What is a Gold IRA Rollover?
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There are many different types of investments in the marketplace, from certificates of deposit to 401(k)s. Every type offers a certain amount of risk versus gain. Exploring traditional and modern investment choices is a clever way to build wealth throughout an investor's lifetime.
Explore today's options with a gold IRA rollover. This investment type is a unique alternative to standard savings.
Before we get started:
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Table Of Contents
Understanding Retirement Plans
A gold IRA rollover is part of a larger group of retirement plans. These plans include pensions and 401(k)s. Pensions are guaranteed amounts set aside by employers after employees retire. Most of the funds come from the employer's contributions. This retirement resource, however, is offered by only a few employers today.
The most common retirement plan offered today is the 401(k). Investors have access to this plan when hired by an employer offering the benefit. Once it's set up, a specific percentage of an employee's pay is set aside in the 401(k). It's invested into stocks, bonds, and other products so that there's a solid nest egg for the employee in retirement.
A main advantage to 401(k)s is the possibility of employer matching. For example, an employer might match the employee's contributions up to 5 percent. It makes financial sense to invest 5 percent or more into the 401(k) each pay period because of the employer match. It's essentially another form of income that adds to a retirement nest egg.
Another advantage to a 401(k) is the pre-tax funding. The set amount pulls from the paycheck before taxes, which lowers the employee's tax bill for the year. Money from the 401(k) can be rolled over at almost any time in the future as well.
Exploring the IRA Account
An IRA is different than a pension or 401(k) plan. This Individual Retirement Account must be set up by the investor; an employer doesn't offer this type of plan. As a result, any contributions to the IRA will be with after-tax funds.
The government does give investors some advantages to investing in an IRA, however, by offering a tax deduction on certain amounts. Every taxpayer should look into this aspect of investing to further lower their tax bill.
Because investors must open IRAs on their own with their chosen bank, there are more investment options available to them when compared to 401(k)s. There are IRA advisors who can help investors with the right choices for them. From aggressive to conservative strategies, those investments can add up over the years.
Learning About Gold IRAs
Traditional IRAs deal with cash, stocks, bonds, and other funds. In contrast, a gold IRA includes precious metals. These metals include bullion, gold, platinum, palladium, and silver. Investors purchase and hold physical metals as part of their investment strategy.
The gold IRA can include traditional monetary funds too. It's a unique way to diversify a portfolio. Gold IRAs may not be as common as traditional types, but curious investors are leading the way with more accounts open every year.
Because the account can include other metals besides gold, it's also defined as a precious metals IRA. Both gold and precious metals IRAs are often used interchangeably in the industry. It simply gives you more options than a traditional IRA.
Funding Retirement Through Rollovers
If investors are interested in gold IRAs, they have a great tool to fund them with rollovers. This term isn't new to the finance world either. A rollover is essentially a transfer of funds to and from retirement accounts, including 401(k)s and IRAs.
Moving money between accounts allows investors to diversify their portfolios without taking a standard withdrawal. Penalties and tax implications are large when it comes to withdrawing from these accounts before the age of 59-1/2 years.
Any IRA or 401(k) can be used to fund a gold IRA. Investors must decide on monetary amounts pulled from these areas. In essence, there are no upfront costs to opening a gold IRA if investors have ample funds to work with already.
Setting up a New Gold IRA Account
Investors must set up a gold IRA before starting a rollover. This account is slightly different than a standard retirement account. Ideally, get in touch with a bank, credit union, or trust that has experience with precious metals IRAs. They might advertise this fact more so than other products, for example.
Currently, opening up a gold IRA account online is relatively rare. Visiting the banking institution for the setup process is commonplace, such as to verify identity and other specifics.
As you open a gold IRA account, the bank works with you to arrange a custodian and depository choice. The custodian is essentially the account's caregiver. He or she completes transactions, oversees the paperwork, and coordinates with the depository for the account.
The custodian ensures that all transactions are IRS approved, which allows you to take advantage of every tax break.
The depository is the physical location for the precious metals. With the custodian working as a middleman between the investor and the metal's location, all transactions are streamlined with each purchase or sale.
Choosing Rollover Types
The new gold IRA may not have any significant funds in it until a rollover occurs. The financial industry has two types of rollovers, including indirect and direct types. The indirect rollover requires the investor to pull funds from the 401(k) or another retirement account.
Those funds might be in the form of physical cash or a transfer to a basic checking account. Investors simply place these funds into the gold IRA as soon as they can afterward. The investor works as the middleman in this case.
Ideally, a direct rollover is preferable. Investors ask for a direct transfer between their 401(k) and the gold IRA. It can include all the savings or just a partial amount. The transfer goes through the banking channels so that the funds are in the new account either the same day or tomorrow, depending on the institution.
