How to Invest in Gold with a 401(k) Plan

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Your 401(k) plan is a retirement savings account established through your employer that lets you save for retirement while benefiting from tax advantages.

However, just because you have a 401(k) doesn't mean you should limit yourself to the investment options offered by your employer. Are you looking to find out if it's possible to diversify and protect your retirement plan with physical precious metals like gold bullion or silver coins? Look no further. You'll find out everything you need to know right here.

What is a 401(k) Plan?

401(k) plans as we know them today were not a conscious construct of the United States Government or the Internal Revenue Service. Rather, 401(k)s were the brainchild of benefits consultant Ted Benna. After Section 401(k) of the Internal Revenue Code was added in 1978, Benna realized that the provision could be used to create a simple employee retirement plan with tax advantages.

The first 401(k) plans were offered in 1980. Within a decade, nearly 50 million employees had 401(k)s through their employer. Today, nearly 95% of private employers feature a 401(k) option in their benefits package. They are the most popular retirement vehicle in the United States.

As a defined contribution plan, a 401(k) is mostly funded through deductions from an employee’s pay stub using pre-tax dollars. Some employers offer matching programs for individual contributions, but nearly all 401(k) funding responsibility falls upon each individual account holder.

Private, for-profit employers are the most likely to have 401(k) plans. Non-profit companies may have similar 403(b) plans, while government employers might offer 457(b) plans.

Most importantly, a 401(k) plan, in most cases, comes with an employer match. In other words, the employer who sponsored the plan may be eligible to receive contribution matches up to a certain extent (i.e., 100% on every dollar up to 3% of an employee's gross salary). Employer match programs let retirement savings receive, essentially, free money and surpass IRS-imposed contribution limits—which, by the way, is $23,000 for the tax year 2024.

401(k)s come with a catch-up provision. For those aged over 50, you can contribute an extra $7,500 for both 2023 and 2024. All contribution limits and catch-up provisions are subject to a cost of living adjustment.

There are some notable limitations to 401(k)s — notably, investment options are limited to what a plan provider offers. You simply cannot invest in many physical asset classes via a 401(k), such as fine art, collectibles, metal bullion, coinage, or real estate. Typically, 401(k) contributions are siloed into ETFs, individual stocks, index funds, and mutual funds.

401(k) Plan Rollover Rules & Restrictions

You can roll your existing 401(k) into an Individual Retirement Account (IRA) or another qualified plan without incurring any tax penalties. Here's a quick summary of the 401(k) rollover rules:

• You have up to 60 days to finalize the rollover process from the day you receive your funding from your 401(k) to an IRA. Failing this, the funding will be deemed taxable by the IRS on your next tax return. On top of that, Uncle Sam will tack on a 10% early withdrawal penalty if you haven't yet reached 59 1/2 years of age.
• Account-holders are limited to only one 401(k)-to-IRA rollover per 12-month period. This rule applies separately to each IRA in your possession. Therefore, if you have multiple IRAs, you can theoretically perform more than one IRA rollover within the same year.
• The period of time between receiving your distribution and setting up an IRA cannot be used to purchase financial investments of any kind using the newly withdrawn cash. You must wait until the account is set up and funded before buying assets.

It's advisable that you conduct a “direct rollover” when you facilitate a 401(k)-to-IRA rollover. This type of rollover doesn't involve a check in the mail—in fact, you don't personally receive the funding at all. Rather, it's deposited directly into your IRA.

401(k) Plan vs. IRA vs. 403(b) vs. Other Retirement Vehicles

The table below depicts the various ways that a 401(k) plan compares to other retirement savings accounts.

(A "Maybe" response implicates that it's at the plan administrator's discretion whether gold bullion or paper gold investments are eligible for inclusion.)

Types of Gold Investments Eligible For Inclusion in a 401(k) Plan

Your options are certainly more limited than an IRA when it comes to including gold and precious metals in a 401(k), however, they still include:

• individual equities and stocks (including gold mining stocks and futures)
• individual corporate or government bonds
• money market funds
• certificates of deposit (CDs)
• mutual and index funds
• exchange-traded funds (ETFs) which includes the popular GLD Gold ETF.

Simply put, it is impossible to invest in physical precious metals in a Roth IRA or 401(k). However, you can still gain exposure to the gold, silver, or platinum markets in your 401(k) plan by individually selecting stocks in gold mining companies, or buying index funds or mutual funds that include precious metals companies. In the industry, we call these assets “paper gold”, which includes popular precious metals ETFs ($GLD) as well as mining ETFs, which together allow for indirect exposure to precious metals investing.

