Rolling Over 401k Into a Gold IRA Provides Needed Diversity

Even in light of the recent recovery, the economic recession of 2008 and 2009 is still having an effect on many companies – both large and small – throughout the United States. Because of this, many employers are still being forced to close their doors – or at the very least, let go of a percentage of their work force.

A majority of these employees who have found themselves without employment have at least had the opportunity to walk away with assets from an employer-sponsored retirement plan – and are now seeking options for where to go with such funds in order to both enhance and protect them as they move towards retirement.

Options for Employer Sponsored Retirement Funds

When leaving an employer, many individuals have funds in a retirement account such as a 401k or 403b plan. Oftentimes, employees are unsure of what to do with these funds. In most cases, an individual will have four options. These include:

  • Cash Out / Take Receipt of the Funds – One option is to simply take receipt of the funds and to cash out. Yet, while this may sound appealing, it is typically the worst of the possible options for most investors. This is because it will result in taxation of the funds at the investor’s regular income tax rate. In addition, if the individual is under the age of 59 1/2, he or she will also be required to pay an additional 10 percent “early withdrawal” penalty of the funds. Given the taxes and penalty amounts, an investor could end up losing almost half of the total amount of their funds if they choose this particular option.
  • Leave the Funds with the Employer – Individuals may also opt to leave their funds with their former employer. Doing so will allow them to continue investing in the same investment options as they always have. It, however, does not allow them a very wide variety of investment choices, as it limits the investor only to what the employer offers as its retirement plan investment choices.
  • Move Funds Over to the New Employer – If the individual’s new employer offers a 401k or other type of retirement plan, it is possible that the funds could be transferred over into the new plan. Yet, while this is convenient and puts all of an individual’s retirement funds in one place, it still limits the investor to only what the new employer offers in terms of investment choices.
  • Rollover Funds to an IRA Account – Rolling the funds over to a personal IRA account will provide the investor with the most overall choice and control. This is especially the case if the investor opts to go with a self-directed IRA account. Here, the investor will be allowed to invest in traditional financial vehicles such as stocks, bonds, and mutual funds, as well as tangible assets such as real estate, gold, and other precious metals. This will provide the ability to diversify the portfolio, which will in turn help to both grow and protect assets.

How a 401k Rollover Works

A 401(k) rollover is essentially a transfer of funds from a retirement fund into an IRA (Individual Retirement Account) account. The IRA can be either a traditional or a Roth. The rollover of funds may occur either via a direct transfer of funds from one institution to another. Or, it may alternatively occur by check. In this case, the custodian of the distributing institution will write a check to the account holder who will then deposit the check into the IRA account at the new financial institution or entity.

In the case of the transfer being done with a check, there will be a tax withholding of 20 percent of the funds prior to the funds being issued. Therefore, if the investor wishes to avoid this 20 percent withholding, it is best to go the route of the direct rollover.

What is a Gold Backed IRA?

Many individuals are considering gold backed IRAs for at least some of their retirement funds. These Individual Retirement Accounts hold a percentage of their assets in gold and other precious metals, while at the same time allowing the same tax advantages as regular traditional or Roth IRA accounts.

Most banks and brokerage firms do not offer this type of IRA account. Rather, investors must open accounts through specialized IRA custodians that focus on gold and precious metals IRA accounts. These firms will typically be able to offer a whole line of services, from opening the IRA account, to choosing and investing in the proper metals based on the investor’s particular short and long term financial goals.

Why Consider Gold Backed IRA for Retirement Funds?

Today, as the stock market continues its volatile ride, many investors are considering gold back IRAs for at least a portion of their retirement funds. One reason for this is because gold offers the opportunity for growth and increased value – just as it has for centuries.

In addition, gold provides additional benefit as well, including asset protection and a hedge against inflation. Because gold has traditionally moved in the opposite direction as the stock market, it has also provided investors with a great way to diversify their equity portfolios – and this is a welcome addition for most investors who are quickly approaching retirement and need stability in their overall asset mix.

How to Get Started

If considering rolling over 401k funds, it is important to first discuss the available options with the former employer or the institution from which the funds will be coming. There will likely be transfer paperwork involved.

Likewise, a new IRA custodian that specializes in gold backed IRA accounts must also be chosen. In most cases, the account representatives at these firms can walk investors through the IRA rollover process, as well as getting the account properly funded.

Once the funds have been rolled into the gold IRA account, investors can choose from the many IRS (Internal Revenue Service) approved gold and other metals that are allowed to be placed into a precious metals IRA accounts so that proper growth and diversification can begin to take place.

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