Can I Buy Gold With My 401k?

Investing in gold with your 401(k) can be a strategic way to diversify your retirement portfolio and protect your savings from inflation and market volatility. While traditional 401(k) plans typically do not allow direct investment in physical gold, there are ways to gain exposure to gold through a self-directed IRA or by rolling over funds into a Gold IRA. In this guide, we’ll explore the options available, the steps involved, and the benefits of using your retirement funds to invest in gold.

Can I Invest in Gold Through my 401k?

Yes, you can buy gold in some types of 401(k) plans. A 401(k) plan is an employer-sponsored retirement saving and investing option offering employees a tax break on their contributions. When you sign up for a 401(k) plan, you automatically agree to have some percentage of your wages paid into the 401(k) account.

These contributions are then used for diversified investments depending on your selections from the different investment options provided by your employer. Often these include an assortment of stocks and bonds, mutual funds, exchange-traded funds (ETFs), index funds, and target-date funds. Unfortunately, precious metals like physical gold (or its directives) and most alternative assets are rarely part of the investment options offered by employer plan sponsors.

Suppose you're committed to investing in gold bullion, and your 401(k) sponsor doesn't offer ready access to such an investment. In that case, you can leverage the available ETFs and mutual funds to gain indirect exposure. By constructively reviewing the fund descriptions offered by your sponsor, you can find some mutual funds or ETFs that hold stocks in gold exploration or mining companies (gold mutual funds and gold ETFs) and get the needed exposure. You may also find fund types that trade gold derivatives. You can even invest in individual stocks of gold companies if your 401(k) plan has brokerage options.

ETFs and mutual funds offer you the cheapest means of indirectly exposing your 401(k) plan to gold. However, suppose you want to directly add physical gold or its derivatives to your retirement portfolio. In that case, the best approach is to roll over the 401(k) account to a gold IRA — a self-directed IRA (SDIRA) account with gold as the investment vehicle. With a gold IRA, you can invest in a broad range of asset classes, from traditional to alternative assets, including gold bars and coins.

As with an IRA, 401(k) plans are often supervised by private fund managers who control the funds. Contributions to a Traditional 401(k) are tax-deferred — you pay the tax on earnings during retirement, while contributions to a Roth 401(k) are made with after-tax dollars — you pay zero tax during withdrawal at retirement. A contribution limit, as stipulated by the IRS guidelines, also applies.

Types of Gold You Can Buy With a 401k

Not all physical gold types can be directly invested in your retirement account via a gold IRA. Only gold bullion, bars, and coins that meet the requirements established by the IRS can be held in SDIRA. One of the qualifying criteria is a minimum fineness of .995. Furthermore, only gold produced by an accredited refiner (assayer) or national government mint is considered IRA-eligible in line with the requirements. Nevertheless, you've enough options to choose from regarding gold types. Some of these include:

• 1 oz. American Eagle Bullion Coins
• 1 oz. American Buffalo Bullion Coins
• 1 oz. & 1/10 oz. Pearl Harbor Coins
• 1 oz. Canadian Maple Leaf Coins
• 1 oz. & 1/10 oz. Perth Mint Bars
• 1 oz. Australian Philharmonic Coins
• American Eagle Proof Coins
• Australian Kangaroo Coins

IRA-eligible golds graded for their condition by a certification organization such as the Professional Coin Grading Service are considered collectibles by the IRS. Collectibles are disallowed in IRAs. And so, if you wish to grade your coins, you can only do it after distribution.

How to Complete a Self-Directed IRA Rollover

An SDIRA rollover involves moving funds from an existing retirement account into a self-directed account. Typically funds taken out of retirement accounts are considered taxable distributions. An SDIRA rollover helps you transfer funds from your current retirement accounts (401(k), Traditional IRA or Roth IRA) into a gold IRA (an SDIRA) on time while still enjoying the tax advantages.

An SDIRA rollover is primarily categorized into direct and indirect (or 60-day) rollovers. Both approaches are tax-free and penalty-free. In a direct rollover, your retirement fund is moved directly from your current IRA provider or 401(k) sponsor into the hands of your new gold IRA providers. Indirect rollovers involve two steps. First is the distribution whereby your existing retirement account providers or plan sponsors mail a check to your home address. Subsequently, you mail the check to your new gold IRA custodians or providers.

