Should You Transfer Your 401k to Gold?

Charlotte Miller

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Investors aim to protect their retirement wealth in any way possible, particularly when the economy faces a recession. Many do so by choosing to add gold to their investment portfolio.  

Due to its purported safety, the precious metal is an in-demand commodity, with more people choosing bars and coins to hold in an IRA.

With a 401k and conventional IRA, investors own traditional securities of stocks, mutual funds, and bonds, but these are gradually being rolled over into gold IRAs in recent years. The benefits include a diverse retirement portfolio that is less threatened by the financial markets.

What Is a Gold IRA

A gold IRA is a self-directed individual retirement account holding physical coins or bars. Conventional IRAs hold only paper assets, including stocks, mutual funds, or bonds, while self-directed IRAs allow alternative assets like precious metals.

A gold IRA functions comparably to a conventional IRA but has more stringent IRS stipulations. You have a few ways to fund the account, including when you move your 401k to gold. The funds are then used to buy physical precious metals in bullion, bars, coins, or rounds.

A specialized self-directed IRA custodian versed in precious metals manages the account and will store the gold in an IRS-approved, insured depository after purchase.  

A gold IRA rollover allows investors to transition 401k funds into their gold IRA tax-free. These contributions made from a rollover are not subject to stipulated contribution limits assigned by the IRS. In 2023, the annual limits are $ 6,500 under age 50 and $ 7,500 over age 50. Your rollover amount can be whatever you decide.

The Fundamentals of Rollovers and Transfers

When moving funds from an employer-sponsored retirement plan like a 401k to a gold IRA, these are referred to as rollovers. When moving funds from a conventional IRA to a gold IRA, these are typically referenced as transfers. In either scenario, there are distinct IRS regulations.  

Fortunately, a custodial service manages each account and will work with the new account custodian to ensure all rules are followed. When handled properly, the processes will be tax-free.  

Rollover regulations

The IRS has specific rules that apply to rollovers, which many investors are unfamiliar with, but their custodians thoroughly understand.  

The IRS only allows a minimal number of rollovers because it is their stance that tax-advantaged retirement accounts like 401k plans and other IRAs are meant for long-term wealth building with assets staying put.  

The IRS supplies a detailed chart showing accounts you can rollover from and those you can roll funds into. Nine retirement account categories are available, but only certain combinations are possible for rollovers. When moving funds from a 401k to a gold IRA, there’s no limit to the number of times you can roll over.  

The limitations apply when rolling over from one IRA to another. The IRS states this can be done “one time every 12 months.” The government agency offers an online publication that further details rollovers and the rules that apply. Here are a few steps to follow when performing a gold IRA rollover.

Sign on for a gold IRA account

Opening a self-directed individual retirement account that will hold the funds being rolled over and, ultimately, the gold purchase is the first step in the process. The 401k custodial service needs to know where to send the funds.  

That means you must have the details for your gold IRA custodian and your account number. The rollover process can’t start without the information. The gold IRA custodial service must specialize in self-directed accounts and be versed in precious metals.

The entity will work with you to open the self-directed account, ensuring all documentation is completed correctly and thoroughly and submittedtimely before beginning the rollover.

Moving the funds

Once the gold IRA is established, the 401k rollover process can start. All 401k plans have distinct guidelines for distributions and rollovers. You must learn the process for your particular plan and follow those rules.  

The basics involve completing either online forms or paperwork providing your gold IRA custodial service details and account number along with the amount you want to move. With some retirement plans, a spouse must also sign off on moving the funds.

The 401k plan administrators receive compensation based on the amount in the plan being managed. The more moved from the plan into a gold IRA, the fewer funds for the administrator to manage and the less compensation they receive. This can mean you have obstacles in your path when attempting a rollover.

When initiating moving funds from the 401k, you can expect the plan to take a few business days before releasing and sending the contribution. Reaching the gold IRA and clearing the account will take another few business days.  

In total, it’s suggested that the entire process can take approximately two weeks from start to finish. Click here for a 2023 guide on 401k to gold IRA rollover.

Purchasing the precious metal

After the funding process, you can select precious metals to hold in your self-directed IRA. The IRS has specific IRA-approved bullion, bars, coins, and rounds with certain purity/fineness and weight.  

The only exception to the rules is the American Gold Eagle coins at .9167 fineness. These are IRA-approved per IRS guidelines. Collectibles or rare coins are not approved for holding in an IRA.

Once the purchases are made, your custodial service will hold the metal in an IRS-approved storage depository until retirement at the age of 59.5.  

Final Thought

Whether a gold IRA rollover is the right choice depends on your retirement goals, financial circumstances, and current investment portfolio.  

Many investors with substantial wealth accumulated in tax-advantaged retirement plans are concerned with the current economic landscape and what that could mean to their holdings. A gold rollover offers a layer of security, stability, and diversity meant to protect retirement wealth.

When looking for guidance on the right path to take, reach out to a financial counselor and research for a legitimate, reputable gold firm to offer details on self-directed IRA and precious metals for more informed decision-making.