401k Plan Explained
In the past, the 401k plans were not a recognizable part of the US government or the IRS like they are in modern times.
A 401(k) was viewed as the original idea of benefits consultant Ted Benna. Benna has come to the conclusion that the provision may be used to generate a simple employee retirement plan with tax benefits right after Section 401(k) of the Internal Revenue Code was introduced in the late 70s.
In the early 80s, the first 401(k) plans were introduced to the general public. In the following ten years, approximately 50 million employees obtained a 401(k) from their employers. In the modern society, more than 90% of private employers possess a 401(k) option included in their benefits package. They are considered one of the most common retirement vehicles within the US.
Employee’s pre-tax paycheck deductions are usually used to fund a 401(k) plan, since this is practically a defined contribution plan. You need to know that almost all 401(k) funding duty is attributed to the individual account holder, even though a few employers provide similar matching programs for individual contributions.
A 401(k) is usually provided to private, for-profit employers. Government workers possess 457(b) plans and non-profit companies may include 403(b) plans.
One of the most important limitations associated with a 401(k) would be the fact that the investment options are limited to what a plan provider offers. If you choose this plan, you won’t be able to invest in many asset classes. Most of the 401k money is placed into mutual funds.
Rules and Limitations of 401k Plan Rollover
In case you possess a 401k, you can turn them into an IRA or any other kind of plan that is qualified for a rollover, without about tax penalties.
Below you will find an assessment of some 401(k) rollover regulations:
You got 60 days to complete the rollover after you get the funds from your 401(k) plan. The IRS will handle your cash as taxable distribution in case you don’t complete the task in time. Moreover, the IRS will also include a 10% penalty on the withdrawal besides the normal income taxation in case you are not 59 and half years old.
You can roll your 401(k) plan into an IRA only once per year. The time period starts in the same day when you get your 401(k) distribution. You get the same period for each IRA that you possess.
Buying investments in the period in between obtaining 401(k) distribution and creating your IRA is prohibited if you want to use the money from your distribution.
It’s recommended that you pick the option to do a “direct rollover” with your 401k cash. You will never get a check for your distribution in case you select this option. The money will be transferred straight into your new IRA plan.
401k Plan vs IRA vs 403b vs Other Retirement Plans
Below you will find a table that helps you differentiate 401(k) plans from 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 |
| Annuity | Individual | None | No | Maybe | Maybe | No |
| ESOP | Private Employer | Varies | Yes | Maybe | No | 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 |
401k Plan Allowed Gold Investing: 401(k)
Despite the fact that your options are limited to what you plan provider offers, 401k plans can also include:
Individual stocks
Individual bonds (corporate and government)
Certificates of deposits (CDs)
Mutual funds
Exchange-traded funds (ETFs)
To put it simple, you can’t invest in physical gold bullion through a 401(k) plan. Buying stocks in gold mining companies or mutual fund that includes mining company stocks is the easiest method to invest in gold through a 401(k). We can name this method as purchasing “paper gold”. You will also find ETFs (GLD) and mining ETFs, which offer indirect access to investing.
Benefits of Rolling Over a 401k Plan to a Precious Metals IRA
A 401k gold IRA rollover has desired benefits. For example, the fact that you will be able to manage the designation of your retirement funds and make new tax-free investments, such as precious metals, would be the main benefit of rolling over 401(k) plan assets into a self-directed IRA.
You will have fewer investment options in an employer-funded retirement plan like 401(k) compared to what you get with a precious metals IRA. Moreover, you will have access to your funds only after a particular period of time since you will need to create a vesting schedule. When it comes to flexibility, the self-directed IRA offers the best option.
Another important aspect to note is the fact that 401(k) plans are under the business risk of your employer. In case your employer declares bankruptcy or takes place in a merger, your 401(k) plan may be altered, frozen, or even stopped.
