How to Move 401(k) to Gold Without Penalty

Moving your 401(k) to gold is, more often than not, as simple as finding a trusted gold IRA company you'd like to work with over the long term.

With gold investments being advertised for retirement as often as they are, you might have gotten the urge to test the waters yourself. Given the yellow metal's historical performance against the U.S. dollar and basically any other asset you can think of, it's hard not to.

However, one thing you probably noticed about 401(k) plans is that they can be a bit lackluster when it comes to investment choices. They almost uniformly adhere to the stocks/bonds portfolio, which is becoming outdated to say the least.

While gold IRAs seem like a more complex investment vehicle, the process is actually very easy, made such by the companies that specialize in it.

What is a Gold IRA Company?

If you have seen an advertisement for gold appealing to retirement savers, chances are it was put there by a gold IRA company. This is a fairly specialized company in the financial sector that almost exclusively deals in opening and managing precious metals IRAs.

Gold IRA companies are sometimes called brokers, because they can and will facilitate the purchase of physical gold to whomever. However, what they're most interested in is forming long-term partnerships with customers that are interested in opening a self-directed IRA.

These companies offer a fairly inclusive package when it comes to what they provide for you, which includes:

Most gold IRA companies have a very streamlined process and boast of both a quick IRA opening process and a hassle-free one. While the newly-created account is for physical gold and silver, the truth is that a self-directed IRA can hold a number of ‘alternative’ investments,  not typically found in a 401(k). 

An SDIRA can hold physical gold, but also cryptocurrencies, or even real estate and private companies. If you’re looking at opening a gold IRA, you might simply want to have something similar to your existing employer-sponsored retirement plan, but with the option of also putting some of your savings in precious metals.

That's not to say that these companies don't cater well to those willing to dabble into a wider range of  investments, of course. In whichever of these categories you fall in, you'll find yourself taken care of well so long as you've picked a gold IRA company that suits you.

Related: Gold Alliance Review - Best Gold IRA Company?

How Does the Process of Moving the 401k to Gold IRA Work?

There aren't any hard rules in regards to the when and the what. However, generally, opening a gold IRA tends to be most popular when you have an inactive 401(k), or other qualifying retirement plan from a past employer to tap into.

You can still open a gold IRA whenever, and active plans might be eligible for consideration. However, most custodians and gold IRA companies will find it much easier to work with inactive ones, and the chances of them not fulfilling the criteria for a rollover are much smaller.

The retirement savings from the 401(k) are moved to the account either through a direct transfer or a gold IRA rollover. While rollovers are mentioned more often, it's direct transfers that are actually easier and preferred. But, again, companies like Augusta Precious Metals are more than willing to facilitate the opening of a new IRA through either method.

After reaching out to the company of your choosing, you'll be asked to provide various details for their custodian as well as sign off on the asset liquidations. That's how the new IRA will be funded: whatever you have in the 401(k) will be liquidated and used to purchase assets for the new account.

While some companies might offer assets besides gold in the IRA, you can't actually transfer the assets in their current state from a 401(k) into a new retirement account. They must always be liquidated first: that is, sold for U.S. dollar value based on current prices.

After the liquidation of the assets from the 401(k), you will have an investment capital that can range from a few thousand dollars to hundreds of thousands. From here, it's time to pick your portfolio.

Related: Request Your Free Gold IRA Rollover Guide

How Do I Use 401(k) Funds to Buy Gold?

Through the gold IRA company you're working with, you'll be able to purchase bullion in various forms that can be placed in the newly-created IRA. This includes things like:

While the gold IRA company leases out both custody and storage, they sell the bullion themselves, meaning they're a store of their own. You'll almost certainly be purchasing bullion directly through them.

There are a few things to keep in mind here, perhaps most notably the price of the bullion in question. Gold IRA companies function as gold retailers in that they primarily turn a profit through markups on their products. This can alternatively be called a premium, though a markup is used more often here. 

When inspecting the bullion offering of virtually any precious metals IRA company, you'll often see a "call for pricing" on every product. Hidden fees and markups are a reasonable concern for many customers of these companies and the reason for quite a few negative reviews you'll come across.