When your new precious metals or gold IRA providers receive the check and deposit it into your account within 60 days, you won't incur taxes or penalties. Otherwise, taxation and penalties may apply. Besides the 60-day rule, an indirect SDIRA rollover involves additional requirements, including the one-IRA-rollover-per-year rule and a government-mandated 20% withholding charge. However, the one-IRA-rollover-per-year limitation doesn't apply to 401(k), Roth conversions, and direct transfers.

Because of the additional requirements and duration involved in an indirect rollover, the direct rollover is the favorite approach in most situations. For clarity, there's a clear difference between a transfer and direct rollover. A transfer involves moving funds between similar accounts, such as one Roth IRA to another or between two qualified plans. In contrast, a direct rollover consists of a transfer from different retirement accounts like 401(k) to an SDIRA. Unlike direct rollovers, transfers require no IRS reporting and may include required minimum distributions (RMD).

Best Gold IRA Companies

The best gold IRA companies offer excellent customer service, seamless SDIRA account setup and rollover, a buyback commitment, secured storage through a partnership with third-party depositories (like Delaware Depository and Brinks), and much more. Benzinga's picks meet all these criteria. Here is a review of these companies.

American Hartford Gold

Like most IRA custodians, American Hartford Gold aims to help you ride through market volatility that may impact your retirement savings by exposing your IRA portfolio to precious metals via an SDIRA. The company offers gold, silver, platinum, and palladium in bars, bullion, and premium coins. Its overwhelming positive reviews across platforms are evidence of its excellent service delivery. These include an A+ rating by BBB and a perfect rating on Trustpilot.

Setting up an IRA account with American Hartford Gold is easy. Its industry professionals lead you through a simple three-step process with no upfront costs. You can also purchase directly and get it delivered to your home. The company offers price matching and buyback commitment, helping you save liquidation fees. IRA rollovers are free, and there's free storage, maintenance, and insurance for the first year.

American Hartford places a strong emphasis on educating its customers. It provides a free Gold & Silver Information Guide and an entire section dedicated to Market News and Charts designed to inform you of the latest buzz about precious metal investments. You'll have to contact a company representative to learn more about account fees and pricing.

Priority Gold

Investing in gold can be an effective strategy for diversifying your retirement portfolio and protecting against inflation. If you're considering using your 401(k) to invest in gold, Priority Gold offers services that can help you navigate this process.

Investors can initiate a rollover by contacting Priority Gold's representatives, who will assist in transferring funds from your 401(k) into an SDIRA. This process can typically be completed in just a few steps, making it accessible for both seasoned investors and newcomers alike.

Once your funds are rolled over into the SDIRA, you can choose to invest in a variety of IRS-approved precious metals, including gold, silver, platinum, and palladium. These investments can be made in various forms such as bars, bullion, or premium coins. Priority Gold ensures that you have access to a selection of high-quality precious metals to suit your investment strategy.

In addition to facilitating the rollover process, Priority Gold provides extensive educational resources to help investors make informed decisions about their gold investments. Their team is committed to offering ongoing support and guidance, ensuring that you are equipped with the knowledge needed to navigate the precious metals market confidently.

Benefits of Gold IRAs

The core benefits of a gold IRA include:

• Profitability and Tax Benefits: Historically, gold is known to deliver optimum profitability in the long term. In the past two decades, the price has increased by over 550%. Since an SDIRA offers similar tax benefits as a regular IRA, it presents an efficient and legal way to profit from price increases while benefiting from tax savings.
• Hedge Against Volatility: A gold IRA can protect your investment funds from market volatility. Gold provides a hedge against inflation and deflation since the price of metal typically increases when the U.S. dollar declines to help your portfolio minimize the effects of market volatility.
• Diversification: A gold IRA can diversify your retirement investment portfolio, reducing its overall risk exposure. Precious metals are uncorrelated with the traditional stock market and tend to move in the opposite direction during an economic downturn.

Should I Convert My 401k to Gold?

Converting a 401(k) to gold can be an enticing prospect for many investors, particularly during times of economic uncertainty or inflationary pressures. However, it’s essential to understand the implications, benefits, and drawbacks associated with this decision before moving forward. 

Frequently Asked Questions