A 401k plan is typically offered through your employer. You will be able to make a contribution to your plan from your paycheck.
This contribution can be made either before taxes or after taxes, depending on the options offered through your plan. In some cases, your employer will match a portion of your contribution.
Once you have a good amount of money saved, you can roll your 401 k into a Gold IRA, Traditional IRA, or a Roth IRA. This can give you a bigger payout when you retire.
Most people make it their number one priority to save for their retirement. With the way the country is today, by the time many adults reach the age of retirement, there may be no Social Security left; therefore, it is important to start saving for your retirement on your own. The best way to save the money that you need is through a 401 k plan.
RELATED: How to Borrow From Your 401K
What are the Benefits of Having a 401k Plan?
There are several advantages to using a 401k plan to save for your retirement.
When you set up a 401 k plan through your employer, most will match a portion of your contribution. One of the most common matches employers make is 50 percent of the first 6 percent of the money which you have saved.
By not taking advantage of your 401 k plan, you are basically giving up free money.
If your employer does not offer matching contributions, there are tax advantages that make having a 401k plan worthwhile. When you contribute a portion of your salary to your plan, you will be paying less money in taxes.
This is because when your money goes into your 401 k, it is taken before taxes have been deducted. This makes your taxable income lower, which benefits you greatly.
One huge advantage of having a 401 k plan is that you can borrow from your account. You can borrow from your plan to purchase a new home, to pay for your education, to cover medical expenses, or if you are experiencing serious financial hardship. Most plans require that you repay your loan within 5 years with interest.
If you have borrowed against your 401 k to purchase a new home, you will have more than 5 years to repay your loan. All the interest that you pay, goes right into your account.
This makes borrowing from your 401 k better than getting a traditional bank loan.
When you have a bank loan, you will be required to pay interest to the lender. The only stipulation of borrowing against your 401 k loan is that you must remain employed by your company until the loan is paid off.
Most plans offer a variety of investment opportunities where you can do a 401k rollover. When you do a 401k rollover, you can invest in money mutual funds, bond mutual funds, stock mutual funds, or your own company’s stock.
You can do a 401k rollover, and invest in a Gold IRA, Traditional IRA, or a Roth IRA.
What are the Steps to Convert a 401k into a Gold IRA Through a 401k Rollover?
Many people choose to convert their 401 k plan into an IRA plan because it will protect their savings against market loss. The process of converting your 401 k to a Gold IRA is very easy and straightforward. It can be very beneficial for you to consider rolling your 401 k into a Gold IRA rollover.
1. Make sure that your particular plan is eligible for a 401 k rollover. If you are no longer working for your employer, or you are older than 59 years and 6 months, you should be eligible for the 401 k rollover without any issues.
2. If you want to have the same tax benefits that you would with any other government-approved retirement account, you should set up a precious metals IRA account.
3. You need to decide how much of your plan you want to invest in gold. You can invest all of it if you wish, or you can diversify. You can do this by investing only part of your 401 k in gold, and the rest in other investments.
4. In order to have your 401 k transferred into your name from the 401 k plan administrator to the IRA administrator, you would need to sign paperwork to liquidate funds from your 401k and transfer them to your Gold IRA rollover account.
5. To finalize your investment, you need to decide which type of gold you want to invest in. Some people choose to invest in gold coins, others invest in gold bars.
6. Finally, ask your IRA agent to purchase gold at the current market price. After it has been purchased, it would be sent for secure storage in a metal depository or a vault. At this point, your Gold IRA rollover is complete.
401k Rollover into a Traditional IRA and or a Roth IRA
You will be eligible for a 401k rollover to a Traditional IRA or a Roth IRA once you have left your job. Some plans offer in-Service 401k distribution.
This plan allows you to do a 401k rollover to a Traditional IRA or a Roth IRA while you are still working for your employer.
This makes investing in a Traditional IRA or a Roth IRA possible earlier. Doing a 401k rollover to a Roth IRA, a Traditional IRA, or a Gold IRA rollover will give you more security in the future.
