Solved: Can I Buy Gold with My 401(k)?

Precious Metals

There’s no better way to accumulate wealth than by saving and investing. Merely socking money away into a bank account won’t grow your wealth. That money that you save needs to be put to work for you gaining returns. But many diligent savers don’t know where to invest their money.

While stocks and bonds have been traditional investment vehicles in the past, their recent performance has left something to be desired. Over the past two decades, bond yields have declined as interest rates have declined. And stocks have failed to grow in line with their long-term averages, with two major stock market crashes resulting in stocks only averaging about 5% annualized growth over the past 20 years.

In contrast to stocks and bonds, gold has been the second-best performing asset of the past 20 years, second only to real estate investment trusts. Gold’s annualized gains of 9% have offered investors the opportunity to build their wealth in a way that they haven’t been able to through stocks and bonds. But the question most investors have is, how do I invest in gold?

For most people today, a 401(k) account is their primary investment vehicle. These employer-sponsored plans have become incredibly popular, and employees have invested trillions of dollars through them. But investors who invest in their 401(k)s have to ask themselves, how can I buy gold with my 401(k)?

Many 401(k) plans offer limited investment options, and gold often isn’t one of them. But that won’t stop investors who are determined to benefit from investing in gold. With a little bit of thought and planning, you too can buy gold with your 401(k).

Your 401(k) Explained

401(k) plans are employer-sponsored retirement plans that offer employees the ability to contribute money from their paychecks before taxes into a retirement plan. Those funds are then invested and grow tax-free until the investor decides to or is required to take a distribution. Because the money invested is taken out before taxes, that also reduces the employee’s taxable income, leading to lower income tax payments in the present.

Many employers offer matching contributions up to a certain amount, with the average employer contributing up to 4.7% of an employee’s salary. Very often that’s free money on the table for employees to take advantage of, allowing them in some cases to double their annual 401(k) contributions. For 2019, the maximum amount employees can contribute to a 401(k) annually is $19,000.

For investors who want to stick only to investing in stocks and bonds, investing through a 401(k) plan can be a good choice. For investors who only want to invest in gold, 401(k) plans often don’t offer the option of gold investments. But for investors who want to use their 401(k) assets to buy gold, investing in a 401(k) plan can be a good first step before eventually buying gold. They can buy gold with their 401(k) in a few different ways.

How to Invest in Gold with Your 401(k)

There are three primary methods by which investors can buy gold with a 401(k). Those are through investing in gold funds, investing in gold ETFs, or rolling over 401(k) assets into a gold IRA.

Gold Funds

Some 401(k) plans offer their investors the opportunity to invest in precious metals funds. These funds invest in the shares of gold mining companies. The thinking is that if gold prices rise, mining companies will make more money and their share prices will increase. Some precious metals funds may offer additional exposure to precious metals through metal holdings or purchasing shares in gold exchange-traded funds (ETFs). While you’re not actually buying physical gold with a 401(k), you’re still gaining exposure to gold markets.

Gold ETFs

Occasionally, employees may find themselves investing in a 401(k) plan with a brokerage option. That enables them to invest their assets through a regular brokerage account while still maintaining the tax advantages of their 401(k) plan.

The advantage of a brokerage account is that it offers employees the ability to invest in a wider range of assets, such as gold ETFs. Gold ETFs are funds that purchase gold and then offer shares in their fund for sale to investors. So, while you can buy gold with your 401(k) assets through an ETF, you’re still not investing in physical gold, just in shares of a fund that holds physical gold.

Gold IRA

For investors who are dead set on buying physical gold with a 401(k), their best bet is a gold 401(k) to IRA rollover. A gold IRA rollover means that you roll over existing assets from a 401(k) plan into a new gold IRA. That gold IRA becomes the investment vehicle that you use to purchase physical gold coins and bullion.

The coins or bars that you decide to buy are held with a custodian who manages the assets in your IRA. Like with a 401(k) or a traditional IRA, the assets that you roll over into your gold IRA are transferred tax-free, and your gold IRA accrues gains tax-free until you take a distribution. Once you decide to take a distribution, you can take that distribution either in gold or in cash.

Benefits of Investing in Gold

Investing in gold is a time-tested way to protect hard-earned assets against economic uncertainty and financial turmoil. If you’re worried about your stock, bond, or mutual fund investments losing value during an economic downturn, you can buy gold with your 401(k) assets and keep those assets protected.

Not only has gold been the second-best performing asset of the past 20 years, it has even outperformed stock markets in the longer run, ever since the gold window was closed in 1971. By investing in physical gold through a gold 401(k) to IRA rollover, investors can take advantage of the fact that they’re investing in a tangible physical asset that has been in demand for centuries and will continue to be well into the future.

Investors who are worried about their 401(k) losing value can roll over their funds into a gold IRA tax-free, thus sparing themselves massive losses in the event of a stock market crash. And with gold set to continue gaining value in the future, they can be assured that their assets will remain safe and secure.

Picking Your Best Option for Buying Gold With a 401(k)

Buying gold with a 401(k) is not a difficult process, but it’s not something you’re going to be able to do on your own. You’ll need expert guidance through the process to make sure that your new gold IRA is set up properly and that you don’t accidentally subject yourself to any preventable tax consequences.

The experts at Goldco have years of experience helping investors just like you buy gold with their 401(k) assets. So if you’re worried about your 401(k) losing value and want to explore whether you can buy gold with your 401(k), contact Goldco today to find out how you can benefit from investing in gold.

This article was originally posted on Goldco.

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