How To Move 401K To Gold Without A Penalty

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Gold has been seen as the most important store of value in society since the dawn of civilization. Many investors want to gain exposure to gold, but they feel as though they are unable to acquire the precious metal because their money is tied up in 401(k) or IRA accounts.

Normally, investors with retirement accounts can only own gold certificates or shares in gold ETFs. However, since the passage of the Taxpayer Relief Act of 1997, options have become available for investors to own gold in their 401(k) and IRA accounts.

To obtain exposure to gold, investors must first convert their retirement accounts to self-directed accounts. Once accounts have been converted, investors can purchase a wider range of assets, including physical gold and silver, while still retaining tax-advantaged status.

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Why Own Gold?

Gold has long been used for money, jewelry, and investments. Gold also has unique physical properties that make it ideal for use in electronics and industrial applications. For instance, the precious metal can be rolled into sheets just one atom thick, and it is one of the most conductive metals known to man.

Investors value gold because it can easily be stored away in underground vaults and because it can be easily divided into precisely denominated smaller units. Gold has a very high value-to-weight ratio, so millions of dollars worth of value can be physically transferred at very little cost.

Why Own Gold?

On the supply side, gold is relatively stable because it is difficult to mine from the ground. Gold can be borrowed against to secure a loan, so it is very unlikely that a significant supply of gold is being hidden away. Therefore, gold has not historically been prone to supply-side shocks by investors attempting to manipulate the market.

Of course, another huge advantage of gold is that it can be physically held by investors. Most investments involve securities or contracts that are ultimately just pieces of paper. During times of social upheavals or changes in the legal environment, the value of securities can be depreciated. In some cases, securities can even be confiscated.

When gold is physically held by investors, it is very difficult to confiscate. Therefore, many investors perceive physical gold as the ultimate store of value and ultimate hedge against uncertainty. After all, demand for gold only increases when difficult times materialize.

Why Move 401(k)s to Gold?

Many Americans hold most of their investment assets in 401(k) and IRA accounts. These accounts are beneficial because they help investors to avoid or reduce at least two layers of taxation that investors are normally subject to.

401(k) and IRA accounts offer either tax-free withdrawals or tax-free deposits depending on the option an investor selects. Gains in these accounts are not taxed quarterly or annually, so the compounded annual growth rate of a portfolio is not reduced by taxation.

Why Move 401(k)s to Gold?

The problem, however, is that most people start their tax-advantaged accounts with the help of their employer or investment advisor. When these parties set up an account, they put the investor's money into a managed account. The law imposes very strict limitations on what investors can do with a managed account, and many account managers charge exorbitant fees.

Nevertheless, if investors take the right steps to move their investment accounts into physical gold, they can enjoy all of the advantages of owning gold. There are no limits to the percentage of a tax-advantaged account that can be held in physical metals. Investors are also given much more control over their accounts, so they enjoy greater certainty of ownership.

IRS Rules for Owning Gold

IRS rules ultimately dictate what an investor can do with their account. If you fail to follow IRS rules, you could be on the hook for penalties, interest, and the loss of tax-advantaged status.

Rules governing owning gold in investment accounts are mostly contained in section 408(m) of the IRS code. The rules require that metals be delivered and controlled by a regulated securities contract. Metals are also required to be held by a trustee.

IRS Rules for Owning Gold

The requirement that physical metals be delivered and held by a trustee means that investors are unable to store gold at home or at a facility under their control. Instead, gold must be held in a facility controlled by a designated trustee on the investor's account.

All forms of physical gold are regulated by section 408(m). Therefore, investors cannot circumvent the law by purchasing gold coins or jewelry.

Gold assets also have to be of a narrow range of investment grades that the IRS has recognized. Investors cannot purchase jewelry or other similar types of gold. Investors can, however, purchase many gold coins that have been issued by monetary authorities.

How to Move a 401(k) to Gold

Moving assets held in a 401(k) or IRA investment account into gold is a complex process. Investors should never purchase gold with their funds until they have completed the necessary legal steps. Nevertheless, getting through the process of obtaining the legal right to buy gold can enable anyone to buy and sell physical precious metals.

