How To Convert 401k to Gold and Silver

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The pandemic is proof of how uncertain the economy can be. Many investors are looking for ways to prepare for future tentative economic turns. One solution and the choice of many investors is investing in physical precious metals.  

Historically, precious metals were a form of currency. Today, they're raw materials that are used for making coins and jewelry. Metals in the platinum group are highly traded; the most valuable precious metals are gold and silver.

The value of gold can fluctuate depending on current interest rates and the value of the USD.

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In times when inflation is on the rise, consumer purchasing power for goods and services declines. Rising prices are measured in percentages, so each unit of currency buys less than it did when the economy was more stable.

When inflation is under control, prices decline, and consumers regain more purchasing power.  

Gold is the most popular precious metal for serious investors. Gold can yield the highest profit for an investment portfolio. Gold is considered to be one of the safest precious metals to invest in.

During times when inflation is high, the price of precious metals like gold increases when the USD value goes down.  

If you have a 401k retirement plan, you may want to use the funds to invest in precious metals. A 401k plan has specific requirements and doesn't allow you for financial contracts that rely on underlying assets like precious metals. 

Understanding how 401k plans work can give you the tools you need to convert your plan to gold or silver. 

What You Need To Know About Investments and IRAs

  • Most 401K retirement plans don't allow physical precious metal direct investments
  • Gold IRA accounts do allow for the holding of physical precious metals like gold or silver
  • Specific Exchange Traded Funds or ETFs and some mutual funds allow for gold or mining stock in 401K plans

Moving your funds from a 401k account to a self-directed IRA account gives you more control and flexibility with your investments. You'll also have more control over the types of gold investments you choose.  

The difference between the solo 401k plan and self-directed IRA is the self-directed plan allows a lower contribution amount. If you're under 50, you can make a contribution of $20,500 that's deferred. 

Managing 401K Retirement Plans

A 401K retirement plan is sponsored by an employer that offers tax advantages to provide additional income upon retirement. People can invest part of each paycheck in a long-term account that they can take out when they retire.

Some employers may make partial or matching contributions to each employee's account.  

The 401K retirement plan was instituted by the U.S. Congress so employees could save for their retirement years. One of the perks of a 401K is contributors can pay less in taxes.

Financial experts recommend 401K plans as soon as possible, even if you can't contribute much to it. The savings will add up over time.  

There are two types of 401K retirement plans. A traditional 401K retirement plan reduces the amount of a person's income that can be taxed. Any withdrawals from the account are taxable.

Deductions from a conventional plan are taken from an employee's gross income.  The advantage of this type of plan is the amount of income that can be taxed for that year is less as a result of the contributions.

The amount can be reported to IRS as a tax deduction. Taxes on the amount put into the plan aren't due until money is withdrawn, which is usually when a person retires.  

The second type of 401K plan is a Roth. Under this plan, the contributions to the plan are made after the taxes have been paid. With a Roth, there isn't any tax deduction for the year in which contributions are made to the plan.

When withdrawals are made from a Roth account, they aren't taxable.   

In 2020 the rules regarding withdrawals from traditional and Roth 401K plans were changed for people affected by COVID. The changes for the withdrawals were possible under CARES

Not every company offers a Roth plan to employees. However, if it is an option, some people may choose a combination of the two plans. 

Contribution Limits

The Internal Revenue Service sets the amounts that employees may put in their 401K accounts. For example, in 2021, employees were allowed to put $19,500 into their accounts. In 2022 the amount increased to $20,500.

Employees that are 50 or older are permitted to place amounts of $6,500 per year into their retirement plans. 

Financial Services Managers or Financial Groups manage 401K retirement plans. Most employers offer different options for investing. The options are usually mutual funds. When you enroll in a retirement plan, you have the option of choosing:

  • Bond Funds
  • Index Funds
  • Large-Cap Funds
  • Small-Cap Funds

Since these plans are set up differently than traditional 401K retirement plans, investors have the option of investing a portion of the assets in their accounts in precious metals like gold and silver. 

Gold Investments and 401K Retirement Plans

Investing directly in precious metals is an excellent way to increase the value of your investment portfolio.

However, most 401K plans have strict rules about directly investing in gold and don't allow individual account holders to invest directly in precious metals.  

The rules mean you can't directly buy gold to increase the value of your portfolio.  To purchase physical gold for your retirement you have to do what is called a 401k to gold IRA rollover.  Otherwise, there are a few options that allow for more flexibility when you want to invest in gold through exchange-traded funds or ETFs or with mutual funds. 

