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How To Move A 401K To Gold Without Penalty

How To Move A 401K To Gold Without Penalty

Whether you want to hedge against inflation or diversify your portfolio, there are a number of reasons why you might want to convert your 401(k) plan to gold. Before you make the switch, you should make sure that you research 401(k) penalties. If you do not convert your 401(k) plan properly, you could end up paying the Internal Revenue Service (IRS) a hefty penalty.

What Is a 401(k) Penalty?

How To Move A 401K To Gold Without Penalty

The IRS generally expects people to retire at 65. You are allowed to withdraw your 401(k) money as early as six months after you turn 59. If you decide to withdraw your 401(k) funds before this point, you may have to pay significant penalties.

Normally, the IRS requires 401(k) plans to automatically withhold 20 percent of early withdrawals for taxes. If you decide to take $100,000 out of your 401(k) plan, the 401(k) plan will withhold $20,000 for your expected taxes. While you may get some of this back at tax time, you will probably not get the majority of it back.

This is because of the penalties and taxes you have to pay on your 401(k) withdrawal. No matter how old you are, your 401(k) withdrawals are taxed like normal income. If you withdraw your funds early, then the IRS will assess an extra penalty of 10 percent. This means that you will pay a penalty of $10,000 each time you withdraw $100,000.

How Do You Avoid a Penalty?

The most popular way to avoid a penalty is by doing a 401(k) rollover to a gold individual retirement account (IRA). Basically, this option allows you to transfer your 401(k) funds to the IRA without losing your tax-deferred status. Other than doing a 401(k) rollover, there are a few other ways you can avoid paying a substantial penalty on your 401(k) withdrawal.

  • You left your job: If you are 55 years old or older, you can withdraw money from your IRA at the age of 55. You can only do this after you leave your job. People who work in customs, federal law enforcement, air traffic control, border protection and federal firefighting can withdraw penalty-free funds at the age of 50.
  • You are paying an IRS levy: As long as the money is going to the IRS, the IRS will not charge you a penalty for withdrawing it.
  • You suffer from a disability: If you are currently disabled, you can access your 401(k) funds.
  • You died: While you technically cannot access your 401(k) funds if you are dead, your estate or beneficiary can. If you inherit a 401(k) plan from someone else, you can access it now without paying a penalty.
  • You were a disaster victim: Sometimes, the IRS provides relief for victims of certain disasters. If you suffered from one of these disasters, you can withdraw money from your 401(k) fund.
  • You were called to active duty: If you are currently a military reservist, you can avoid penalties if you withdraw money after you are called to active duty.
  • You welcomed a new child into the world: The IRS allows you to withdraw up to $5,000 from each account after you adopt a child or give birth.
  • You gave too much money to your 401(k) plan: If you contributed more than you should have to your 401(k) plan, you can withdraw the difference. You may also be able to withdraw your contributions if you were auto-enrolled in your retirement plan.
  • You went through a divorce: If the court decides you must cash out your 401(k) plan to divide the funds, your withdrawal may not involve any penalties.
  • You are getting periodic payments: According to this rule, you have to get a series of equal payments for at least a year from your 401(k) plan. The payments must start after you have stopped working and continue for life. There are a lot of rules for this one, so you should talk with an accountant before you try to do it.

Sometimes, you can avoid a penalty if you qualify for a hardship withdrawal. These kinds of withdrawals happen if you have an immediate financial need. You can make a hardship withdrawal for some of the following things.

  • College tuition and fees for you, your dependents or your spouse.
  • Medical expenses for you, your dependents or your spouse.
  • Costs necessary to avoid an eviction or foreclosure.
  • Money to purchase a home.
  • Costs to repair property damage to your home.
  • Funeral costs.

The administrator of your employer's plan will normally determine if you can get a hardship withdrawal or not. If your goal is to transfer your 401(k) plan to gold without paying a penalty, the best thing you can do is a 401(k) rollover. By transferring your funds to an IRA, you can maintain the fund's tax-advantaged status and avoid withdrawal penalties.

How Can You Convert a 401(k) Plan to Gold?

If you are ready to invest in gold, you are in luck. You can move funds from your 401(k) plan to a gold IRA without paying a penalty. This process is fairly complex, so it can be difficult to perform correctly. If you mess up, you may end up paying taxes and penalties on your 401(k) rollover. To get started on your transfer, you should use the following steps.

How To Move A 401K To Gold Without Penalty

1. Create a New IRA Account

Unfortunately, most IRA and 401(k) plans do not allow you to directly invest in gold. Because of this, you need to set up a self-directed account. This kind of plan will give you more investment options as well as the ability to choose investment types for yourself.

