There is no one-size-fits-all answer when it comes to saving for retirement and investing your savings, as there are many different plans and options to choose from. Many people choose to have a 401(k) as their retirement account because it is a tax-deferred account. Instead of a 401(k), some people opt for an individual retirement account (IRA).
Although 401(k) plans are typically employee-sponsored, self-employed sole proprietors can also have solo 401(k) accounts. The main difference between a 401(k) and an IRA is not whether the plan is offered through an employer. The real distinguishing features are the investment capabilities, tax implications, contribution limitations, and withdrawal terms that define each account type.
You can use a self-directed IRA to invests in a variety of things.
An IRA that invests in precious metals instead of cash is called a precious metals IRA. An IRA that only invests in gold is called a Gold IRA.
We’ll be comparing 401(k) accounts to self-directed Gold IRA accounts, even though they have nicknames.
The options available for investing your 401k or Gold IRA will depend on the conditions set by your employer or the company managing the plan.
The company that invest the funds contributed to your 401(k) plan is typically chosen by your plan sponsor and is usually a mutual fund company, brokerage firm, or even an insurance company. You can generally invest in at least five different mutual funds within the financial sector through a 401(k) plan.
You may also have the option of investing in the company stock of your employer – some companies automatically invest their employees’ 401(k) funds in the company’s own stock, which would mean the success of your investments would rest on the performance of your employer’s stock, so it’s always important to carefully review the terms of your 401(k) plan.
A self-directed IRA gives you more control over your retirement savings, allowing you to invest in a wider range of assets, including stocks, bonds, ETFs, CDs, real estate, and precious metals.
An account that only consists of gold and other metals is good for maintaining a retirement portfolio that is both centralized and diversified.
Using your self-directed IRA to invest in physical gold is a great way to protect and grow the value of your retirement savings.
A self-directed IRA allows you to invest in a wider range of financial instruments than a 401(k). If you have money in an old 401(k) account or if you have retired and your 401(k) is no longer being contributed to, you may want to roll over the funds into a self-directed IRA.
There are annual contribution limits for each type of retirement account. The IRS changes these limits from year to year.
The amount of money someone can contribute to their 401(k) for the 2014-2015 tax season is $17,500 for individuals under the age of 50, or $23,000 for individuals over the age of 50.
If you contribute less than the maximum amount to your 401(k) one year and you’re over the age of 50, you can make catch-up contributions the next year. These contributions won’t be counted towards your yearly total. Catch-up contributions are limited to $5,500 per year.
If you contribute money to a 401(k) account, your employer will usually contribute an equal amount up to 6% of your yearly salary. This means that if you make $100,000 a year, your employer will contribute up to an additional $6,000 a year to your 401(k) account, as long as you contribute that much or more.
Self-employed sole proprietors with solo/individual/one-participant 401(k) plans can save up to $52,000 annually if they are under 50, or $57,500 if they are over 50.
The yearly limit for Gold IRAs is $5,500 with a $1,000 catch-up contribution for individuals aged 50 or older.
If you are over the age of 50, you can contribute a total of $28,500 per year to an employer-sponsored 401(k) and a separate IRA without catch-up contributions, or $35,000 with catch-up contributions.
If you have a 401(k) with your current employer, you can also open a self-directed IRA and contribute to it alongside the 401(k). This will maximize your retirement savings potential.
Your contributions to your 401(k) account are typically deducted from your paycheck on a pre-tax basis.
This means that your contributions will lower your taxable income, which in turn will lower the amount of taxes you pay. Pre-tax contributions are deposited into the account before taxes are taken out, lowering your taxable income and the amount of taxes you pay. The taxes will be taken from the contributions when they are withdrawn from the account during retirement, at the tax rate that is applicable at the time of withdrawal.
Some 401(k) plans allow for post-tax contributions, which are taxed upfront and avoid future tax rates (which will most likely be higher) when withdrawing the funds.
Contributions to a self-directed IRA can be written off when doing taxes. If you file the contributions as deductions, then they will be classified as pre-tax, which means that taxes will be taken out when the funds are withdrawn after you have retired. This way, you will not have to pay any capital gains or income taxes upfront. If you do not file your expenses as deductions, then they will remain as post-tax contributions.