Investing in Physical Bullion vs. ‘Paper Gold’

What we call “paper gold” securities are stocks of companies that mine gold, refine gold, manufacture gold products, or explore geographical spaces for gold reserves. Investors have no shortage of selection in this regard since there are hundreds of reputable paper gold stocks, such as the Gold Miners Index (GDX) or the BUGS Index (HUI), or even individual companies like Barrick Gold (NYSE: GOLD).

Be advised that gold stocks usually carry more risk than your standard bar of physical gold. These assets are far more liquid, and can be bought and sold on exchange markets quickly, unlike physical metals. For this reason, it's more uncommon to see relatively high volatility and larger intra-day price movements in paper gold assets.

There are several other types of risk aside from liquidity that paper gold carries, such as:

• Regulatory Risk – LLCs and S-corps active in precious metals mining or refining are subject to federal scrutiny, tight environmental regulations that can change quickly, and an uncertain tax environment.

• Cost of Production Risk – Mining equipment tends to degrade and depreciate quickly, and labor costs, as well as capital investments, tend to be extremely costly in the precious metals industry.

• Management Risk – There's always the risk of a poorly managed or over-leveraged mining company going belly up, declaring bankruptcy, and closing shop, sending your investment to zero.

• Fiat Currency Risk – Gold and silver stocks and ETFs are exchanged for fiat currencies. In the event of currency collapse, depreciation, or hyperinflation, you can be left retaining less value than you would otherwise have if you held real physical assets.

By contrast, gold and silver spot prices have never come close to reaching zero. Over millennia, these assets have always held value and been a reliable store of wealth. Therefore, physical gold and silver are relatively less risky investments for investors looking to hedge against risk.

Advantages of Rolling Over a 401(k) Plan to a Precious Metals IRA

When you roll over a 401(k) into a self-directed IRA, you open yourself to a new world of investment opportunities that were otherwise barred in an employer-sponsored account. For instance, real estate, precious metals, and cryptocurrencies such as Bitcoin and Ethereum are now available for inclusion.

Since employers and brokerages share in some of the risk of a 401(k) or other employer-sponsored accounts, there are far more limitations with this account type. Furthermore, a 401(k) plan requires vesting for a mandatory period, which only provides access to your assets after a fixed period has transpired. Therefore, 401(k) plans are nowhere near as flexible or customizable as their self-directed counterpart—the IRA.

Last, 401(k)s are susceptible to risks imposed by your employer. In the unfortunate event that your employer-sponsor undergoes financial hardship, declares bankruptcy, or is acquired or merged with another company, then your 401(k) can be frozen, dissolved, discontinued, or fundamentally changed. This is called counterparty risk, a type of risk that self-directed IRA plans are relatively free from.

Read our top gold IRA reviews if you want to find a company that can help you roll over your 401k to a Gold IRA today. We also recommend reading our gold allocation article, where we invited a few financial professionals to chime in on their ideal gold allocation in a portfolio.

Advantages of Dedicating 5-20% of your Retirement to Precious Metals

There are myriad benefits of precious metals investing, assuming you allocate a small percentage of your wealth (i.e., 5-20%) to this asset class. Gold and silver investments are simple, straightforward assets for diversifying portfolios and managing risk. Unlike stocks and mutual funds, precious metals like gold, silver, platinum, and palladium don't rapidly rise and fall in value at the turn of a dime. Rather, precious metals are relatively insulated from volatility and are known for their stability and security.

Yes, gold and silver bullion are excellent hedges against risk, but they're also great tools for growing your wealth. In 2020, the price of gold rose in value 24.4% in only 12 months, which would outperform the S&P 500 just about any year. As financial markets continue to prove their instability, the prices of gold and silver will likely continue to grow or remain stable and more investors flock to these assets to escape from volatility.

How much you decide to dedicate to precious metals depends on your risk tolerance. If you want to minimize risk and maintain a conservative, recession-proof portfolio, a larger percentage (i.e., 15-20%) might be in order. How many years you have until retirement is another key factor; the closer you are to your target retirement age, the more of your wealth you should dedicate to fixed-income assets and safe alternatives like precious metals. To get started, simply open a self-directed IRA and select the assets that fit your retirement savings goals.

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