Staring at your 401(k) and wondering how best to diversify it? Gold is an ever-popular option, especially when concerns about inflation and market volatility are high.
For those that don’t want to invest their entire 401(k) into gold, a “partial rollover” is a great option. It lets you keep a portion of your retirement funds in the stock market while giving you some exposure to precious metals. Here’s how it works.
Can you move part of a 401(k) into gold?
The short answer is yes, it is possible to use only a portion of one’s 401(k) to invest in gold. Retirement accounts have varying rules depending on your plan, but you can typically move a percentage of your account into a self-directed IRA account capable of holding physical gold. This is ideal for those that want to dabble in precious metals investing without getting out of the stock market altogether by zeroing out their 401(k).
You’ll need to check with your plan administrator if you still work for the company that sponsors the account. But if your account comes from a former employer (not a current one), there may be fewer restrictions and you can move the money more freely, though be aware some of the plan’s rules may still apply.
Note that you can’t roll your annual required minimum distribution (RMD) into a gold IRA. You’ll first have to make that withdrawal, and any remaining eligible funds can be deployed to buy gold in a self-directed IRA. Read our step-by-step guide to rolling over a 401(k) into a gold IRA.
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How much of your 401(k) should you move into gold?
While there’s no single rule as to how much of your 401(k) you can use to buy gold, most advisors recommend you treat gold as more of an insurance of sorts instead of a primary investment. Gold is historically a solid way to preserve your money’s purchase power and hedge against inflation—but it doesn’t earn interest or dividends like a stock.
Experts commonly recommend that you limit your precious metals holdings to between 5% and 15% of your portfolio. This can change slightly depending on your situation (think age, risk appetite, and whether you’ll need the money in the near future).
Rules and limits to know
When it comes to moving part of your 401(k) into gold, there are a few things to keep in mind:
- Your 401(k) must allow the rollover: A plan administered by a former employer will typically allow you to move funds to a self-directed IRA. But if you’re still employed by that company, you may need to qualify for an “in-service distribution.” Your plan administrator can help you understand your options.
- Request a direct rollover: You can arrange for your 401(k) to send funds directly to your IRA. This is the best option for most, because it ensures that the move won’t have to pay any taxes (or get dinged with an early withdrawal penalty fee for those under 59 ½).
- Avoid an indirect rollover if you can help it: Alternatively, you can ask for an indirect rollover. This results in the money being issued to you, less 20% withheld for federal taxes. You must deposit that money—including the 20% withheld out of your own pocket—into your IRA within 60 days. You’ll then get that withheld money back when you do your taxes. If you don’t, the money will count as a distribution and can even mean that pesky 10% early withdrawal fee for those under 59 ½.
- Not all 401(k) withdrawals qualify for a rollover: Again, from required minimum distributions to hardship withdrawals and plan-loan offsets, some withdrawals you can’t roll into a gold IRA.
- Only specific gold is eligible for a gold IRA: The IRS specifies which gold products can be held in a gold IRA. They usually must have a purity of 99.5%, though there are exceptions. Most collectible and numismatic coins are a no-go—but many reputable gold IRA companies, such as Goldco, will label their products as IRS-eligible. Examples include The American Gold Eagle, American Gold Buffalo, and Gold Maple Leaf.
It’s also worth noting that the gold must be kept by an IRS-approved custodian. You can’t keep gold in an IRA at your home.
Pros and cons of a partial rollover into a gold IRA
N/A
Pros
- Diversifies your retirement savings from exclusively stocks and bonds
- The tax-advantaged status of your money remains with a direct rollover
- Potentially protects your funds from a weakening fiat currency and market turmoil over the long-term
Cons
- Investing in gold comes with extra costs (setup fees, storage fees, custodian fees, dealer markups, etc.)
- Physical gold doesn’t earn dividends or interest
- Cashing out your investment may take longer than a stock or ETF, as you’ll need to sell your gold to a dealer
The takeaway
If you like the idea of putting some of your retirement savings into gold—but you’d prefer not to push all your chips into the middle of the precious metals table—a partial rollover can be a perfect solution for you. It diversifies your investments so that if the stock market goes south, your losses may be mitigated. Gold is also a popular option during geopolitical tensions and economic uncertainty.
Frequently asked questions
How is a partial gold rollover different from a full rollover?
A partial gold rollover is different from a full rollover in that you aren’t moving the entirety of your 401(k) funds out of your account. You’re specifying a dollar amount that you’d like to invest in a gold IRA, and you’re leaving the rest.
How long does a 401(k) to gold IRA rollover take?
A direct rollover often takes between two and four weeks—depending largely on how quickly your old plan processes transactions.
Will I owe taxes on a partial gold IRA rollover?
You shouldn’t owe taxes on a partial gold IRA rollover as long as you initiate a direct rollover. This is a non-taxable event that keeps your money within the tax-advantaged retirement account ecosystem. However, if you opt for an indirect rollover, the money will be sent to you—minus 20% that’s held back for tax purposes. As long as you deposit the full amount (paying that 20% out of your own pocket) into a gold IRA within 60 days, you should be able to expect to get that withheld money back when doing your taxes.
Can I store my IRA gold at home?
No, you cannot store gold deposited into your IRA at home. It must stay with an IRS-approved custodian. If you use your retirement savings to buy gold and keep it at home, it’ll trigger a taxable distribution—and an early withdrawal penalty if you’re under age 59 ½.
Are there fees for rolling over a 401(k) into a gold IRA?
There are fees for rolling over a 401(k) into a gold IRA, namely, a setup fee, custodian fees, and storage fees. You’ll also be subject to dealer markups when you buy or sell gold.