The one exception to this rule is a Roth IRA, where all contributions are done after taxes have already been deducted. As mentioned before, if tax rates go up during retirement, it may actually save money to make post-tax contributions. This is because inflation will factor in as well.
You have to be more careful about your investment choices with a self-directed IRA because you can get taxed for making certain mistakes. So it’s a good idea to talk to a custodian you trust for help before investing in a Gold IRA.
401K to Gold IRA Rollover Guide:
Step 1. Find a Gold IRA Provider
A gold IRA is an individual retirement account that is funded with physical precious metals, like coins and bars, instead of stocks and bonds.
You will need to learn about different types of assets if you want to retire, and the best people to talk to about gold and silver are providers.
A respected gold IRA provider guides you through the steps of opening your new account, engaging the services of a specialized custodian, choosing your metals, and determining where they will be stored in a secure facility.
These providers have expertise in the precious metals you will have in your account. The best financial advisors will help you with the paperwork, choosing investments, and finalizing the transaction. They will also be a resource for you as you manage your account, until you’re ready to sell your investments.
Step 2. Identify Your Self-Directed IRA Custodian
Who will be responsible for managing your gold IRA? A person is not legally allowed to keep the gold invested in an IRA for themselves.
A custodian will typically keep records of all transactions and provide documentation and services that are related to you and the IRS.
They manage the buying and selling of precious metals for investors and handle all transactions.
Choose a firm to invest with that is specifically set up to administer a “self-directed” IRA when you decide to open a gold IRA account.
The account owner of a self-directed IRA is in charge of their own assets and doesn’t have to rely on the company they’re with to make decisions. I suggest contacting Augusta for more information on these steps, even if you don’t plan to invest with them.
Step 3. Open Your Account
You need to open your gold IRA account so your provider and custodian can get it started. The custodian will need to help with the purchasing and selling of the gold or other precious metals that you choose to invest in.
Once you have worked with the provider’s order desk to identify the items you want, they will help you to get the items transferred to a secure facility that specializes in storing physical gold and silver coins and bars.
The custodian is responsible for making sure that your account meets IRS requirements, both in terms of how the account is set up and where the metals are stored. The amount of gold you purchased for your IRA is recorded, and the documentation is sent to you and the IRS.
The amount of money you can invest in a gold IRA account varies depending on the financial institution you work with.
Step 4. Execute the Rollover
The next step is to roll over your money from your old retirement account to your new gold IRA account. There are two ways to do it: directly and indirectly.
A direct rollover is where you transfer the money in your old account directly to your new IRA custodian/trustee. Your gold IRA company can help you get everything ready for the transfer and communicate with your custodian to make it happen.
With an indirect rollover, the funds from your old retirement account are given to you directly. The intention is for you to then transfer the funds into your new gold IRA, rather than keep them as a distribution.
The direct rollover method is more appealing because the account owner will have to do less paperwork to prove that the money was rolled over.
The majority of experts recommend a direct rollover because it requires less paperwork and is simpler.
The money that you transfer from your current retirement account to your gold IRA can come from any other retirement account.
You can roll over funds from a traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, and a few other eligible accounts, like a 401(k), 403(b), 457, and federal Thrift Savings Plans into a Roth IRA.
If you are transferring funds from a Roth IRA, make sure that the gold IRA is set up as a Roth IRA as well. If you withdraw money from your Roth IRA account before five years have passed, you will not be able to take advantage of the tax benefits the account offers.
Rolling your 401(k) into a self-directed IRA could be a wise choice if you’re looking to invest in more profitable and secure instruments. This is especially true given today’s uncertain economic landscape.
dollar continue to decline In summary, 401(k) plans let you contribute more savings per year and are easier to manage, but they’re not as profitable or flexible as self-directed IRAs, and perhaps most importantly – these types of IRAs let you invest your retirement savings in physical gold and other value-retaining precious metals, which could turn out to be a real difference-maker as the value of the U.S. dollar continues to decline. Dollar continues to depreciate.
If you have a 401(k) that your employer contributes to, you should keep contributing to it so that your employer will continue to match your contributions. If you are unable or unwilling to rollover your 401(k), you can still open an IRA and contribute to it in addition to your 401(k).