When you look into a 401k rollover to a gold rollover or a traditional IRA rollover, the worst thing that you can do is to cash out your plan first. This leads to huge tax penalties.
What you should do, is use a trustee to trustee transfer, also known as a direct transfer.
This will make the Gold IRA rollover and the Traditional IRA rollover simple with no tax issues. If you do a 401k rollover to a Roth IRA, it will increase your taxable income.
A Roth IRA rollover can also bump up your marginal tax rate into the next tax bracket.
This makes the Roth IRA less appealing than the Traditional IRA or the Gold IRA rollover. If you had to choose between the Traditional IRA and the Roth IRA, you should stick with the Traditional IRA. There are very few cases where a Roth IRA is the better option.
Why are Companies Getting Rid of Pension for 401k Plans?
Many companies these days are trying to get rid of employees’ pensions for 401k plans. These employers no longer want to be obligated to send monthly checks to employees.
They just can’t afford them or they just don’t want the responsibility.
They are placing more of the responsibility on the employees for their own retirement savings and financial future. What several companies are doing these days, is offering employees a lump sum payment on their pension. When the offer is accepted, workers cannot go back on it.
I know a few people who have taken the lump sum option that their company offered. They turned their money over to a reputable investment company and they have regretted their decisions.
Their money was invested in the stock market. With the turmoil of the market over the years, their lump-sum retirement has vanished. So be very careful if you choose the “lump sum” option.
What are the Penalties for Early Money Withdrawal?
When you withdraw your money from your plan before you turn 59 years and 6 months old, your money will be taxed as ordinary income. Also, you could be subject to a 10 percent Federal tax penalty.
If you leave your job when you turn 55, or a year later, you might not be subjected to the 10 percent early withdrawal penalty. It depends on your particular plan.
What are the Restrictions of a 401k loan to Yourself?
1. The IRS can set limits on how much money you can put into your 401k plan. This amount is adjusted each year due to inflation. When you turn 50 years old, the limit increases by $5,000.
2. You cannot defer more money to your 401k than you earn from your employer that year. If you have more than one job with a 401k, you can put money from each job into your 401k, as long as it does not exceed the annual limit.
3. The Internal Revenue Service caps the total annual additions of your 401k. This amount goes up each year for inflation.
When Can I Invest in My Plan?
You can invest in a 401k plan when you begin working for an employer that offers a 401k plan. Some employers allow you to sign up right away, while others require that you wait for the next enrollment date.
The sooner you begin investing in a 401k rollover plan, the more you will have to invest in a Gold IRA, a Traditional IRA, or a Roth IRA.
How Much Can I Invest in My Plan?
The IRS sets limits on how much money you can invest in your plan. As of 2014, you can invest a maximum of $17,500. If you are over 50 years old, you can contribute $23,000 provided you earned enough to make that contribution.
How Much Should I Invest in My 401k Plan?
Because of the excellent tax breaks that you are entitled to through your plan, you should invest the maximum allowed by the IRS.
If your financial situation does not allow you to invest the maximum, you should at least contribute enough so that you qualify for your company’s matching contribution. Each company is different.
You would need to contact your Human Resources Department to find out what that amount is. The more you invest, the more you will have to reinvest later in a Gold IRA, Traditional IRA, or Roth IRA.
In your retirement, you should know how much money you will need and where the money will come from to maintain the desired lifestyle.
Who Administers My 401k Plan?
The person who administers your plan is the custodian. Your employer will appoint a custodian, who is usually an employee of the company. Companies can also hire an outside service to handle the custodial duties.
The custodian is responsible for operating your plan according to regulatory requirements. When it comes time to do a 401k rollover into a Traditional IRA or Roth IRA, if you choose to do so, you would need to find out from your custodian to whom you could speak in order to get the ball rolling.
Having a 401k plan is a great way to invest in your future. Before you invest in a 401k plan, it is a good idea to do as much research as possible (due diligence) so that you make a wise investment.