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Modern investors consistently encounter volatile stock markets that have a negative impact on 401(k) retirement funds. Protecting your purchasing power when you finish work should be a priority for every conscientious investor, and Gold IRA’s provide a solution to buoy your retirement portfolio.
What is a 401(k)?
A 401(k) account is a savings plan that effectively creates a pension fund for employees when you finish work. In addition to tax-free contributions from your salary, other advantages include health benefits, plus most employers match the employee’s contribution. The 403(b) for employees in the public sector also have pre-tax retirement plans.
The key benefits 401(k)’s and 403(b)’s are:
- Automated savings
- Company contribution match
- Tax-deferred growth
- A variety of paper-based investment options
- Convenient way of saving for retirement
What are the disadvantages of 401(k) plans?
Whilst the benefits of 401(k) plans help employers save for retirement, many investors see their spending power diminish during times of economic instability and low-interest rates on paper-based assets. The vulnerability for pensions to lose value in weak economies begs the question of whether 401(k) have long-term benefits. The disadvantages are:
- The choice of investment is limited to paper-based assets which typically perform poorly during economic downturns
- Participants have little control over their accounts and are often directed by fund managers
- If you need to access funds prior to the age of 59 ½ years old you may be subject to a 10% penalty unless you meet one of the early withdrawal penalty exceptions [link to ‘The Rules’ page] offered by the IRS.
- Current laws in conjunction with the Taxpayer Relief Act 1997, allow employees that are still in service to transfer a 401(k) 401(a), 403(b), 457, Thrift Savings Plan (TSP) and annuities to a self-directed Gold IRA without incurring a penalty (providing funds are transferred within 60 days of withdrawal).
The difference between a 401(k) plan and a self-directed IRA
Self-directed IRA’s and conventional 401(k) retirement plans are subject to the same rules except investors are permitted to add precious metals to a Gold IRA. This gives employees the added benefit of diversifying your retirement fund and hedging against inflation during a downturn in the economy.
The special circumstances that accompany the purchase of gold and other precious metals enable investors to protect your store of wealth and increase your purchasing power once your retire, or once you’re over 59 ½ years old.
When you invest in a Gold IRA, the bullion must be purchased and handled by an IRS-authorised trustee that is permitted to arrange self-directed retirement plans. This arrangement also offers investors the convenience of organising storage and insurance.
How to set up a 401(k) rollover
Setting up a 401(k) rollover into a gold IRA is straightforward when you use a company that is authorised to sell gold-backed retirement funds. There are several important points worth noting:
- If you are still in employment and have a company-sponsored 401(k) plan that allows an “in-service distribution” you can transfer your funds over to a Self-directed IRA.
- Investors that are permitted to rollover funds from a 401(k) plan to a Gold IRA must withdraw funds from your existing retirement plan then deposit the funds into a Gold IRA within 60 days. If you do not deposit funds within 60 days you will have to pay a 10% penalty for early withdrawal of retirement funds.
- Pension contributions earned from a former employer can be rolled over into a self-directed IRA
Let us help convert your 401(k) to gold
Because of the complexities involved in converting 401(k) plans to self-directed IRA’s, it is best practice to seek assistance from qualified professionals that provide advice and assistance.
Gold IRA specialise in organising gold-backed IRA’s and will be able to advise you on your best options. Furthermore, we will make sure the rollover is completed without the risk of incurring IRS penalties for missing the rollover deadline.