401(k) Rollover to a Self-Directed IRA

Congress established the 401(k) plan in 1978 to encourage workers to save for their retirement years.

Gold 401(k) RolloverSubsequent years' legislation continued to expand the program's tax benefits, contribution limits, and investment choices.

At year-end 2021, 401(k) plans held more than $7 trillion in assets covering 60 million employees and retirees.

Restricted 401(k) Investments

Retirement plan sponsors and administrators are liable as fiduciaries and required to make investment decisions as “a prudent investor” would. Certain restrictions apply to the investment choices a fiduciary trustee is allowed to make. [i]

Consequently, mutual funds and independently managed stock and bond portfolios are the dominant proportion of 401(k) assets today.

Reasons to Consider a 401(k) Rollover to a Gold IRA

Despite a 401(k)'s many advantages, there are multiple reasons to consider transferring the balance via rollover to a self-directed Gold IRA:

rising gold prices

  • Direction of the stock market. Stock market prices have risen continuously since March 2009 is the longest bull market in history. Volatility has increased due to uncertainty about a significant correction.
  • Rising interest rates. While the U.S. has enjoyed more than ten years of low-interest rates and inflation, inflation in the last quarter of 2021 and the first quarter of 2022 has risen to 7% or higher. Wall Street analysts predict 7 to 9 interest rate hikes in 2022,[ii] driving stock and bond prices lower.
  • Covid variants. The coronavirus and its variants devastated world economies in 2021-2022, shattering international supply lines and necessitating trillions of dollars in aid. Scientists warn of new highly transmissible mutations and more deadly mutations.[iii]
  • International tensions. North Korea continues to develop long-distance delivery vehicles for its atomic arsenal. Iran is developing its nuclear capability. China has indicated an increase of control over its Hong Kong colony. Russia signals the possibility of a takeover in Ukraine. The United States' political system is attacked by extremists on both sides, deadlocking legislation.
  • Levels of Government debt. According to the International Monetary Fund (IMF), global debt is the highest in history, exceeding $226 trillion or 256% of global gross domestic product (GDP).[iv] The U.S. total debt is almost nine times greater than its GDP, raising questions about repayment, future taxes, and continued investments.

In this perilous investment atmosphere, investors seek to minimize the loss exposure of their retirement portfolios, specifically 401(k) accounts over which they have little investment control. Rolling over their 401(k) accounts to a self-directed IRA with diversified investments, including gold, is the right solution for many.

Diversification to Reduce Investment Risk

401(k) Diversification Gold Analysis

Individual investors and professional fund managers regularly employ the strategy underlying the phrase “Don't put your eggs in one basket” to reduce investment risk. In effect, they trade the potential profit (or loss) of a single investment for the average return of a group of investments and eliminate the possibility of a total loss.

Unfortunately, they often overlook the likelihood that investments of the same type will react similarly in the same market conditions. In other words, when the stock market rises, the typical individual stock also increases and vice versa. Effective diversification requires ownership of different types of investment and different investments in the same class.

401(k) Investment Restrictions

Regulations of 401(k) accounts restrict investments to certain types, i.e., stocks, bonds, mutual funds, and ETFs. For example, real estate, precious metals, and collectibles, such as art, antiques, gems, certain coins. or alcoholic beverages, are prohibited in a traditional employer-sponsored 401(k). The restrictions disallow the addition of gold to a portfolio, even though it has historically been a “safe haven” in turbulent economic markets:[v]

  • Joe Foster, VanEck Investment Management. “Gold is a hedge against systemic financial risk. The source doesn't matter. It can be a pandemic, a currency crisis, inflation, or deflation. It's a form of portfolio insurance against those risks.” v
  • Chuck Self, iSectors. The chief investment officer says gold is uncorrelated to stocks and bonds; it acts as a third asset class and adds diversification to portfolios, making it a hedge. He notes that while gold does not move with stocks, that doesn't mean it acts the opposite of stocks. “If your stocks are down and gold is flat, that's a win.” v
  • Will Rhind, GraniteShares. The CEO of this ETF company says that gold, due to its scarcity, will hold its value in the current environment compared with the U.S. dollar. Many believe the dollar may be devalued because of all the “money printing” by the Federal Reserve's ultra-low interest rates and massive monetary stimulus. Concerns about rising debt levels and inflation have boosted gold as investors see its role as a long-term store of value. v