Most investors appreciate this hands-off approach to transferring money. Direct rollovers are just a matter of a few clicks on the computer.
Purchasing Precious Metals
Investors purchase metals through their new accounts. There's often a precious metals company that works with the banking institution, for example. Most metals come in bar or coin form.
Investors ultimately decide on which metal, shape, and amount to buy first. The rollover provides the funding for these metal purchases. Each transaction can include different types of metals or rely on one chosen type.
There are fees associated with each metal and transaction. The gold IRA company should have an extensive list of fees so that every investor understands the commitment.
Both the custodian and depository charge fees. Seller, maintenance, storage, and shipping fees are customary. Knowing about the fees beforehand makes each transaction as transparent as possible.
These purchased metals end up at the depository where they're secured and allocated under the investor's name. They can be sold at any time at the investor's discretion.
Considering a Diversified Portfolio
When it comes to any investment, diversifying the portfolio is always recommended. Values of any product can rise and fall over time. Financial experts often advise their clients to reserve between 10 to 30 percent of their funds in precious metals. The remaining funds should be allocated between stocks, bonds, options, and other products.
Investors' 401(k)s shouldn't be drained entirely either. Continue to invest in both the 401(k) and gold IRA. Both accounts can grow over time. Other rollovers might be good investments in the future too. These varying investments can ultimately provide a solid retirement as the financial markets change over the years.
Benefiting From Gold IRA Advantages
Investors have a lot of protection when it comes to a gold IRA rollover. The industry has specific rules about the types of metals that can be considered for this account type.
Consider the collectibles industry. Gold watches, necklaces, and similar items are often bought and sold because of the precious metals within them. However, these items cannot be part of a gold IRA. The federal government regulates the items allowed for investment purposes.
Collectibles tend to be too volatile as an investment strategy. As a result, coins, bars, and other approved items are typical for gold IRA investments.
These regulations guide the gold IRA company when it comes to activating and funding the account. Investors only have access to approved metals, which creates a safe environment for buying, selling, and trading.
Avoiding Any Penalties
Treat the gold IRA just like a traditional IRA account. Its purpose is to fund retirement, which means the metals shouldn't be withdrawn unless necessary before age 59-1/2 years. Investors can avoid penalties by initially rolling over the funds into the gold IRA before 60 days have elapsed.
The IRS considers any funds held outside of the gold IRA after this period as a withdrawal. As a result, the rollover becomes income that must be taxed.
In addition, the government adds another 10 percent early withdrawal fee to this amount. A simple way to avoid this entire scenario is by choosing a direct, gold IRA rollover. Investors simply see the funds move from one account to another. They never directly deal with the transaction, which stops any infraction from even occurring.
Work Closely With a Separate Advisor
Gold IRA companies typically deal with the transactional aspects of the account. Gold IRA activation, buying, selling, shipping, and storing the precious metals is their specialized niche, for example. Advising investors on their purchases doesn't come with transactional services.
Look for a third-party advisor who specializes in precious metals. These professionals charge a fee for their advice on metal types, amounts, and industry knowledge. Ideally, work alongside this individual regularly. He or she can give the investor good ideas on new purchases or sales.
Consider working with a fiduciary who's legally required to look out for the investors' best interests. These advisors might have a slightly higher fee structure, but investors can gain a lot more back with a trusted person by their side.
Gaining Control of Personal Finances
Investors have a lot of advantages with a gold IRA. There's simply more control than a 401(k). Investors pick the metals, amounts, and when to buy or sell, for instance. Employer-funded 401(k)s are bound to certain investments that may not work out for the investor's overall goals.
Additionally, there are fewer restrictions on passing down the funds to beneficiaries. If there are any concerns about money passing down to loved ones, a gold IRA provides some security.
Another huge advantage to gold IRA rollovers is the control over inflation. Precious metals aren't bound to the same valuation as the dollar. Metals essentially keep their value over a longer time than stocks or bonds. As a result, investors can hedge their metal investment against inflation to protect that nest egg.
A gold IRA rollover is just a single tool in a world of investment choices. Investors should always keep up with the latest advice so that risk and conservative investments can turn up in the black. Trying a gold IRA rollover today is a great way to test the waters with a new way of investing.
Remember to read our list of the Best Gold Investment Companies to work with, before investing your hard-earned savings!
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Hi, I'm Charles Turner, founder of Turner Investments. I created Turner Investments to provide education and guidance to individuals interested in personal finance.
My goal is to make Turner Investments a valuable resource for anyone looking to learn more about personal finance and make smarter investment decisions.