Retirement plans are essential to having financial stability when you leave your full-time jobs at retirement. Planning for it has become a challenge because of the rising cost of living, out-of-control printing of currency, and debilitating levels of global debt. It’s not an easy puzzle to solve and there are no one-size-fits-all answers.
Because gold prices generally move in the opposite direction of other asset classes, it is a good idea to diversify your retirement portfolio with gold and other precious metals. It is a sensible approach that lessens the amount of risk, especially over the long term.
Let’s take a look at just some of the more popular retirement plans that allow for the addition of precious metals. This is not an exhaustive list. Please call the experts at Gold IRA at (805) 601-6000 if you have any questions about converting your plan to gold.
A Traditional IRA is a tax-deferred retirement savings vehicle. Any money you put in your Traditional IRA is not taxed until you take money out of the account. Any gains or losses you incur inside a Traditional IRA are also not taxed or taken as losses. Investments inside a Traditional IRA can accumulate much faster than in other taxable investment accounts as principal balances do not need to be reduced to pay taxes.
A Traditional IRA is not the only retirement account that can own physical gold and precious metals, but it is the most common account to do so. This is because many other retirement plans such as a 401(k), 403(b), 457(b), TSP, and others can easily be rolled into a Traditional IRA whenever permissible by the plan sponsor and always after retirement or change of employment. A rollover of these types of plans to a Traditional IRA is a non-taxable event. When you rollover a qualified plan to a Traditional IRA, all of your retirement assets keep their tax-deferred status. Funds in a retirement plan can be used to buy physical gold, silver, platinum, and palladium.
Basics of a Traditional IRA
- Any US taxpayer or their spouse who is under age 70 ½ can contribute to or start a new Traditional IRA.
- Any money you add to a Traditional IRA is not taxed until you take IRA distributions.
- The 2023 Traditional IRA contribution limit for those under age 50 is $6,500.
- The 2023 Traditional IRA contribution limit for those 50 and above is $7,500.
- Once you turn 59 ½, you may take distributions from a Traditional IRA with no early withdrawal penalty; you simply pay taxes on withdrawals.
- If you take an “early withdrawal” from a Traditional IRA, before age 59 ½, you must pay a 10% penalty in addition to ordinary taxes.
- At age 73 Traditional IRA holders are required to take distributions called Required Minimum Distributions of (RMDs)
- You may name one or more beneficiaries to your Traditional IRA who will receive your IRA assets if you pass away
- When the plan allows, many other retirement accounts can be rolled into a Traditional IRA without any taxes or penalties including 401(k), 403(b), 457(b), TSP, Defined Benefits Plan, and Profit-Sharing Plan
- Other IRAs can be converted to a Traditional IRA including SEP-IRA, SIMPLE IRA, (Spousal) Inherited IRA, and Rollover IRA
- A ROTH IRA cannot be converted to a Traditional IRA
- A Traditional IRA can be converted to a ROTH by simply paying the taxes
- A Traditional IRA can include IRA eligible forms of physical gold, silver, platinum, and palladium (through a change of custodian may be required)
Unlike a Traditional IRA, Roth IRA contributions are with the money that has already been taxed.
When you take money out of the Roth IRA, you are not taxed. Like the Traditional IRA, you cannot withdraw before age 59 ½ without paying a 10% penalty to the IRS. There are tremendous advantages to having a Roth IRA because the income is tax-free. Traditional IRA can be converted to a Roth without penalty. A Roth IRA retirement plan can be used to own precious metals.
Basics of a Roth IRA
- For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs
- After-tax money is used to contribute to a Roth; therefore, no taxes are owed on distributions
- The 2023 Roth IRA contribution limit for those under age 50 is $6,500
- The 2023 Roth IRA contribution limit for those age 50 and above is $7,500
- Contributions can be made to both Roth and Traditional IRAs in the same year, but the combined total cannot exceed $6,500 or $7,500 if over 59 ½
- After 59 ½, distributions can be taken from a Roth IRA tax-free with no early withdrawal penalty
- Before age 59½, “early withdrawals” from a Roth pay a 10% penalty
- There is no Lifetime Required Minimum Distributions (RMDs)
- One or more beneficiaries can be designated to a Roth IRA
- A Roth IRA can include all IRA eligible forms of precious metals
Rollover IRA plans can be a Traditional IRA or ROTH IRA set up to receive a transfer of funds from an employer-sponsored plan such as a 401(k), 403(b), or 457(b). The amount transferred to a rollover IRA is unlimited. Funds can be moved from an employer-sponsored plan upon retirement or employment stops. A Rollover IRA is subject to the same rules and regulations as a Traditional or Roth IRA.
Basics of a Rollover IRA
- Any US taxpayer can rollover funds from an employer-sponsored plan such as a 401(k)
- A Rollover IRA can be a Traditional IRA or a Roth IRA
- Annual contributions are allowed to a Rollover
- At age 59 ½, distributions are allowed from a Rollover IRA without penalty
- Before age 59 ½, there is a 10% penalty
- Rollover IRA permits one or more beneficiaries
- Rollover IRA funds can be transferred to other retirement plans
- A Rollover IRA can always own IRA-eligible forms of precious metals
401(k) is the most popular retirement plan. 95 percent of employers offer a 401(k) as part of their employee benefits package. This retirement plan is funded through pre-tax withholdings from employee paychecks. Many employers match a percentage of these pre-taxed earnings.
A Roth option exists for many 401(k) plans. The 2023 limit for annual contributions is $22,500. 401(k) contribution limit is $22,500 or $30,000 if you’re 50 or older. Few 401(k) plan administrators offer precious metals as an investment option. It is possible to roll all, or a portion of, your 401(k) into s Self-Directed IRA to take advantage of owning precious metals. Most plans allow for a portion of a 401(k) to be transferred to a Self-Directed IRA while still employed.
