How To Put Your 401(k) To Good Use

Today’s uncertain political and economic climates make for interesting headlines, but the media often ignores the long-term financial risks facing real working men and women.

If Americans save for retirement, they often do so through incomplete accounts such as IRAs and 401(k)s. While these accounts can play a role in a well-balanced financial plan, they rarely offer investors the kinds of diversification, opportunity, or protection needed during risky economical climates. Fortunately, you can take the 401(k) account(s) from your past and current employers and put them to better use.

What Your 401(k) Plan Is Designed For

A 401(k) plan, as defined in subsection 401(k) of the United States’ Internal Revenue Code, is designed to be an easy, simple retirement savings plan that companies can offer to eligible employees. Through a 401(k), an employee may defer a portion of his or her earnings towards long-term investments without paying taxes on the contribution.

The savings on a 401(k) do not avoid taxation forever. After the employee reaches qualifying age, or 59 ½ in most cases, the government taxes all withdrawals made from their 401(k) account. If withdrawals are made prior to qualifying age, the government taxes and levies a 10% penalty.

(Note: It is also possible for employers to offer a Roth 401(k) option, through which earnings are taxed at the contribution stage but go untaxed at the withdrawal stage.)

For what they are, 401(k) plans are excellent starting points for working adults. Some of their many benefits include:

  • Automated retirement savings
  • Tax-deferred growth on investment gains and contributions
  • Plenty of public equity and public debt investment options
  • Ease of rollovers
  • Matching funds.

If your employer offers a 401(k) plan, take the time to understand your investment options. Consider investing through one, especially in cases where the company offers to match contributions.

Why Your 401(k) May Not Be Enough

For all of their perks, standard 401(k) plans come with many limitations and practical inconveniences. The government limits how much any single employee may contribute to their plan in a given year (you can see the IRS guidelines here), and there are strict limits on what most accounts can offer as investments.

Standard 401(k) accounts allow investors to place their money in mutual funds, money market funds, guaranteed investment contracts (GICs), CDs, variable annuities, and (uncommonly) stock in the offering company.

On rare occasions, a 401(k) plan may allow for brokerage accounts. This means contributing employees may choose stocks, bonds, and other publicly traded assets. Unfortunately, the majority of 401(k) plans only allow a handful of options (sometimes as few as three). In some cases, 401(k) plans only offer mutual funds.

You can read more about 401(k) investment options through the Financial Industry Regulatory Authority website.

To put it plainly, they vast majority of 401(k)s are poorly diversified. Given the increasing likelihood that we live in an era of historic bond market bubbles and stock market bubbles, limiting your retirement account to only stocks and bonds offers very little protection.

The Good News: You can open up yours retirement account to additional investment options, safeguard against bursting bubbles, and retain tax-deferred growth by rolling over your 401(k) into a self-directed precious metals IRA.

What Is a Self-Directed IRA?

From a technical and legal perspective, self-directed IRAs are not different than other qualified retirement accounts, such as 401(k)s or traditional IRAs. In fact, self-directed IRAs have been around since the first year of IRA eligibility in 1974 (laid out in IRS Publication 590).

Self-directed IRAs have the same perks as the standard IRA or 401(k)—tax deductions, estate planning, access to public equities, tax-deferred growth—with the additional benefit that you can direct investments toward a much wider range of choices.

If you think you could benefit from expanding your retirement portfolio to include access to physical real estate, private placements, tax lien certificates, and physical metals (such as gold and silver), then you should consider rolling over your 401(k) into a self-directed IRA.

How to Perform a Self-Directed IRA Rollover

If you want to perform a self-directed IRA rollover, stay informed. You can read our 5 Tips to Ensure a Smooth 401(k) Rollover Process or review the difference between a direct and traditional rollover here.

Very briefly, this is the two-step process for completing a rollover.

  1. Every IRA, including self-directed IRAs, needs an approved custodian. The first step is to identify and select a suitable custodian to receive your rolled-over funds. Make sure your custodian allows for precious metals holdings.
  2. Comply with custodian rules and complete all the required forms. Rollovers require a bit of paperwork to complete. Messing up here can be costly.

If you want to add IRA permissible precious metals, such as gold bullion bars and coins, your next steps should be:

  1. Identify precious metals dealers that have the bullion you want. Once you identify a reputable dealer, they will need to coordinate with your IRA custodian to process payment.
  2. Find the right precious metals depository. Your precious metals investment needs to be held at an IRS approved depository. Your gold broker, custodian, and depository will arrange shipment of your metals.

Learn More

Do you want to learn more about purchasing physical gold or silver bullion?

Do you want to know how to add gold and silver to your IRA/401(K)?

American Bullion can discuss your options and help you every step of the way. Our #1 goal is to help you take control of your own finances – and we promise to be transparent, safe, and efficient in the process.

Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals. We, at American Bullion, are not financial advisors or tax advisors. Past performance is not indicative of future results. Please do your homework before diversifying with precious metals.