In order to do this, you must first liquidate your current 401(k) plan. You do not want to withdraw your 401(k) funds and put them directly in your bank account because this could unintentionally void the tax-advantaged benefits of your 401(k) plan. To liquidate your account properly, you should tell your existing broker that you want to move to a new provider.

You should notify your broker as soon as possible because this entire process can take several weeks or months. Often, brokers will try to entice you to stay by offering special promotions. They may also try to give you a self-managed account.

In general, your best choice is to work with a broker who specializes exclusively in self-managed accounts. You also need to find a broker who allows you to own physical gold. Most trading platforms allow you to invest in gold stocks, but they do not let you own actual gold. The IRS has special rules about physical precious metals, so you need a broker who understands how these investments are regulated.

How To Move A 401K To Gold Without Penalty

2. Get a Trustee

If you want to invest in precious metals, you need to find a broker who can serve as your account's trustee. Legally, your IRA or 401(k) plan needs to have a trustee. The trustee must be licensed, so you cannot use your attorney. Additionally, the trustee's company must be licensed by the IRS as well.

It is important for you to spend time researching and talking to different trustees. Many brokers advertise their services online, but their landing pages do not genuinely represent who they are. You should never work with someone that you have not talked to in person or on the phone.

When you talk to a trustee, you should look out for red flags. If a trustee does not include their contact information online, you should probably work with someone else. Likewise, you should ask to see their licensing certificate. The IRS provides all legitimate trustees with licensing certificates that can be shown to clients.

Another way you can check out the trustee is by doing a public records search. This kind of search lets you see how long the company has been in business within the United States. In general, experienced companies are more reputable than new companies.

When you eventually transfer money to the trustee, you should make sure that the transfer is in their name. All of the documents should also be written in the name of the trustee. Because the IRS forces trustees to hold 401(k) and IRA funds in the United States, your trustee should never ask you to transfer money abroad.

How To Move A 401K To Gold Without Penalty

3. Send Money to Your Account

After you open up a new account, you can transfer money to it. Normally, you can buy physical gold about a week after your account opens. Before this can happen, you have to provide your trustee with the right documentation.

Unfortunately, transferring money between accounts can take a while. In general, your existing 401(k) plan will make you liquidate all of your assets before you can transfer your funds to a new account. If you own a lot of penny stocks, liquidating everything can take a few days. Because of this, you should start the liquidation process as soon as possible.

Your old broker has no incentive to liquidate your account quickly. Most likely, your broker will reach out to you to talk about one-time incentives. Their main goal is to convince you to keep your account with them.

Legally, your existing broker has to follow your directions and close your account. Unfortunately, they can behave unethically and slow the process down without actually breaking the law. While your funds will eventually get transferred, your broker may require excessive documentation before they let the withdrawal process begin.

Ultimately, the entire process can take several months to complete. The only thing you can do is be patient. As you wait for the withdrawal process to end, you can research precious metals so that you are ready to carry out your next investment.

How To Move A 401K To Gold Without Penalty

4. Start Buying Gold

When this process has finally finished, you can start buying gold through your new account. Depending on the broker, you may also be able to buy platinum, palladium and silver. The transfer, sale and storage of gold are heavily regulated by the IRS, so you should work closely with your broker to carry out each trade.

Because of the added regulations, brokers often limit their options to a few basic selections. Before you pick a specific broker, you should always research the kind of investments they offer. Since the IRS does not allow you to buy gold directly from your trustee, you will need to buy gold from a different broker. Afterward, your trustee can manage and store the gold for you.

Before you buy new investments, you should see if they have been approved by the IRS or not. Legally, you can only invest in IRS-approved assets. American Gold Eagles and Gold Maple Leaf coins are two examples of IRS-approved assets.

How To Move A 401K To Gold Without Penalty

5. Find a Legal Storage Option

Even though you are technically the owner of the gold, you cannot physically possess any of it. It is illegal to take physical possession of any gold that is held in a self-directed account. If you do this, you can end up facing criminal charges. At the very least, you will end up losing the tax-advantaged status of your account.

According to the IRS, your account's trustee must maintain control of your gold. In some cases, they can delegate control to a third party, but this is not the best option. It is generally better for your trustee to maintain physical control because they can easily make changes whenever you need to adjust your investment strategy.

If you want, you can have multiple trustees on your account. When you have multiple trustees, they are all able to control your gold. Even though they may have physical control, there are a number of limitations to their power. A trustee can only control your account for legitimate purposes, so they cannot transfer your funds whenever they feel like it.

For a large transfer, the trustee has to go through a specific process. Banks are quick to notice unusual activities. When something seems off, the bank will require documentation from the trustee.

If you are working with a reputable trustee, you should be able to choose your storage site. According to the IRS, the site must be located in the United States. It must also be authorized by the IRS.

