Physical gold provides diversification benefits, reduces risks and can provide greater stability during periods of economic uncertainty or market instability – not to mention inflation hedges.
Direct transfers or rollovers are the best way to transfer funds from an active 401k into a Gold IRA without incurring taxes or penalties, since withdrawing can incur up to a 10% IRS penalty.
Diversification
Diversification should be part of any financial plan if you hope to achieve long-term financial stability. Although it won’t guarantee higher returns, diversifying can reduce risk and help ensure you have enough savings to see you through an extended retirement.
Diversifying your portfolio involves diversifying across a range of asset classes – stocks, bonds and alternative assets like real estate and commodities are among them – while diversifying within each asset class itself by investing in various companies, sectors, market cap sizes or geographical regions.
Although individual securities may provide diversification benefits, it’s often easier and quicker to diversify by buying mutual funds or exchange-traded funds (ETFs). These professionally managed collections of stocks and bonds provide instant diversification while regularly rebalancing so your asset allocation plan stays on target.
Tax-Free
As soon as a saver leaves their job, they have two choices for their retirement assets – leaving them in place or rolling them over. Rolling over can simplify recordkeeping by consolidating all investments onto one statement, eliminating duplicate accounts or fees, and offering more investment options than before.
Direct rollover is the easiest and most tax-efficient method of rolling over a 401k plan, where funds are sent directly from former employer to new IRA custodian. While indirect rollover is possible, indirect transfers could present additional complications with regard to taxes; if an indirect rollover takes longer than 60 days to complete, then it will be treated by the IRS as a withdrawal subject to an early withdrawal penalty if savers under age 59 1/2 make early withdrawals before age 59 1/2; it may take up to one or two months or more depending on which financial institutions involved with regards documentation provided promptly for completion of the transfer.
Inflation Hedge
Many 401(k) plans offer investment options designed specifically to provide inflation protection, such as Treasury Inflation-Protected Securities (TIPS) and I Bonds that seek to track with the Consumer Price Index as well as gold and commodities-focused exchange-traded funds. Other assets with inflation-hedging characteristics include real estate investments like REITs or rental properties as well as wheat, oil, or beef commodities – typically operating businesses are better inflation hedges than precious metals or hard assets like gold because they can adjust pricing to reflect rising costs better compared with precious metals or hard assets such as gold due to pricing mechanisms in which operating businesses can increase prices to pass along rising costs to consumers more directly.
An all-weather portfolio consisting of stocks, bonds and cash is an effective approach to dealing with inflation; investors can still generate good returns even as inflation spikes. For a more targeted approach, some 401(k) owners choose funds focused on consumer staples or short-term bonds or commodity-focused funds; hard assets like gold may offer some protection but mostly only against sudden spikes caused by central bank credibility or geopolitical supply shocks rather than general inflationary trends.
Security
Once participants retire or switch employers, they may want to roll over their 401(k) into another employer’s plan or an IRA in order to avoid immediate taxes and keep money tax-advantaged accounts. By rolling over, participants may keep money within tax-deferred accounts that offer tax advantages over time.
However, the IRS has specific rules regarding how a rollover must be managed and failure to do so could result in taxable withdrawals.
SmartAsset’s free tool connects you with financial professionals in your area who can assist in retirement plan decisions, such as rollovers. From there, they’ll match up three vetted advisors based on your unique situation and goals who provide personalized advice tailored specifically for you – complete with customized introductory calls so you can discuss options without obligation or commitment – just helpful information that may save time in making important retirement plan decisions. Click here for more on advisor fees here.
