If you have an investment portfolio or retirement account that is biased towards bonds, stocks, or any other asset, you may have thought about converting some of it to either bullion coins or bars. When you do this, it can help to protect your investment against currency debasement, inflation, and other economic uncertainty.
You need to know that this process is called a gold IRA rollover. It refers to the process you take to open a new form of self-directed IRA that you can use to invest in gold. A rollover is considered to be a tax-advantaged strategy and safer option of transferring your retirement savings. This article discusses what you need to know about gold IRA rollover.
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Understanding a rollover and a transfer
Many investors tend to call movement of money from a retirement account to another as a rollover, but the IRS differentiate a rollover and a transfer. You see, in a rollover, the funds that you move are paid to you and then deposited into your other account.
On the other hand, in a funds transfer, the custodian of the IRA usually transfers the money directly to your new IRA custodian that you chose to receive the money. For this reason, you don’t see the money.
Ideally, if you are to do a gold rollover, it means you can receive the funds from the current custodian. You also need to deposit these funds within a specific period in the gold IRA company or even to the custodian you choose.
However, if you fail to complete this transaction within a specified period, then the funds can be taxable when you withdraw and can face the 10 percent penalty for early withdrawal. If you intend to withdraw from your personal IRA so that you can rollover to another IRA, then the tax withholding doesn’t apply.
A transfer simply refers to a transfer of money from one custodian to another custodian. It means you don’t receive the funds, so it simplifies the process and assists you to avoid any penalties. In this case, there is no need to worry about the specific period rule you need to transfer the funds because you don’t receive the money. They can do the transfer by wire transfer between the IRA custodians.
401(k) to gold IRA rollover
401(k) usually have slightly different rules when it comes to rollovers and transfers. If the previous employer has a 401(k) for you, it doesn’t need to be a problem and you can do a gold rollover with another custodian of your choice.
But if you happen to have a retirement plan with your current employer, then you should consult them first. This is because there are some employers out there who don’t accept gold investments in their 401(k) plan unless you are no longer working for them. Therefore, before you decide to do a gold IRA rollover, it’s important to know the employer’s 401(k) plan.