Basics of a 401(k)
- A 401(k) is an employer-sponsored plan
- An employee’s pre-taxed earnings are used to contribute to the fund
- Distributions from the plan are taxed
- 401(k) contribution limit is $22,500
- At age 59 ½, distributions are not penalized
- Before age 59 ½, early withdrawals pay a 10% penalty and ordinary income taxes
- At age 73, participants must take distributions called Required Minimum Distributions of (RMDs)
- A Roth 401(k) option may be available
- Many employers and administrators allow 401(k) loans while still employed
- A 401(k) is allowed to own IRS-approved precious metals
- 401(k) plans can be rolled over to a Self-Directed IRA while still employed
A Simplified Employee Pension (SEP) allows business owners to contribute to their retirement. A SEP IRA enables tax-deductible contributions to be made into employee accounts, or business owner accounts with higher limits than standard IRAs. SEP IRAs are a powerful way to prepare for retirement. SEP IRAs can also be a great way to diversify and secure your retirement assets by investing in physical gold and silver bullion.
The keyword is physical gold. We’re not talking about stocks, securities, and exchange-traded funds that are somehow involved in precious metals, but rather physical gold in the form of bullion coins or bars.
Under IRS regulations, SEP IRA accounts can transfer or rollover without incurring taxes if the assets are sent to another qualified retirement account. There is the option of moving all or part of the SEP IRA into the receiving account.
Primarily associated with smaller companies, the Savings Incentive Match Plan for Employees, or SIMPLE IRA, gets its funds directly from the account holder’s salary. A SIMPLE IRA has the same rules as a traditional IRA. The transfer from one account to another is tax-free.
After the SIMPLE IRA account is held for two years, the holder must declare they plan to buy gold as part of their new self-directed IRA.
Since the IRS doesn’t allow the IRA account holder to physically keep the gold and silver when purchased with an IRA, they will need to be held by a third-party depository, when it comes time to collect the physical metals, the account holder signs a document from the third-party and then takes delivery.
Inherited IRA is for the beneficiaries of an IRA in case the owner becomes deceased. In this scenario, diversifying into gold and silver is necessary to guard against inflation and other variables.
Holding gold should be viewed as a long-term strategy because gold will protect a family’s wealth for generations.
List beneficiaries by name and design them as primary, secondary, and contingent beneficiaries. Listed beneficiaries should set up retirement accounts if you pass away while assets remain in the retirement account.
The beneficiary may maintain the account’s tax benefits by choosing to receive the distributions through an Inherited IRA. It’s a good idea to consult a trusted expert on Inherited IRAs before making decisions about your retirement assets.
Section 403(b) of the Internal Revenue Code offers a tax-advantaged defined contribution retirement plan for public school employees, tax-exempt non-profits, and church ministers. Section 403(b) operates like a 401(k). Participants of a 403(b) plan defer money from their paychecks into a retirement investment account. Like a 401(k), there is a plan provider, a plan administrator, and the options available to a participant are limited to what their specific plan offers.
While you cannot invest in physical gold through a 403(b), you can transfer or rollover your 403(b) plan to a Precious Metals IRA, or better yet, a Self-Directed IRA (SDIRA). Opening an SDIRA is an effective way to set up a diversified retirement portfolio.
457(b) plans operate like 401(k) and 403(b) plans. You can rollover from a 457(b) government plan to a Gold IRA. Owning physical gold is a great way for investors to diversify their assets. The employer must fund 457 Plans. Employers do not fund other non-government plans.
You can control the designation of retirement funds and establish new tax-free investments by rolling over your 457 Plan to an SDIRA.
Thrift Savings Plan (TSP)
The Thrift Savings Plan, or TSP, is an optional retirement strategy for Federal Employees. One of the main benefits for Federal employees is that contributions to the TSP are on a pre-tax basis. The TSP also has the benefit of offering flexibility when choosing assets. Gold and silver provide advantages beyond the scope of most conventional retirement assets. The benefits include protection against market fluctuations, physical metals performing well even when their paper counterparts decline, and having gold and silver in your TSP secures purchasing power. The value of physical gold will be there when you need it.
As in the case of having a SIMPLE IRA, if you have a TSP and want to diversify all or part of it into gold, or some other precious metal, you’ll first need to open a Self-Directed IRA or SDIRA.
Health Savings Account (HAS)
Health Savings Accounts are becoming increasingly popular. Although it is not a tax-advantaged retirement savings plan, it can function the same way. The HSA is a tax-deferred savings plan that is available to US taxpayers with high-deductible health insurance plans. Contributions, limited to $3,850 for an individual and $7,750 for a family, are not taxed. The funds pay for qualifying medical expenses and over-the-counter prescription drugs. If the funds in an HSA are not spent, they roll over year-to-year and can sometimes accumulate large balances.
If HSA principal funds are withdrawn prior to age 59 ½ for a reason other than qualified medical expenses, there is a 20% penalty. After age 59 ½ the penalty falls to 10%. Profits in an HSA can be withdrawn anytime. You can, in fact, use your HSA to make an approved investment including IRA-eligible physical gold, silver, platinum, and palladium.
Basics of an HSA
- An HSA is a savings plan available to off-set high-deductible health insurance
- Contributions up to $3,850 per year for an individual
- Contributions up to $7,750 for a family
- The HSA savings can be used for qualifying medical expenses at any time without any taxes or penalties
- The balance accumulates annually if unused
- Use HSA savings to acquire precious metals
- Under 59 ½, withdrawals are penalized 20 percent
- Over 59 ½ the penalty drops 10 percent
- Profits on HSA investments can be withdrawn anytime without penalty
- An HSA cannot be moved to a retirement plan