Do you want to learn how to make the most of your 401(k) retirement plan? Are you looking to find out if (and how) you can invest in recession-proof physical precious metals like gold or silver? You'll find out everything you need to know right here.
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 primarily funded through an employee’s pre-tax paycheck deductions. 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.
The most important benefit of a 401(k) plan is the possibility of employer match programs, which enable an investor to receive free contributions and exceed standard contribution limits.
There are some notable limitations to 401(k)s — notably, investment options are limited to what a plan provider offers. You simply are prohibited from investing in many asset classes through a 401(k), including real estate and precious metals. The vast majority of 401(k) money is put into mutual funds.
If you have a 401(k), you can roll them into an Individual Retirement Account (IRA) or another qualified plan without incurring any tax penalties. Here is an overview of some 401(k) rollover rules:
It is advised that you select the option to perform a “direct rollover” with your 401(k) funds. In a direct rollover, you never receive a check for your distribution; rather, your 401(k) plan provider will transfer the money directly into you new IRA plan.
Here is a table that illustrates how a 401(k) plan compares to other retirement vehicles.
|Plan Type||Sponsorship||2019 Contribution Limit||Roth Option?||Allow Gold Stocks?||Allow Gold ETFs?||Allow Gold Bullion|
|401(k)||Private Employer||$19,000 / $25,000||Yes||Maybe||Maybe||No|
|Solo 401(k)||Self-employed||$19,000 / $25,000||Yes||Yes||Yes||Yes|
|Keogh Plan||Self-employed or Unincorporated Employer||$56,000||No||Maybe||Maybe||No|
|403(b)||Government or Non-profit Employer||$19,000 / $25,000||Yes||Maybe||Maybe||No|
|457(b)||Government or Tax-exempt Employer||$19,000 / $25,000||Yes||Maybe||Maybe||No|
|SIMPLE IRA||Private Employer||$13,000 / $16,000||Yes||Yes||Yes||Maybe|
|SEP IRA||Business Owners & Self-employed||$56,000||Yes||Yes||Yes||Maybe|
|Profit Sharing Plan||Private Employer||$56,000||No||Maybe||No||No|
|Money Purchase Plan||Private Employer||$56,000||No||Maybe||Maybe||No|
|SARSEP||Private Employer||$19,000 / $25,000||No||Yes||Yes||Maybe|
|Traditional IRA||Individual||$6,000 / $7,500||Yes||Yes||Yes||No|
|Precious Metals IRA||Individual||$6,000 / $7,500||Yes||Yes||Yes||Yes|
|Thrift Savings Plan (TSP)||Government or Military||$19,000 / $25,000||Yes||No||No||No|
("Maybe" indicates that gold investment options are at the discretion of the plan provider. For instance, some 401(k)s offer gold mutual funds or ETFs, while others do not.)
Though your options are limited to what your plan provider makes available to you, 401(k) plans are eligible to include:
In short, this means that you cannot invest in physical gold bullion (or any other precious metal) through a 401(k) Plan. The simplest way to invest in gold through a 401(k) is to purchase stocks in gold mining companies, or to purchase a mutual fund that includes mining company stocks. This is referred to as buying “paper gold.” There are also gold ETFs (GLD) and mining ETFs, which provide indirect access to investing.
So-called ‘paper gold’ stocks are the shares of companies that mine, produce and explore for gold. There are literally hundreds of gold stocks to choose from, and the larger companies are listed on major gold stock indices like the Gold Miners Index (GDX) or the BUGS Index (HUI).
Gold stocks tend to be more risky than owning physical gold. This is because, historically, gold stocks will appreciate very quickly as the spot price of gold rises; if the price of gold falls, gold stocks tend to fall much faster.
Gold stocks are also exposed to additional kinds of risk. Some examples:
The value of physical gold has never hit zero and has retained value for thousands of years. In terms of staying power, physical gold wins hands down.
The advantage of rolling over your 401(k) Plan assets into a self-directed IRA is that you are able to control the designation of your retirement funds and open up new tax-free investments – like precious metals.
In an employer-funded retirement plan, such as a 401(k), your investment options are more limited than with a precious metals IRA. Additionally, 401(k) plans require the account owner to establish a vesting schedule, which means that you are only entitled to your funds after a certain length of time has passed. In terms of flexibility, the self-directed IRA wins hands down.
Additionally, 401(k) plans are vulnerable to the business risks of your employer. If your employer declares bankruptcy or participates in a merger, your 401(k) plan can be changed, frozen, or even discontinued.
Gold investments are simple, safe way to diversify your retirement portfolio. Gold (along with other investment metals like silver, platinum and palladium) will help protect your assets against stock market volatility and inflation.
Not only is gold a great hedge, but gold offers plenty of growth potential; in fact, many investors purchase gold for its growth prospects alone, and many analysts predict gold to continue to see gains in the future.
The total amount of precious metals in your retirement portfolio will depend on your own risk tolerance and retirement horizon. One of the best ways to set up a diversified retirement portfolio – and receive tax benefits on your precious metals investments – is to open a self-directed IRA.
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