Investors who have funds in a former employer’s 401(k) or other retirement plan are seeking options for those monies that will help them reach their retirement savings goals. In many cases, the traditional investment accounts are not meeting the goals of today’s retirement investor. Given today’s investment market and overall economic climate, other options such as a gold IRA rollover may offer a better alternative.
What is an IRA Rollover?
Technically, an IRA rollover is defined as being a transfer of funds from a retirement account into an IRA. The IRA account can be a traditional or a Roth. The rollover can occur either via a direct transfer from one financial institution to another, or it can happen by check whereby the initiating institution writes a check to the account holder who then deposits the funds into the IRA account at the other financial firm.
It is important to note that if the rollover is done via check, a 20 percent withholding penalty will be applied prior to the check being issued to the account holder. Therefore, if the account holder wants to avoid this withholding amount, he or she should consider having the rollover take place directly from one institution to the other.
In addition, while there is not a dollar amount limit in terms of funds that may be transferred into the IRA account, there are many IRAs that will only allow one rollover per year when going from one IRA account to another. In this case, the one-year calendar time frame will typically begin at the time that the initial distribution is made.
IRA Rollover Advantages
There are a number of advantages to rolling funds over into an IRA account. One of the biggest benefits is that by having funds in one’s own IRA, an investor can choose from a much wider variety of investment vehicles.
For example, if the funds were coming out of a former employer’s 401(k) plan, it is likely that the investor’s choices were limited only to just a few mutual funds and the employer’s stock shares (if applicable).
In addition to having more investment choices, the investor will still be able to have all of the tax related advantages that come with IRA investing. These will differ somewhat, however, depending on the type of IRA that is owned. For example:
- Traditional IRA Account – With a traditional IRA account, the investor (if within certain income guidelines) may be able to deduct his or her annual contribution. The funds that are inside of the traditional IRA account are allowed to grow on a tax deferred basis. This can essentially allow assets to truly compound over time.
- Roth IRA Account – Those who own a Roth IRA account are not able to deduct their annual contributions. However, the funds that are inside of the account are able to grow tax free. In addition, withdrawals from a Roth IRA are also allowed to come out on a tax free basis.
The Benefits of Adding Precious Metals to a Retirement Portfolio
While many investors see the benefit of rolling funds into their own IRA accounts, these accounts are not always funded to their fullest advantage. Oftentimes, investors attempt to diversify by placing a mix of stocks, bonds, and mutual funds into their traditional or Roth IRA accounts. However, this is typically not enough.
One way to add diversity to an Individual Retirement Account, while at the same time providing an opportunity for growth and protecting other portfolio assets is to include gold or other precious metals.
For many years, gold and other metals have provided investors with the ability to grow their assets’ value, while also hedging against inflation and providing protection against a volatile stock market and unstable economy overall.
How to Get Started with a Gold IRA Rollover
In order to initiate a gold IRA rollover, investors must first locate a custodian that specializes in self directed IRA accounts. These IRAs differ somewhat from regular traditional or Roth IRAs in that the individual investor is fully in charge of making all of the investment decisions. Because of this, the investor has a much greater opportunity to diversify the account assets, and can add vehicles such as gold, silver, and other precious metals.
Many gold and precious metals IRA custodians such as Regal Assets will provide the paperwork that is necessary to open an account directly on their website. This way, investors can begin the process of getting the IRA account opened.
Funding a Gold IRA
Once the gold IRA account has been open, there are several ways to fund the account. These include:
- Annual Cash Contribution – An annual cash contribution can be made by the investor. In 2014, that amount is a maximum of $5,500 for investors who are age 49 and under, and $6,500 for those who are age 50 and over.
- IRA Transfer – Investors can also transfer funds from an existing IRA account into their new gold backed IRA account. When an IRA transfer occurs, funds will move directly from one IRA custodian to another. The investor will not take receipt of the funds at any time during an IRA transfer.
- Rollover – Funds from a retirement plan may also be rolled over into a gold IRA account. With this option, an investor can truly boost the amount of funds that he or she has inside of the account with which to purchase gold and other precious metals. The gold IRA rollover can be performed without triggering any tax penalties. It is important that the process be completed, from start to finish, within 60 days. In addition, rollovers can only be performed with the same money one time every 12 months. Otherwise, the investor will lose the tax deferred status of those funds.
Taking the Next Step
In taking the next step towards creating true diversity in one’s retirement IRA account, a gold backed IRA should be highly considered. Precious metals have been considered a symbol of wealth for many centuries – and they are expected to continue their path of growth in the future.