Step 1: Set Up a Self-Directed Account

Before you can own precious metals, you will first need a self-directed account. Plans organized by employers or investment advisors have limited options for investors, so it is first necessary to gain full control over your account.

Transitioning to a self-directed account requires investors to first liquidate their existing account. Be careful to not withdraw your funds to your personal bank accounts since doing so can nullify the tax-advantaged status of your account. Instead, you should simply notify your existing broker that you plan to move to a new provider. Transitioning to a new broker can take several weeks or months, so you will want to get the process started right away.

Your existing broker may surprise you with options for self-managed accounts. Some brokers can offer self-managed services upon request. Nevertheless, it is usually advantageous to rely on a broker who specializes in offering self-managed accounts.

Most trading platforms can act as self-managed brokers. However, you will need to make sure that you choose a broker that enables you to own physical precious metals. Nearly all of the trading platforms that investors typically use do not support the purchase of physical gold. An overview of some of the best brokers for buying and holding physical gold is provided near the end of this article.

Step 2: Add a Precious Metals Broker as a Trustee

The main legal hurdle associated with purchasing physical precious metals is finding a broker who can act as a trustee on your account. Every 401(k) or IRA account is legally required to have a trustee. However, most trustees do not have the infrastructure required to enable their clients to purchase precious metals.

Trustees have to be licensed, so you cannot simply rely on your friend or your attorney to act as a trustee. Instead, you will need to find a professional trustee. Trustees are required to be licensed by the IRS and work for a company that has also been licensed by the IRS.

You should put significant effort into finding the right trustee. Do not simply believe what a trustee claims on a landing page online. Actually reach out to the trustee to discuss their services over the phone or during an in-person consultation. If a trustee does not make their contact information readily apparent online, consider looking elsewhere.

Since all trustees have to be licensed, you should ask your trustee to verify that they have been properly licensed. The IRS issues licensing certificates that can be shown to clients.

Additionally, you should do your due diligence by conducting public records searches to confirm that a potential trustee is a U.S. company with an extensive history. Make sure that any documents you sign and any money transfers you send are in the name of the trustee. All 401(k) and IRA funds are required to be held in the U.S., so never transfer money if a trustee asks you to send money to a foreign account.

Step 3: Transfer Funds to Your New Account

Most accounts that enable the purchasing of physical gold can be opened in about a week. However, reputable accounts will usually require you to provide substantial documentation before opening your account. Requesting, providing, and validating this documentation can take several weeks in some instances.

Additionally, transferring funds to your account can also take a substantial amount of time. Your existing account will usually require you to liquidate all of your assets before you can transfer to a new provider.

Many people who have an existing account hold a plethora of illiquid penny stocks that can take days of tedious effort to liquidate. Since selling these stocks can take a substantial amount of time, it is usually recommended to close out your existing account as soon as you start the process of transitioning to your new account.

Finally, it is important to keep in mind that a broker you are abandoning has a very limited incentive to liquidate your account quickly. Many brokers will speak with you at length on the phone to convince you to stick around. The broker may even offer one-time incentives if you cancel the process of closing your account.

If you decline to continue using your existing broker, you may find the transfer of your funds to be delayed with a wide range of excuses that are legal but unethical. For instance, a broker may ask for extensive documentation to withdraw your funds or require you to wait for several days between each step in a drawn-out withdrawal process.

The bottom line is that transitioning to a new account can take several months in some cases, so you will need to be patient. In the meantime, you can study up on the precious metals market so that you can be sure that you will make the right decisions when you obtain your opportunity to trade.

Step 4: Purchase Physical Gold

Once you finally get your precious metals account, you can start to acquire the assets you want to gain exposure to. Most accounts enable you to purchase a wide range of gold bars and gold coins. You can also usually buy silver, platinum, and palladium.

The purchase, transfer, and storage of physical metals used in self-directed accounts are heavily regulated by the IRS. Consequently, brokers are usually able to offer fewer options than investors might like. As a result, it is imperative to select a broker who is focused on providing clients with the widest range of options the law allows.

When you buy your gold, it is crucial to keep in mind that the IRS forbids investors from buying from their trustee. In general, you have to instead buy gold through a separate broker. The gold buying process is relatively complex behind the scenes, but most reputable brokers can seamlessly manage this process for you.

