What is a 401k?
A 401k plan is a tax-qualified and defined contribution pension account. It is a kind of a retirement benefit plan set-up by an employer to provide retirement savings contributions that are directly deducted to the employee’s income or paycheck before the application of taxes.
What is Gold IRA?
Gold Individual Retirement Account (IRA) is a retirement investment account that is backed up by the physical gold rather than money or dollars. This type of plan is usually ignored or even set aside by most investors because of the fact that the value of gold is never regular and determined; rather, it fluctuates depending on some factors, like economic status of the state, emotions of the people and maybe even political swings.
What does it mean when we “rollover”?
A rollover is when you move all your assets into an employer sponsored plan from a 401k or 403a plan to an IRA plan.
401K Rollover Rules
Rollovers between eligible retirement plans may be accomplished in one of two ways: by a distribution to the participant and a subsequent rollover to another plan, or by a direct rollover from one plan to another.
The required number of days to accomplish rollovers after the distribution to a participant is 60 days. The failure to comply with the sixty-day limit will result to the disallowing of the rollover. If this happens, the distribution to the participant will be taken as an ordinary income, which will be taxed accordingly, and a payment of 10% penalty will be imposed if the situation is applicable.
What will Rollovers entail?
When one person rollover from 401k to Gold IRA, one thing that is essential is that he or she may not use the physical gold to add to the purchasing power of a Gold IRA. Though, he or she can actually add to the 401k amount that is being rolled over into a Gold IRA with any other asset at his or her disposal. The participant can actually use gold mining stocks as a reference, but never those in the form of physical precious metals, like coins or bullions.
Usually, a person who is rolling over to Gold IRA needs the assistance of a custodian. Sometimes, even a custodian is required to handle these types of accounts. The custodian’s responsibility is to roll over the funds from the 401k to a Gold IRA, making sure that all the necessary steps and applications of tax laws and regulations are followed diligently. There are two kinds of custodians and the person rolling over his or her account should be sure of what kind of custodian he or she has. The first kind of custodian is the active custodian. The active custodian will, give a greater effort in assisting you through the process. The active custodian will offer you advices and will report about particular analysis on market trends, so that your decisions will be more on the advantageous side as you maximize the benefits of having a Gold IRA and optimize your retirement investment plan. While a passive custodian is one that will wait for whatever decision and instructions that you will give and that custodian will never act on your behalf. The passive custodian will not offer you advices to help as a basis for your future decisions.
Generally, nothing in this world will work without risks. A 401K rollover to gold IRA definitely involves big risks. One is that, the value of gold is not really stable. As said earlier, gold’s value greatly fluctuates depending on current trends. However, what is one thing that we can be sure of is that, at present, gold still looks very good and it will retain its luster and good looks in the next coming decades. Experts are already talking about a major shift in the greatness of gold. Experts predict that there will be a time where gold may not be as valuable as it is now. Risks are normal, but understanding the risk will help you decide on what your future will be. You can mitigate the disadvantageous effects of the risk if you properly and carefully examine it.
One advice that most (active) custodians provide is first to count the amount of time before retirement. This number of years before retirement should be compared to the evaluation of the value of gold. This will now become your basis when assessing if it will be practical for 401K rollover to gold IRA. Remember that gold seems to be very much volatile to those who do not even try to study the general market and its trend. In addition, you have to understand all the 401k options before making any decisions.
Now that these definitions are established, would you rollover your 401k to Gold IRA?