with money market funds, and their availability is non-existent in the individual market. However, unlike money market funds, stable value funds have better interest rates.

• Higher account fees

Company 401k plans have access to institutional investment funds. These funds are low-cost and attract lesser fees due to higher buying power.

• Withdrawal tax rules

If your 401k plan gets invested in a company with highly appreciating stocks, you can get incredible tax savings by transferring the stock to a brokerage account. The original price of the company stocks that your 401k plan bought will determine your taxes even when that stock appreciates.

• Unavailability of loan options

If your 401k plan gets sponsored by your employer, you have higher chances of securing a loan. However, if you roll over into IRA, your chances of getting a loan are extremely limited.

• You risk losing creditor protection

A 401k plan offers you federal law protection against bankruptcy and credit. On the other hand, IRAs get protection from varying state laws. Therefore, IRAs don’t offer much when it comes to collections, potential judgments, or creditors.

• Requirements for minimum distribution

You can access your 401k plan funds as early as when you hit 55 years old, but IRA funds require you to be not less than 59.5 years old. If you withdraw funds from an IRA account without fulfilling this requirement, you stand to incur an early withdrawal penalty of 10%.

Why Buy Gold with your 401k

We mentioned before that gold is one of the best options for you to diversify your investment portfolio. Here are a few reasons why you should consider buying gold with your 401k:

• Transfer without penalties

A rollover from a 401k retirement plan to a gold IRA investment is non-taxable. Plus, when you switch between these options, your new custodian facilitates the process in its entirety, so you avoid covering any additional charges.

• Gold has intrinsic value

One of the reasons why gold seldom gets affected during economic turmoil is because of its intrinsic value. That means that, as a resource, gold has applications in real life; for instance, it gets used by manufacturers of computer chips and mobile phones. That makes it a protected and sound investment.

• Security

Gold is a commonly secure investment against inflation and political turmoil. That is why most experienced investors use gold as a hedge during a crisis. In most cases, the value of gold increases as currencies lose their value.

• Ease of rollover

You can use existing retirement assets to fund a gold IRA. If you have such a retirement account as 401k, it is easy to buy gold through a rollover.

Why Gold IRA is a good investment in 2023

Gold has enjoyed a bullish trend ever since the COVID-19 pandemic caused the stock market to crash in 2020. Most analysts have predicted that the bullish trend will continue for gold as more economies get weakened by this pandemic.

In fact, gold bested the highest prices investors witnessed in 2012 with the onset of Covid-19. That was mostly caused by investors who escaped to the safety of gold investment after the market experienced extreme volatility.

Some analysts earlier predicted that gold would see a price increase in the first half of 2021, then a decrease would follow. Other analysts are adamant gold will have a bullish trend right into 2022.

Overall, gold IRA may be a good investment because not only does the price of gold generally rise, but gold may also be a safe investment in uncertain times. Gold is most likely to maintain a reliable trend as currencies continue to be affected by volatility.

The London Bullion Market Association (LMBA) earlier forecasted that across 2021, the price of gold would average $1974/ounce. This price is an 11.5% increase from the annual average record-breaking high of 2020.

Read our review of the 3 top gold investment companies, then read how we compare them.

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