When you look at different sites, you should consider the fees involved. Some sites will even let you inspect the site whenever you want to. In addition, good sites undergo regular audits, so you can feel confident about your investment's physical security.

One of the best ways to know what a provider will be like in the future is by looking at their past. If they have a long history in the industry, you can easily judge the quality of their services. Additionally, you can prevent fraud by picking a provider who goes through frequent audits.

Why Should You Change Your 401(k) Plan to Gold?

People invest in gold for a variety of reasons. Unlike a corporation, gold cannot go bankrupt. Because it has been viewed as a valuable commodity throughout human history, it is also quite likely that it will continue to be valuable. The following list includes the most common reasons why you might want to invest in gold.

  • You want to protect against a weak American dollar and other currency fluctuations.
  • Gold can protect your portfolio from deflation.
  • You can hedge against inflation.
  • Gold has a long history of being valuable, so it is likely to remain valuable.
  • Supply constraints may cause gold prices to increase in the future.
  • Gold can help you diversify your portfolio.
  • Unlike companies, gold cannot go bankrupt. A government can default on a bond payment, but your gold will be unaffected.

You can invest in gold by buying gold bullion and coins. If you buy gold through your gold IRA, you can save money on your taxes. IRA and 401(k) contributions are not taxed until you withdraw money from your account. Because of this, your investment can grow in value without the constraints of taxation.

What Are the IRS Rules for Owning Gold in a Retirement Account?

How To Move A 401K To Gold Without Penalty

The IRS determines what you can do with your investment accounts. If you follow their rules, you can avoid paying taxes on your gold IRA until you eventually withdraw the money. Unfortunately, failing to follow these rules can result in interest and penalties. Your account could also lose its tax-advantaged status.

To make this process easier, the IRS has clearly written out the rules for retirement accounts. According to the IRS, metals must be controlled and delivered through a regulated securities contract. In addition, your gold must be controlled by a trustee.

This trustee must be approved by the IRS. They must store gold in an approved facility. Legally, you are not allowed to store gold at home or in any facility you control.

How to Select the Best Provider

Ideally, your investment will provide you with financial security during your retirement. In order to achieve this goal, you need to find a reputable provider. The following three providers are known for offering some of the best services in the industry.


Goldco Precious Metals is one of the top providers of precious metals for IRAs. They are known for having top-notch customer service. Through the help of Goldco Precious Metals, you can easily diversify your retirement account.

This company advertises itself as a full-service firm. Originally established in 2006, Goldco Precious Metals has assisted thousands of customers with their investment goals. They help customers buy platinum, palladium, silver and gold.

Based in California, this company was founded by Trevor Gerszt. In 2015, this firm had the third-fastest growth rate of any financial services company in the country. It achieved this growth through its excellent customer service and high-quality educational resources.

Through Goldco, investors can protect their retirement accounts from inflation and stock market volatility. Unlike some companies, Goldco offers direct purchases of gold and other precious metals. They can also help you with gold IRAs. If you invest in the company's IRA plan, your precious metals will be stored in a state-of-the-art vault by a third party.

Birch Gold Group

Started in 2004, Birch Gold Group is based in the United States. It helps clients with gold IRAs. Other than gold, you can also invest in palladium, platinum and silver.

Currently, some of the senior managers at Birch Gold Group are on the Forbes Finance Council. With more than 20 years of experience, this company has a thorough understanding of the industry. Because of this, they are backed by excellent customer reviews.

Birch Gold Group goes beyond merely providing investment options. This company also offers educational options. Through the company's extensive list of resources, you can gain a better understanding of the advantages and risks associated with different investments.

During the first year, you do not have to pay any fees as long as you transfer at least $50,000. The only drawback is that the company does not list its annual fees or setup costs on its website. Other than this minor issue, Birch Gold Group is highly rated by consumer organizations.

Augusta Precious Metals

Augusta Precious Metals is a family-owned company. In addition to offering gold IRAs, Augusta also sells precious metals. Over the last 50 years, this company has built a solid reputation in the industry.

Once you sign up for your account, a representative will work with you to diversify your portfolio. They will figure out your personal risk tolerance. Then, they will help you find tax-advantaged accounts like gold IRAs.

At Augusta Precious Metals, you can enjoy having lifetime customer support. You will most likely need $50,000 in savings in order to set up your account. Once your account is set up, you can enjoy having competitive pricing.

The setup process involves three steps, so it is a fairly quick process. After your account is ready, you can buy IRS-approved coins and bullion. You can also buy silver and other precious metals.

Augusta makes the investment process easier by recommending trustees for your account. They will also help you choose a secured facility for storing your investment. Plus, the company offers regular promotions for new customers that can help you save money.