Given some of the financial turmoil that a lot of us have faced in the past few years, it’s made many folks start thinking about their retirement even more than ever. Perhaps it was a bit of a wakeup call for some of out there, making us realize that saving for that period of our life might be a bit harder than we thought. Unfortunately, the difficulty of it doesn’t diminish how important it is to do so.
That’s why folks have started to look into alternative ways to start saving for their retirement. Converting 401(k)s into gold IRAs is one of them, although it might seem a bit confusing at first glance. Let’s face it, though, retirement is a pretty big deal. We have to prepare for it as best we can.
What is a 401(k)?
The first question that we’ve got to answer is this one. What is a 401(k) in the first place? You’d be surprised by how many people don’t really understand some of the most important concepts like this one in relation to retirement.
A 401(k) is a savings account that receives special benefits because it is specifically meant for retirement. They are typically created by our employers, although this isn’t always the case. You can learn a bit more about them and how they came about on this page if you’d like to know more of the specifics there.
Precious Metals – the Basics
Next, let’s take a look at what precious metals are, and why you might want to use your 401(k) account to purchase them in the first place. Putting it simply, they’re a type of investment that tends to give pretty good returns because they don’t lose value over long periods of time. Some examples of them include palladium, platinum, silver, and gold.
Gold is the one that’s most commonly used when it comes to this sort of thing. That’s because it’s a widely accepted form of investing and protecting ourselves from inflation. You’ve probably heard of this before since it’s called “hedging” against inflation.
They’re considered a commodity in terms of asset class. We mention that because that’s how they’re taxed, so just be aware of that if you do plan to convert your 401(k) into something like a precious metals or gold IRA. There are some details in there that it just helps to know about beforehand.
What is an IRA?
In this context, “IRA” stands for individual retirement arrangement. When it comes to the question of “How to buy gold with my 401k plan,” it’s pretty important to know that the ultimate “destination,” so to speak, will be an IRA. Specifically, it’ll be a form of self-directed individual retirement arrangement.
Before we get there, though, know that these types of retirement accounts aren’t set up by employers. Instead, they’re something that we open as consumers. All sorts of banks and other financial institutions offer them, so you can explore your options there.
What’s a self-directed one, though? Well, as the name implies, when you have one of these types of IRA, you’ll be the one calling the shots. Of course, you can still get some assistance from someone like a financial advisor. There just won’t be a bank telling you what you can or can’t put in the account.
Precious Metals / Gold IRAs
Getting a bit more specific now, let’s take a look at how the ones specifically dedicated to precious metals operate. There are some restrictions and limitations in terms of what you can actually deposit in there according to the federal government.
The first thing to note is that while you can deposit or store a coin collection in one of these accounts, they only accept certain types of coins. Specifically, they only allow those that meet the requirements for pure gold percentage. Some of the ones that are accepted are Canadian Maple Leaf coins or American Golden Eagle coins.
Additionally, most other collectibles won’t be eligible for this sort of thing. After all, most IRAs have some sort of tax benefit, where we’re rewarded for preparing for our retirement by either paying tax right up front or when we withdraw, depending on what sort of plan we have. So, there will naturally be some restrictions on the sorts of assets we can deposit.
So, although jewelry or other things made of precious metals can certainly be valuable in terms of investing and can be an item to liquidate later on, they’re not applicable in this sense. Stick to things like the approved coins or gold bullion instead to ensure that you have something to deposit into your IRA.
Is the Conversion Worth it?
To conclude today, let’s take a look at whether or not it’s really worth your time to convert a 401(k) plan into a precious metals IRA. Admittedly, it’ll somewhat depend on your current financial circumstances. If you can do so comfortably, then it could certainly be worth your while.
That’s largely due to the whole hedge-against-inflation thing. As much as it sucks, the fact of the matter is that a lot of traditional retirement accounts lose their value as the years go on purely because of how our currency works. As the United States dollar loses it’s spending power, so too do any of the assets that we have stored away that hinge on that.
Gold, though, doesn’t really experience that. Instead, it sits at a fairly constant price over time because there is a large demand for it and a small supply. So, it’s not overly risky to invest in it, and it can almost guarantee returns so long as you purchase it responsibly from a reputable broker.
If you’re still not entirely sure how converting a 401(k) into an IRA account works, there are plenty of experts out there who can help to walk you through the process. Use the resources at your fingertips!