When you are leaving a company and you need to deal with the 401(k) that you have built. There are several options you can choose from. In particular, a Gold individual retirement account(IRA) appeals to investors who want a diversified retirement portfolio. Gold prices generally move in the opposite direction of stocks and bonds. You are adding to your portfolio a bit of insurance against inflation with a gold IRA. This approach is for the long term investor who wants to mitigate the ups and downs risk that is seen with a non-diversified portfolio. This makes gold a prudent choice for building towards a retirement with an IRA.
In the past gold IRAs were difficult to set up, they involved an expensive process of legal loops to jump through, and finding trustworthy people to work with. The process requires a custodian or trustee as well as an approved location to store the asset.
Since the 2008 recession, several companies have been built in order to make this process easier. Now it is a simple process, and the costs to do so have been lowered greatly. This has resulted in a thriving business of gold IRA growth. This has been further strengthened with the COVID-19 pandemic which caused geopolitical uncertainty that always raises the price of gold.
A change of jobs gives you options for your 401(k). You may choose to cash out, leave it, move to your new employer if available, or as many do roll it to a gold IRA.
Cashing it out is the worst choice. You will end up paying taxes and penalties. Rolling a 401(k) or the public sector 403(b) to an IRA is the best choice. There are several reasons this is the case and we will go over why choosing a gold IRA also makes sense. Please note if you are near your age of required minimum distributions (RMDs) you are in a different boat, so to speak.
With your 401(k) you are quite limited. Usually you are given a choice of a few mutual funds which are a few bond funds and a stock fund. With an IRA you are given many more choices. You can choose to hold gold, or set up a gold stock or gold ETF IRA. These all can be ways to lower your risk with your other assets that your previous 401(k) could not do. Also with IRAs you can even hold options in gold which 401(k)s do not allow. Finally you can buy and sell your IRA holdings any time throughout the year. This can be useful to rebalance your portfolio — 401(k)s are also limited in this regard.
Know Your Standing
When you own a gold IRA you are in control. If you keep your employer’s 401(k) they do not have the incentive to tell you what is going on, and it may be difficult to get news which is often done through the company email or info board that you no longer have access to. It may be harder still, to get in touch with the plan administrator. If you have less than $1000 in your 401(k) the employer can cash it out, up to $5000 and your employer can put it into an IRA. If something happens to your former employer the 401(k) can also be frozen in bankruptcy as well.
You crunch the numbers but the rollover can save you a lot in management fees that you were paying before. Costs add up and take away from your gains. Over time these ‘small fees’ that you are paying each year can be thousands that you don’t get to use in your retirement. The funds offered by your 401(k) may be higher than the average for their asset class, you did not choose them. There is also an annual fee that the plan administrator charges which you pay as well.
The transaction costs when buying, expense ratios, 12b-1 fees, and mutual fund loads can easily exceed 1% of total assets per year which is 1% less you are making. That adds up over time.
This said, in some cases the funds are well managed, and they can take advantage of economies of scale. Therefore, you will need to determine what is the best action. Though your IRA will not be free of fees, you do have choice and control. Our site can help you decide the best action.
A Roth IRA
An IRA rollover allows you to open a Roth account. In fact some companies are already offering Roth 401(k)s and a Roth rollover is a better choice for these. You pay taxes on the funds you contribute to Roth IRAs when you contribute them, but when you withdraw the funds you don’t pay taxes. This is the opposite of the traditional IRA. Also you do not have to take your RMDs at age 72 or any age with a Roth IRA.
This is the better option if you will be in a higher tax bracket or think takes will be higher in your retirement. A gold Roth IRA may be in your best interest if you’re under the age of 59½, or you may need to withdraw funds from a Roth IRA. There are no early-withdrawal penalties for Roth IRA contributions in most cases — but there are some for any earnings. Some 401(k) plans only allow rollovers to a traditional IRA. If so, you can do the conversion and then convert it to a gold Roth.
Easy Rules and Understanding
401(k) plans are difficult to understand. Companies have a lot of leeway to their setup and management. Gold IRAs on the other hand have simple regulations. These regulations are standardized by the Internal Revenue Service (IRS). A gold IRA with a professional trustee and storage facility is all that is needed.
When you pass on, your 401(k) will be disbursed to your beneficiary(s) in a lump sum. This may cause a tax burden and a long probate process because a plan usually wants to distribute the holdings fast, so they don’t have to maintain the account of an employee who is no longer working there. Inheriting an IRA does have its regulations too, but IRAs offer many more payout options. Again, it comes down to control — you have more control with a gold IRA.
Rolling a 401(k) into a gold IRA is usually the best choice. You need to decide if that is true in your case. If you would like help in rolling over a 401(k) into a gold IRA or setting up a new gold IRA, the information on this site can help you with all of your questions.