Investors whose funds are in a former employer’s 401(k) or other retirement plan are looking for alternative methods of using their money to fulfill their goals of retirement savings. The traditional investment accounts, in many cases, cannot make the goals of today’s retirement investor come true. Considering the modern investment market as well as the overall picture of the economy, investors would be wiser to choose other options such as a gold IRA rollover.
IRA Rollover – What Is It?
An IRA rollover is, essentially, a transfer of funds from a retirement account into an IRA account, which exists in two types: a traditional account or a Roth. We can conduct the rollover via direct transfer between two financial institutions or by using check, in which case the initiating institution will write a check to the account holder who in turn deposits the funds into the IRA account at the financial firm at the receiving end.
Investors should always keep in mind that using the second method to conduct the rollover will result in a 20% withholding penalty applied before the check is issued to the account holder. As a result, account holders should consider the first method, which is doing the rollover from one institution to the other, in order to avoid this penalty.
Moreover, even though there is no rules stating the limited amount of funds that can be transferred into the IRA account, many IRAs only let investors do one rollover each year from one IRA account to another. The one-year calendar time frame in this case will normally start at the time we make the first distribution.
IRA Rollover: Why We Should Use It
Doing a rollover of funds into an IRA account can be very beneficial to investors. The biggest advantage is that investor can enjoy a much wider range of investment vehicles with their funds in an IRA account.
For instance, depositing their funds at a former employer’s 401(k) plan will likely limit their investment choices to just a handful or mutual funds or the employer’s stock shares (if available).
Besides the advantage of diversifying their portfolios, investors can also enjoy the tax benefit that comes with IRA investing. This benefit differs between different types of IRA account. In particular:
- Traditional IRA Account: this type of account enables the investor to (within certain income guidelines) deduct his/her annual contribution. The funds remaining in the traditional account are allowed to grow on a tax deferred basis, which could significantly compound the investor’s assets over time.
- Roth IRA Account: this type of account does not allow the investor to deduct their annual contribution. Instead, the funds in the Roth IRA account can grow tax free, and withdrawals from this type of account also come out on a tax free basis.
Why Should We Add Precious Metals to Our Retirement Portfolio
Even though many investors can realize the actual benefits of an IRA rollover, their IRA accounts are rarely funded to their fullest advantage. Investors normally try to diversify their portfolios by adding stocks, bonds or even mutual funds into their IRA accounts. This, unfortunately, is not good enough.
A preferred method of diversifying an IRA account, protecting and allowing the assets to gold at the same time is to add gold or other precious metals into the portfolio.
Gold and other precious metals have always been investors favorites thanks to their growth in value, their ability to hedge against inflation, and to protect the investors’ assets against a volatile stock market and overall unstable economy.
How to Begin with a Gold IRA Rollover
Starting a gold IRA rollover requires the investor to find a custodian who specializing in self-directed IRA accounts, which is a bit different from tradition or Roth IRAs in that the individual investor is completely in charge of making all of the investment decisions. Thanks to this distinctive feature, self-directed IRA accounts offer investors a much greater opportunity to diversify their portfolio, as well as the possibility to add gold, silver or other precious metals.
There are many IRA custodians in the business today, and a typical name is Regal Assets. These custodians’ job is to provide you with the paperwork to open an account directly on their website, which means allowing investors to open their IRA accounts.
How to Fund a Gold IRA
After a gold IRA is successfully opened, investors can choose to fund their accounts using one of the methods listed below:
- Annual Cash Contribution – In 2014, the maximum annual contribution allowed for investors aging 49 and below is $5,500, and $6,500 for those aging 50 and above.
- IRA Transfer – This method lets investors transfer funds into their new gold backed IRA account from an existing IRA account. The transfer will move funds directly from one IRA custodian to another. Investors using this method cannot receive the funds at any time during the transfer.
- Rollover –Investors can roll funds from their retirement plans over into their gold IRA accounts. Using this method will enable the investor to significantly increase the funds he/she has in the account, which can be in turn used to buy gold and other precious metals. This method does not trigger any tax penalties. It is important to remember that the rollover must be completed within 60 days, and that investors can only do rollovers with the same money once every 12 months. Doing otherwise would result in the investor’s funds losing their tax deferred status.
If you are considering truly diversifying your own retirement IRA account, an addition of gold is highly recommended. Gold and other precious metals alike have always been the symbol of wealth, and their values are expected to keep growing in the future. For the best place to buy gold or precious metal, check out our Top 5 IRA Company!