Gold can serve to protect retirement funds during economic crises by moving in the opposite direction to paper assets like stocks. Furthermore, it’s an ideal long-term asset which offers protection from inflation.
As long as you comply with IRS rules for making this change, rolling your 401(k) into a Gold Individual Retirement Account without incurring tax consequences is an option that should not be overlooked.
401(k) to IRA rollover
Rolling your 401(k) into an Individual Retirement Account (IRA) is a popular strategy. An IRA provides tax-deferred growth and allows you to invest in various investment vehicles without incurring taxes on them. An IRA can be opened at banks, credit unions and brokerage firms as well as online investment platforms; your choice will ultimately depend on fees, investment options available and overall experience with financial institutions.
Before moving your 401(k) funds into an IRA, carefully evaluate whether this change makes financial sense. Compare expense ratios and fees of both plans against those offered by an IRA account; calculate how much withdrawals may need to occur soon against projected income at retirement; this will allow you to ascertain if moving money out early can offset tax charges that come with distribution, advises Greg McBride CFA of Bankrate.
As part of your review, it is also worthwhile comparing the investment options available to both your old and new IRAs. Depending on your plan, your 401(k) may offer low-cost mutual funds or exchange-traded funds unavailable in an IRA that could make a big difference in terms of long-term return.
If your 401(k) includes company shares, moving them into a taxable brokerage account may help lower taxes by avoiding a capital gains bill for unrealized appreciation, known as NUA, on those shares.
One downside of rolling your 401(k) over to an IRA is losing the ability to borrow from it. If you need access to cash before retirement, an indirect rollover may provide access by having your old plan send a check directly to yourself that will then be transferred within 60 days to your IRA; however, 20% withholding on this withdrawal may increase your tax liability.
Direct rollover is another method for moving funds directly from qualified retirement plans or employer-sponsored accounts to individual retirement accounts (IRAs), bypassing tax penalties associated with early withdrawal from your 401(k). You will report this transaction to the IRS; however, its purpose remains largely circumvented by not touching any funds yourself during distribution to your new custodian account holder.
Direct rollover requires opening an IRA with your new provider and providing them with all of the information required by your old plan administrator or trustee, after which funds will be deposited directly into it by that account. An indirect rollover involves taking out a distribution from your 401(k) and depositing it with an old provider (this requires personally possessing money); one indirect rollover per 12 months per IRA account can be done.
Sometimes it can be cumbersome and costly to manage multiple IRAs from different providers or multiple 401(k) plans from previous employers. By consolidating all your assets into one account, you can reduce the number of accounts to keep track of and eliminate extra fees that could otherwise arise.
Consolidate your IRAs into a Roth IRA to give yourself more flexibility during retirement. Consult a financial planner before making this decision as there are various considerations involved, including having too few or too many accounts impacting your tax situation. It is also crucial that assets are transferred before taking required minimum distributions (RMDs), which must be taken for those aged 73 or older or else face an annual 6% penalty fee.