Deals are usually made by phone, or "locked in." So, ideally, you'll have a good idea of exactly what you'd like for your precious metals IRA and what the fair market value of that product is.

A premium of around 10% over spot is considered standard: it can sometimes be a little lower or a little higher, depending on market conditions. But any premium that significantly exceeds that amount will tell you that the bullion company is probably overcharging its customers for the bullion.

Past having a reasonably good idea of what products you'd like and what they should cost, there are a few other considerations to make. One that comes to mind is collectibles: the IRS defines collectibles as any precious metals product whose value exceeds that of its bullion content.

This means that proof coins, with the aforementioned exception of the American Eagle, aren't allowed for placement in an IRA. Other items made from gold and other precious metals, such as jewelry or statues, likewise fall in this category.

So long as you have done your research when it comes to fair pricing of individual products, you shouldn't be worried about picking bullion that isn't eligible for an IRA. All of these companies clearly discern IRA-eligible gold from ineligible in their bullion store, and will promptly inform you if something you're trying to select can't make it into an IRA.

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Where Will My Gold be Stored?

Once the account is opened, which can take anywhere from a few days to a few weeks, the gold and other precious metals you've selected will be shipped to a storage facility that the company works with. Depending on the gold IRA company in question, this facility can either be one of your choice or not. However, in most cases, you'll get to choose between one out of several facilities even if the company only works with a single depository.

Without much exception, the depositories that these companies utilize are the biggest names in the business. While some specialize in gold IRA storage more than others, they all serve a wide clientele. That means your gold could end up having gold from some big Wall Street names as its neighbors.

Not too close, however: any reasonable company should explain to you the difference between segregated and non-segregated storage and prompt you to opt for the former. Segregated storage means that your bullion wasn't mixed with other bullion for easier storage. Your gold is held in your own private area.

While non-segregated storage has its place as it can be a much more efficient way of storing large piles of gold bullion, your precious metals will be stored in secure storage along with metals owned by other customers. 

If and when you ever need to sell or take possession of your American Eagle proof coins (for example), you will still get American Eagle proofs of equal value as your purchase, they just may not be the exact proof coins you initially purchased.

The storage cost difference between the two are minimal for retirement investors, but the quality of service is nowhere near the same level. With segregated vault storage, the bullion in your account will always be exactly the bullion you've bought on day one or later down the line. 

Nobody will have tampered with it or switched it for something of equal value, which is obviously hugely important if you plan on taking physical possession of it some day. Even if not, there's no reason not to opt for segregated storage regardless of what your portfolio will look like.

There isn't a lot to be concerned about when thinking about how the gold in your IRA will be stored. The facilities have very inclusive insurance policies on top of having very intricate security measures. Besides the annual storage costs, which generally amount to around $150 annually, there's not a whole lot else to mention. 

You can rest in knowing that your bullion is safe, secure and even ready for an early distribution. Should you be interested, most top gold IRA companies can arrange a visit to inspect your bullion, though not every facility offers this due to security measures.

It’s also important to note that many of the top gold IRA companies will cover both your custodial and storage fees for at least the first year that you open your account. Make sure to ask your gold dealer about any promotional offers or incentives for new customers.

Related: How to Diversify Your 401(k) with Gold and Silver (Tax-Free)

How Does the Self-Directed IRA Work?

As mentioned, the gold IRA dealer will open a new account that will be funded with your "old" IRA, 401(k), or other retirement accounts. To some, the new account may seem like an upgrade over what you've already had lying around.

For starters, there's the often too rigid adherence to the stocks/bonds portfolio model that the gold IRA doesn't suffer from. Depending on the company and what the custodian offers, you might also have the option of investing in other alternative assets besides just physical precious metals.

The primary benefit, however, is that your physical precious metals benefit from all of the tax advantages found with an IRA. Additionally, the new account will also be self-directed.

What this means is that the account owner has plenty of choice when it comes to what goes in. This is very much the opposite of a standard 401(k) or even a lot of IRAs, whose portfolios are managed by third parties with mostly limited investment options.

