How Do I Transfer My 401k to Gold Without Penalty?
If you have an active 401(k) or IRA from your previous employer, transferring it into Gold IRA without incurring penalties can be done using what’s known as a rollover.
1. Open a Self-Directed IRA
Self-directed individual retirement accounts (IRAs) allow investors to invest in alternative assets such as real estate, private company shares and partnership interests, precious metals, tax liens and privately held business interests – more flexible than the more rigid traditional IRA. A self-directed IRA also gives you more chances at higher yield returns.
However, when investing in non-traditional assets you should abide strictly by IRS rules to avoid additional taxes, penalties or the cancellation of your IRA tax deferral status.
Also, when opening a self-directed IRA you’ll need a custodian that allows this. Unfortunately most mainstream IRA providers cannot offer this service since it conflicts with providing investment advice – that’s why speciality custodians like Equity Trust Co or IRA Financial are essential as they’ll guide you through this process.
2. Open a Custodian Account
Custodial accounts are investment vehicles designed to allow parents, grandparents and others to give financial gifts to minor children under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). Once an adult child turns 18, they gain control over all property held within their custodial account; it can also be used for investing in various assets depending on age restrictions set forth by the institution providing it.
When investing in gold, a custodial account can be the ideal vehicle. By placing assets under such an account instead of directly moving assets from an eligible IRA into a precious metals dealer such as New Direction IRA, investors can avoid incurring taxes and penalties when moving assets between accounts. Submit an IRA rollover request directly with New Direction IRA; from there on out, precious metals dealers invoice New Direction IRA directly for purchases they invoice through.
3. Purchase Gold
When investing in physical gold, you will require secure storage to protect it. Depending on its size and value, this could take the form of either a safe or safety deposit box at a bank; both methods cost roughly equal each year for safekeeping gold investments.
Gold can be an excellent way to diversify your retirement portfolio and hedge against inflation. Before purchasing gold or any other asset, make sure you conduct thorough research on sellers that have good track records; late night telemarketers might attempt to pressure you into making quick sales at discounted rates that might only last temporarily.
Keep in mind that you cannot use your 401k to purchase physical gold without first rolling it over into a self-directed gold IRA. Any withdrawals prior to age 59 1/2 will incur a 10% early withdrawal penalty and taxes due on withdrawals; brokers and custodians authorized for self-directed gold IRAs can assist in this process of rolling over your 401k into an IRA-approved gold IRA.
4. Transfer Funds
Gold is an attractive asset, providing protection from both market fluctuations and inflation. When purchased through a self-directed IRA it also enjoys tax advantages; thus 401k rollover allows investors to take full advantage of this feature.
If you decide to convert funds from a 401k into a gold IRA, it is imperative that you work with an experienced precious metals company in order to complete the transition correctly. They can assist with setting up the account, selecting a custodian, and transferring the funds.
Once the process is completed, your current 401(k) custodian should send out a check directly to your new IRA account – no tax or penalty payments required as this transfer constitutes a rollover instead of distribution.
Once the check arrives, your IRA custodian will transfer it directly to your gold IRA provider who will purchase IRS-compliant investments such as coins or bars.
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