    • The Process to Rollover a 401(k) Plan

      Whether you have determined to roll over your 401(k) due to leaving your employer, looking for greater investment flexibility, or simplifying your financial status, there are specific regulations that govern the process.

      The IRS does not limit the money transferred through a 401(k) rollover. However, an employer-sponsored 401(k) may require that the plan owner be retired or no longer working at the company to permit a rollover. In addition, the intended new IRA provider might have a minimum requirement for opening a new account. Finally, the new custodian must maintain the distinction between traditional and Roth types of plans through the transfer to maintain its non-taxable status.

      Types of Rollovers

      According to IRS regulations, your 401(k) rollover can be done in one of two ways:

      • Direct rollover. Your 401(k) custodian transfers funds directly to the new custodian of your IRA electronically, by mail, or by giving you a check made out to the new custodian that you then deliver. There is no tax liability incurred from the transaction.

      • ira process can take timeSixty-day rollover. Your 401(k) custodian gives you a check for the account balance in your name. You then have sixty days to pen and fund the new IRA account. If you fail to open the new IRA account within sixty days, the IRS will consider the funds a distribution, subjecting you to any income tax owed and an early withdrawal penalty if applicable.

        Since the money technically passes through your hands, the 401(k) custodian must withhold 20% of the distribution for income taxes. For example, the custodian distributing a $100,000 balance will write a check to you and withhold $20,000 in taxes credited to your account. To avoid this potential issue, have the 401(k) custodian make the distribution in the name of the new custodian, even if you will physically deliver it.

      Steps in the Rollover Process

      • picking an ira specialist with good ratingsSelect an IRS-approved IRA custodian for the new account. There are qualified self-directed IRA custodians that specialize in precious metal investing. We are ready to help you find a custodian familiar with 401(k) rollovers to make the process simple and error-free.
      • Deliver funds to the custodian for your account. If the 401(k) distribution is in your name and subject to the tax, you can add the deficit from other funds to equal the gross 401(k) distribution. In that case, the money withheld by the custodian will be considered taxes paid on your account.
      • Select the investments to be made. When using gold to diversify your portfolio, remember that only gold coins and bullion of 99.5% purity are acceptable in the account. The acquired gold remains with the custodian (IRA account holders cannot physically possess any gold held in the account. Account holders cannot transfer previously purchased gold into the account.

      Considerations Before Transferring a 401(k) Account

      When deciding to roll over an old 401(k) account or other retirement accounts, carefully consider your financial situation and preferences. Relevant factors may include:

      • Creditor protection. Employer-sponsored 401(k) accounts typically offer greater protection from creditors than IRAs.
      • Penalty-free distributions. Under certain circumstances, (401(k) account holders over 55 may receive a distribution without an early payment penalty. Withdrawal from an IRA before age 59 may subject the account holder to a 10% penalty.
      • Deferred required distributions. A company-sponsored 401(k) may have provisions to defer minimum distributions past age 72, the age that IRA distributions must begin.
      • Fees and expenses. Some 401(k) plans may have lower costs and expenses than some IRAs and vice versa.
      • Expanded investment options. Self-directed IRAs typically provide a wider range of investment options than 401(k) plans.

      How You Can Start Today

      Our reviewed top gold IRA companies are ready to help you explore whether a self-directed Gold IRA is appropriate for you, including the possible transfer of one or more existing 401(k) or IRA plans. Your chosen precious metals specialist will answer your questions when you contact any of the top reputable gold IRA companies we have reviewed on this website.

      They are ready to provide essential reference materials, pick an appropriate custodian, and set up your account.