It is also imperative to keep in mind that you can only buy assets that have been approved by the IRS. Each individual type of asset has to be approved, so you cannot depend on any authorizations applied to certain classes of assets.

Examples of approved assets include American Gold Eagles, Gold Maple Leaf coins, and assets from the Perth Mint. Coins minted in large foreign countries have been approved, including China, Canada, Australia, Austria, and Britain. However, other assets have not been authorized, so you have to be careful to buy from a list compiled by a company that specializes in serving the owners of self-directed accounts.

Step 5: Store Your Gold Legally

When you have a self-directed account, you are not allowed to take physical possession of your gold. Taking physical possession of gold from a self-directed account is illegal. Doing so can lead to serious legal consequences, including losing the tax advantages associated with your account and even criminal charges. Therefore, it is important to store your gold in a way that is legal but still gives you maximum control.

The trustee on your account must be the party in control of your gold. Your trustee can delegate control to third parties in some instances, but it is best for the company storing your gold to be a trustee. Therefore, if any changes need to be made, your trustee can respond immediately without needing permission from a third party.

Keep in mind that you can have multiple trustees on your account. As a result, you can use multiple providers while also giving each of them trustee status to control your gold.

Additionally, you should keep in mind that trustees have limited control over your account. Legal terms restrict what actions trustees can take, and trustees usually only control the portion of your account that is relevant to their services. Trustees do not have the power to transfer all of your funds as many investors mistakenly believe.

For instance, when large transfers are made, trustees have to get approval from the account owner. Banks will enforce terms in a trusteeship agreement by asking for documentation when they observe unusual activity.

Finally, you should understand what to expect from your trustee when your gold is stored. Most reputable trustees will give you a menu of options for where your gold can be stored. These vaults should all be located in the U.S. and be authorized by the IRS.

Many people who are new to buying physical gold struggle to choose the right storage site. Select a location that has relatively low fees and regularly undergoes audits. Some providers enable investors to inspect their facilities at any time.

To reduce your chances of experiencing a problem, be sure to choose a provider that has been in business for a substantial period of time. Also, be sure that your provider undergoes substantial auditing to minimize your chances of becoming a victim of fraud.

Choosing the Right Provider

There are a wide range of providers you can choose from for managing your self-directed account. Some of the best options to choose from are detailed below.


# 1. Goldco

Goldco Precious Metals is a company based in Woodland Hills, Calif., that specializes in helping clients to acquire gold, silver, palladium, and platinum. Goldco is only a precious metals dealer, so it cannot store your gold. However, the company works closely with many trustees, so it can give clients the advice needed to deposit their precious metals wealth in a safe place.

Goldco has been authorized by the IRS, so the company can assist with a wide range of precious metals services for individuals with investment accounts. Although the company has only been in business since 2006, it has been quick to build a reputation for honesty and accountability. The company is also rapidly growing, and it made the Inc. 5000 list from 2015 to 2017.

Augusta Precious Metals

#2. Augusta Precious Metals

Augusta Precious Metals is a family-owned business that has been in continuous operation for more than 50 years. The provider stands out for its exceptional customer support and easy setup. Competitive pricing is offered with all of the company's products, and the company uses a streamlined buying process to enable its clients to get their hands on precious metals as quickly as possible.

Augusta requires its clients to deposit at least $50,000 into their account. However, once clients have deposited a sufficient amount of money, they can enjoy the benefits of working with one of the best providers on the market.

Augusta stores its gold in class III security vaults at secure locations across the country. The company carries over $1 billion in insurance, and it never allows creditors to access the wealth of its clients without a court order.

Birch Gold Group

#3. Birch Gold Group

Birch Gold Group offers some of the best customer service on the market. Clients can call Birch at any time to resolve issues they are having or even to obtain education on gold and silver products. The company prioritizes education and is happy to provide its clients with books, online articles, and other information about the advantages of precious metals and opportunities that exist in the marketplace.

Birch is unique because it does not charge any fees on transfers that exceed $50,000. The company mostly specializes in helping investors to get their hands on gold coins that the IRS has approved. Birch has an "A+" rating with the BBB, and it is a great choice overall for investors looking to gain exposure to precious metals.