With a self-directed gold IRA, your options range from choosing the bullion to picking a depository. Most importantly, however, you get to choose the IRA-eligible bars and coins that fund your account.

The gold IRA company is who you'll likely be working with years or decades down the line. Ideally, you’ll choose a company that’s been in business for several years, and will likely still be around in five to ten years if you ever want to make another trade, buy, or sell your metals.

In truth, how far companies of this sort go when it comes to customer service vary greatly. Some reputable bullion dealers will have an option to open a gold IRA through them, seemingly with little customer support. 

You'll want to go the opposite route and open an account through a gold IRA company that very much prioritizes customer service and long-term customer satisfaction. The company website should be informative in this regard, but reviews are even better.

Just because it's self-directed doesn't mean you'll have to put in extra effort. How much time you spend on the new IRA is your own choice. Again, a lot of companies advertise a hands-off approach because that's what a lot of customers want. Choose the right gold dealer and you can have a gold IRA set up with minimal effort on your part.

Do I Need to File Annual Reports?

Actually, annual reports will be delivered to you. Once you've provided the paperwork, the custodian will report the performance and state of the IRA to both you and the IRS. Similar to your 401(k) or other retirement plan, your annual performance report will reveal whether the precious metals in your account have gained or lost value. 

In truth, however, you shouldn't be too concerned with the short-term ups and downs of the market. Gold and silver are typically viewed as long-term hedge against inflation and store of value.

Can I Add Gold I Already Have to the New IRA?

The IRS requires that the gold placed in the new precious metals IRA is bought from a licensed retailer. A large part of the reason behind this is so that they have greater transparency over what's in the IRA. If you had free reign to place whatever gold and other precious metals in the IRA, there'd obviously be plenty of room for error and mismanagement.

Therefore, all of the precious metals in the IRA will have to be metals that were bought after your old 401(k) was liquidated and the assets transferred to the new account. 

Related: What is the Gold/Silver Ratio?

What are Some of the Penalties that a Gold IRA Account Owner Can Incur?

We've given gold IRA companies this much attention for a reason: when working with a reputable one and following theirs and the custodian's guidelines, penalties aren't really something you should worry about.

Still, we might want to mention a few of the most common penalties associated with retirement accounts, be they a Roth gold IRA or Traditional IRA. These include:

·        A 6% penalty if you've exceeded the annual contribution

·        A 10% penalty for early withdrawals before the age of 59 1/2, though there can be exceptions 

·        Placing collectibles in an IRA can either cause a penalty or disqualify the IRA status of your account

So long as you're taking the gold IRA rollover company's advice, none of this is really something you should be worried about. They, along with the custodian, will ensure your account follows IRS guidelines.

Can I Use my 401(k) to Buy Gold Outside of an IRA?

Technically, yes. You could liquidate the IRA and then buy gold for your personal possession.

However, this eliminates one of the main benefits of an IRA, maintaining the tax-deferred status of your account. Moving assets from a 401(k) to a gold IRA is generally tax-free depending on the kind of account you've chosen. The same can't really be said for buying gold outside of an IRA. 

Related: Diversify Your IRA or 401(k) with Gold Bullion (Free Guide)

How Do I Choose the Right Gold IRA Company?

The process is a pretty straightforward one. You want a company that gives off a good vibe: one that has some years or even decades in the business, has good or great reviews on different consumer watchdog sites and commits to customer care.

A few highly rated gold IRA companies to consider:

• Goldco
• Augusta Precious Metals
• Noble Gold Investments
• Birch Gold Group
• Oxford Gold Group

Just as important, the company you're working with should be transparent about product pricing and fees. The more reluctant they are to reveal their markup, the more you'll want to look elsewhere.

Importantly, no company should be in a rush to lock in a deal before you've had time to check whether that deal is good for you.

Past that, things like celebrity endorsements and product variety can be considerations, but they are really secondary perks to what's important. Just as gold is a long-term investment, managing a gold IRA is a long-term affair, and you want a company that acts accordingly.