Gold Traded Exchange Funds

Gold traded exchange funds, or ETFs, allow people to invest in gold without having to buy, store or sell gold. Some ETFs track the price of gold so you know when to sell. Other ETFs allow investments in gold mining companies.

Gold traded exchange funds are an excellent option for investors that want to create a diverse portfolio. The prices are usually stable, so they're considered a safe investment. 

Gold Mutual Funds

Gold mutual funds directly or indirectly invest in stocks in mining companies and gold reserves. The type of gold fund you invest in depends on how much you want to invest and your long-term plan. Short-term profits are added to taxable income for that year.

How To Rollover 401K Retirement Plans

When you want to roll over your 401K retirement plan to gold and silver investments, it's possible to opt-out of your current 401K plan and places your funds in a self-directed IRA account.

By converting to an IRA, you have the option of investing in the following:

  • Precious metals like gold and silver
  • Commodity future
  • Stocks
  • ETFS
  • Mutual funds

A precious metals or gold IRA allows investors to purchase precious metals that are approved, gold or gold bullion. When someone leaves their company, usually in retirement, the funds in their 401K plan can be rolled over to an IRA.  

Another option is to roll over a pre-existing 401K plan from a previous employer to an IRA. The funds in the 401K may be cashed out. However, financial experts advise caution with this option since it could involve penalties and tax liability.  

To avoid penalties or tax liability, you should re-invest your funds within 60 days of the withdrawal. The funds can be invested in gold stocks or gold funds. 

If you want to own physical gold, an excellent option is a self-directed IRA that allows for physical gold investments.  

If you plan to convert your 401K retirement plan into gold, you must leave your current company. When you're established with a new company and you move your funds to a self-directed IRA, you have the option to purchase gold. 

Converting Your 401K Retirement Plan To Silver

In turbulent economic times when inflation is high, precious metals like silver, gold, and other metals retain their value. Mutual funds, stocks, and bonds can be incorporated into a 401K plan.

However, adding precious metals to a retirement plan can be risky if the stock market takes a downward turn. Financial experts recommend diversifying your assets.  

Silver is strong and used in a variety of industries. Silver is also valuable to technology and used to manufacture a variety of products, especially in the medical field. Silver maintains its value when the value of paper currency plummets.

Since silver isn't tied to any currency, governments or banks can affect its price.  Like gold, silver is subject to the same rules regarding 401K plans. If you want to convert your 401K to silver, you must:

  • Rollover to a self-directed IRA
  • Transfer all your funds from a traditional to a self-directed IRA

You should always check the requirements and any restrictions on your 401K to ensure it's eligible for rollover to a self-directed IRA.  

There are differences between the rollover and the transfer. With a rollover, the custodian of the account provides you with the money you wish to withdraw. You deposit the funds into the new account within 60 days of the withdrawal.  

The transfer is usually the preferred way of adding funds to your new account. The money is wired directly into the new account by your custodian. You don't have to handle any of the details yourself. 

Another advantage of the transfer is that it's not likely that you'd miss the 60-day cutoff for depositing funds into your new account.  

When your funds have been successfully transferred to a new, self-directed IRA, you have the option of buying silver, gold, or other precious metals, including palladium or platinum. 

Precious Metals IRA

One of the best reasons to invest in metals like silver or gold is that precious metals retain their value when the value of a paper currency drops.  

Investing in precious metals like silver could mean the difference between early retirement and work past the age you plan to leave your company. 

There are several benefits to buying silver and gold as part of your savings for retirement, including:

  • Diversifying your portfolio can protect your savings
  • Silver and gold offer more purchasing power when the USD value drops
  • Converting to an account to incorporate physical precious metals isn't difficult

An important fact to consider is the future gains that are possible with precious metals. 

Silver, gold, and other precious metals aren't infinite. These metals are used more frequently in the industrial and medical fields. As the demand for these metals increases, the price will continue to rise.

Steps To Take To Convert a 401K to Gold and Silver

  • 1. Contact the person that administers your retirement plan
  • 2. Fill out the necessary paperwork
  • 3. The administrator will wire the funds to a new self-directed IRA
  • 4. Choose the gold, silver, or other precious metal you want to buy
  • 5. Your IRA custodian can make the metal purchases for you

When you don't have the necessary funds to invest in a new self-directed IRA, you can fund your new account with available funds from existing accounts. The accounts you may use to fund a self-directed IRA include:

  • An existing 401K
  • A Roth account

Taxes On Precious Metals

The Internal Revenue Service claims precious metals are collectibles. The capital gains tax on gold and silver and other precious metals, aren't due until the metal is sold. Gold is classified in a similar way to antiques or art and is taxed at 28 percent.

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