What Is A 401k To Gold IRA Rollover?

What Is A 401k To Gold IRA Rollover?

A 401(K) account is an individual retirement account that is offered by many employers to their employees. Each month a portion of the pay check goes into the 401(K) and some employers match the payments by contributing as well. The savings in a 401(K) are pre-tax savings which means that they are not taxed at the time of saving and instead will be taxed later on once the account holder withdraws the savings after retirement. This creates tax benefits for as long as the savings are in the account but some people think that this is not of any particular benefit as one does not know that the tax rates will be in the future. While this is true but rationally thinking one can assume that tax rates in future aren’t going to be drastically different from what they are at present. The tax rate may perhaps be 5-10% higher but it cannot be more than this because there is a limit to which governments can raise the tax rates.

Benefits Of A Gold IRA

If we look at the benefit of holding tax free savings for the duration of employment then those benefits outweigh the drawbacks of paying a probable higher tax in the future. For example if you hold almost a million dollars in savings for the duration of your employment and then earn a good rate of return over those savings, then paying the tax later on at the time of withdrawal.

For those who think that it is better to get the savings taxed at the present rate of tax, there is a second type of 401(K) account called the Roth IRA, where the savings are post tax savings. People can have either or both accounts; it depends on the personal preference of the worker.

This makes a 401(K) account a very easy and efficient way to save for retirement. Many people suffer from personal financial management problems and thus may not be able to save for their retirement but the 401(K) account takes away the worry of managing your retirement funds. IRS rules allow investors or workers and their fund managers to invest the funds in a 401(K) plan into investment options of their choice. Sometimes the investment options are restricted by the employers and mostly employees can invest the funds into low risk mutual funds, shares or target dated funds. The savings are invested into different options, keeping in mind the rules to diversify the investment portfolio to reduce any risk of loss.

Why Investors Are Rolling Over Their 401k Accounts Into Gold Backed IRAs

The risk of loss is a constant threat, if we look back at the 2009 crisis we can see that it wiped out almost 20% of the savings from retirement funds, thus the risk is always there and diversification can only minimize the risk but it cannot mitigate it altogether. The world economy is already in a turbulent state, 2019 was termed as the year of the financial meltdown, it did not materialize but this does not mean that the threat is over. Global debt is over $350 trillion and the world economy is highly leveraged right now. Global economy is grinding to a slowdown and the recent outbreak of the novel Corona virus has sent a wave of caution in the stock markets across the world with the Asian stock markets taking a hit as China which is the economic powerhouse of Asia, comes to a halt. January already had a near miss with USA – Iran tensions at an all time high, the oil prices jumped for a few days but normalized as both sides deescalated to prevent ugly fallout. The threat however remains there, the global economy is fragile and any serious global event can bring this house of cards crashing down.

Does it not seem prudent then to find ways to hedge the retirement savings, especially when we know that when financial systems crash they also wipeout retirement savings. Imagine working hard your entire life only to see that in the last decade of your employment your savings get wiped out by 20-30% due to a financial crash you had nothing to do with?

Investing Your Retirement Into A Gold IRA Rollover

There is an option to save your savings from being wiped out and that option is called a Gold IRA rollover. A Gold IRA is like any other individual retirement account but the difference is that it allows investors to invest their funds in precious metals. Most if not all 401(K) accounts do not allow employees to invest their savings into precious metals and this exposes the investment to the very evident risk of loss. In order to hedge this risk, many people transfer their retirement savings from their 401(K) accounts into their self directed or Gold IRA accounts. While these accounts require a greater level of due diligence but they also allow investors to invest their funds into precious metals thus hedging the risk of loss and safeguarding their savings and in the long term precious metals end up creating wealth in the form of capital appreciation. If we look at the value of gold at the beginning of the millennium it was $300 per troy ounce and today it stands at over $1500. This corresponds to a rise in value by over 400%, this is the value generating power of precious metals that you cannot find in other investment options. There is a drawback of investing in precious metals though and that drawback is the lack of annual or periodic returns. For example of you invest in the shares of a company then you will get dividends but precious metals do not carry any such annual or periodic returns.

For these reasons many people choose to keep their retirement savings in Gold IRAs, where their savings can be protected from any economic upheaval.

The process of gold IRA is a simple one, once you have chosen the gold IRA company of your choice and set up yourself directed gold IRA account, you can simply transfer your funds form your 401(K) account to your gold IRA account and then you can shop for gold.

Clare Louise