Can You Buy Silver With Your 401k?

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In uncertain or turbulent economic times, people often flock to precious metals. It’s not difficult to understand why.

Throughout history, precious metals like gold and silver have long managed to maintain their value, regardless of whatever short-or-medium-term economic disruptions were going on in the surrounding world. 

Because of the turbulent times we live in many investors are looking to protect their savings with physical precious metals.  That is why a lot of folks are asking, "Can I buy silver with my 401k?"

Well, keep reading and we will tell you all you need to know about purchasing silver with a 401k. 

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Why Investors Want to Purchase Silver with a 401k

For much of history, this stability and reliability were so prized that gold, silver, and other precious metals have served directly as money.

And even in the age of fiat paper currency issued by governments, precious metals have tended to gradually increase their value as governments and central banks inflate and devalue the currencies that they control.  

It’s entirely natural for any investor who cares to at least protect his wealth to place some significant portion of his holdings into precious metals.

But while gold, platinum, and palladium are so valuable that buying significant quantities of them is prohibitively expensive for all but large investors, silver’s much lower spot price puts it well within the price range of even ordinary people.

Couple that with silver’s manifold industrial uses, which will ensure the existence of stable demand for many years into the future, and silver’s attractiveness for prudent investors is simply undeniable.  

But most people are not sophisticated investors. For the vast majority of people, their 401(k) plans embody the only significant contact that they have with any kind of financial markets or investment products.

Given this fact and the advantages of investing in physical precious metals like silver that have just been mentioned, it’s natural for the smaller investor to wonder as well as the larger one: Can one invest in silver through a 401(k)?  

To cut down on the suspense, the short answer to this question is: No — at least not directly or without qualification. There are still ways that one can use the money in one’s 401(k) plan to buy and invest in silver or other precious metals, however.

Since we know that everyone wants a comfortable retirement to be guaranteed to them regardless of any potential economic chaos in the future.

We’re going to go over all of the necessary information and qualifications that one needs to bear in mind before wading into this arena.  

With the information found here, anyone who wishes to anchor his retirement funds to the safety, stability, and intrinsic value that precious metals like silver provide will be able to do so.

What are 401(k) Plans?

First, let us establish exactly what a 401(k) plan is. A 401(k) plan is a type of retirement account that an employer typically establishes for his employees. Employees can decide to automatically direct a portion of their earnings into their 401(k) account.

That money is then invested into various things, and the account as the employee continues to work. Upon retirement, the employees can sell their investments, withdraw the money from their accounts and use that money while retired.  

The investment income earned from a traditional 401(k) plan is tax-deferred, meaning it is not taxed until the account holder withdraws money from his account. 

There are also Roth 401(k) plans, in which all money contributed to the account is taxed before it enters the account rather than upon disbursement.

To encourage people not to withdraw money before retirement, there is an additional 10% withdrawal penalty meted out to anyone who takes disbursements from his account before the age of 59 1/2. 

What types of assets may you invest in through a 401(k) plan?

You have the power to decide what the money in your 401(k) account will be invested in, but employers typically provide their employees with a particular set of ready-made investment options.

Broadly speaking, these options are almost always restricted to various types of securities.

Most commonly, these will include mutual funds, but you also have the option to invest in the stock of any publicly traded company, in bonds, in annuities, or other securities.  

You can’t invest your 401(k) money directly into precious metals. Thus, if you want silver to make up any portion of your retirement investment portfolio, you’ll either have to invest in stocks or bonds issued by silver mining companies or precious metals dealers.

Additionally, silver trading ETFs will also be available to you, since these are considered securities.  If this is sufficient for you, then this ends the matter.

However, smart investors know that investing in paper silver can carry some significant counterparty risk. If that’s not something you wish to deal with, then there is much more to discuss.

Rollover Your 401k into a Silver IRA

Suppose that you aren’t interested in mining stocks, and you don’t trust any dealers in so-called “paper silver.” Suppose instead that you want to be able to hold the silver you invest in directly in your own hands.

Suppose that, out of concern for investment security, you’ll accept nothing less than direct possession of the physical metal. Is there anything that you can still do with your 401(k) funds? 

Luckily, the answer to this question is a resounding “yes.” The IRS allows you to roll over your 401(k) into a self-directed IRA. An IRA, or Individual Retirement Account, is simply another kind of retirement account.  The two types of accounts are virtually identical.

The only major difference between them is that a 401(k) is opened through your employer, while you must open your IRA yourself.  You can roll over either a traditional or a Roth 401(k) into either a traditional or a Roth IRA.

The only thing you’ll need to do to initiate this process is to choose your IRA provider and fill out the rollover forms required by both your employer and the IRA provider.

At that point, the investments in your 401(k) will be sold, and the resulting money will then be transferred to your IRA either electronically or by check.

Once this is finished, you will be able to use your IRA funds to invest in whatever you want, including physical silver.  Crucially, not taxes or penalties will be due on any of your 401(k) earnings when your assets are sold as part of the rollover process.

This is the one major exception to the rule that disbursements must be taxed. Many people initiate such rollovers anyway when they change jobs.

The only difference in the case that we’re considering is that here, the 401(k)-to-IRA rollover is done deliberately to allow you to invest in physical silver.  There are a few additional things to keep in mind.

First, to invest in physical silver, the IRA into which you roll over your 401(k) funds must be a self-directed IRA. This is exactly what it sounds like it is: It’s an IRA that you administer and control. 

The purpose of this is to give you the autonomy required to invest in precious metals whenever you want to. Otherwise, if you trust a financial institution to be the custodian of your IRA, that institution may not decide to invest in precious metals on your behalf.  

Secondly, if you wish to invest in physical bullion through your IRA, you will need to have an agreement to store your metal with an IRS-approved and certified custodian. Any metals that are not stored with an accredited storage facility will lose their tax benefits.

Luckily, many precious metals retailers that allow customers to open up precious metals IRAs also have storage agreements with accredited custodians. Which custodian stores your metals will depend on the institution with which you opened up your IRA.  

As a side note, it is technically possible to store silver and other precious metals in your IRA at home, but the IRS strongly frowns upon this practice and discourages it.

Indeed, the hurdles standing in the way of doing so — which include, among other things, creating your own functional LLC and demonstrating a net worth of at least $250,000 — are beyond the ability of average investors to clear.

What Kind of Silver Qualifies for an IRA?

One final question remains before you can roll your 401(k) funds over and invest in silver for your retirement: What kind of silver qualifies to be in a precious metals IRA?  The IRS’ requirements for this are fairly simple.

First, all silver in a precious metals IRA must be at least 99.9% pure. Most precious metals dealers already sell abundant amounts of silver that meet that requirement.

Next, while you can keep your silver in the form of either coins or bars, only the following kinds of coins are permitted by the IRS to form part of an IRA: American Silver Eagles, Canadian Maple Leaves, and Canadian Twin Maples.

Making Sure Your Retirement Funds are Protected

Precious metals have always been excellent hedges against inflation, and silver in particular, thanks to its lower price, is well within the reach of the common man.

Silver’s many industrial uses also guarantee that there will be continuous demand for it well into the foreseeable future. 

Since investing your 401(k) funds into physical silver is as easy as rolling over your 401(k) into a self-directed precious metals IRA, you can do everything required to take control of your financial future and ensure that you’ll be taken care of during your retirement.

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