Gold IRA vs 401k – Which is Better for Precious Metals Investors?

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When it comes to saving for retirement, there are a lot of options to choose from. Two popular options are a gold IRA and a 401k.

Both have their unique advantages and disadvantages, so it's important to understand the differences before making a decision.

A 401k is a retirement savings plan sponsored by an employer, while a gold IRA is a type of individual retirement account that allows you to invest in physical gold, silver, and other precious metals.

While both options can help you save for retirement, they have different rules and regulations, and one may be a better fit for your specific needs and goals.

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What is a Gold IRA?

gold coins protected by a lock

A gold IRA is a type of individual retirement account that enables investors to hold gold, silver, platinum, palladium, and other qualified products as a qualified retirement investment.  

A gold IRA is held separately from a traditional retirement account. However, things like contribution limits and distributions remain the same. If you would like to open a gold IRA, you must go through a broker or custodian to get started.  

Gold IRAs have a few tax advantages and come in several forms. A gold IRA can be created with pretax funds or you can create it as a Roth IRA bought using pre-tax money.

What is a 401k?

a roll of dollar bills

A 401k is a retirement savings plan usually offered by American employers.

401k plans are named after a portion of the U.S. Internal Revenue Code. Employees who opt-in for a 401k agree to have a percentage of each paycheck paid into an investment account. Employers will typically match a portion or all of the contribution.  

401k plans were designed by Congress to encourage Americans to start saving for retirement. Individuals have two options when it comes to investing in a 401k. They can choose a traditional 401k or a Roth 401k.  

A traditional 401k is an employer-based investment plan that provides employees with a variety of investment opportunities. Employees that contribute to a 401k plan and earnings from their investments are tax-deferred.

Employees pay taxes on contributions and earnings when they withdraw funds.   

A Roth 401k is similar to a traditional IRA plan. The primary difference is that contributions by employees are not tax-deferred but are made with after-tax dollars.

Any income earned on the account, including interest, dividends, and capital gains is tax-free. 

How are a Gold IRA and 401k Different?

Gold IRAs and 401ks are both excellent ways to save for retirement. But there are a few key differences that investors should think bout when deciding which is best for them.

Here is an overview of the differences:   

A 401k is the most common type of retirement plan for investors. Individuals are typically introduced to a 401k plan through their employer. However, more investors are interested in diversifying their portfolios with a gold IRA due to better diversification.  

A 401k has several key features. For instance, your account grows through the contributions you make throughout the year. Your employer may match your contribution in whole or in part.

401k plans also have a vesting period. This is a term that refers to how fast ownership of the contributions your employer made is transferred to you.  Many 401k plans are 100% vested. This means that the employee will receive ownership right away.

If the employee needs to change jobs for some reason or they need to move money from that plan, the money is theirs to do so.   

A gold IRA is a self directed IRA option that is not offered by employers. It enables you to invest in physical gold and other precious metal products. A gold IRA typically has higher fees compared to a traditional IRA or Roth IRA account.

But many investors prefer a gold IRA because it's a good hedge against inflation.  Now that you understand the key differences between the two, let's take a look at the pros and cons of each type of investment account.

Pros and Cons of a Gold IRA

A gold IRA is a great way to invest in alternative assets. Here are a few common pros and cons of choosing a gold IRA:

  • Pro: Good Hedge Against Inflation

Most investors know that inflation can hurt their investments. Luckily, gold is one of the best investment choices if you want to protect your investment portfolio from the effects of inflation.  

Previous research showed that when inflation increased, the value of paper investments decreased. But gold investments were able to withstand the inflation period.

Even more, research has shown that investment products like stocks and bonds can fall to zero when the market is poor, whereas gold can never fall to zero.  When looking for more certainty in your investment choices, investing in gold is a great way to go. 

  • Pro: Tax Benefits 

There are also tax benefits to opening a gold IRA. A gold IRA has similar tax advantages that you'll find with a traditional individual retirement account. As a result, investors can expect interest to add up tax-free until it is time for retirement.  

Note that you can face tax penalties if you take funds before the age of 59 and a half. If you need to withdraw funds, be sure to talk with an expert to understand what fees you may face. 

  • Pro: Greater Range of Investment Options

A gold IRA provides investors with more investing options aside from stocks and bonds. If you're interested in diversifying your portfolio with precious metals, a gold IRA is the best place to start. 

  • Con: Higher Fees

When exploring gold IRAs, you'll find that these types of retirement accounts come with higher fees compared to a traditional or Roth IRA account.

Several maintenance fees come with a gold IRA and it's essential to talk with a custodian to understand the number of fees that you will need to consider. 

In general, you can expect a one-time setup fee, brokerage fee, insurance fees, and storing fees. You may incur other fees as well, like a markup on sale costs and account closure fees.  

Fees are not universal. Therefore, you must compare fees for each account you're considering. Some precious metal companies offer lower fees for investors, but fees can also add up quickly, depending on who you go with. 

  • Con: Volatility

Another disadvantage that investors need to consider is potential volatility. Gold is a highly illiquid asset. This means that it can be difficult to find a buyer without needing to sell the asset at a discount.  

Additionally, gold is volatile. As a result, the price of gold can rise and fall quickly. This is important to keep in mind when you're required to withdraw.  

If the price of your precious metals is low by the time you're required to withdraw, you will be forced to sell your precious metals at a much lower price than what you paid for them. 

Pros and Cons of a 401k

Let's take a look at the pros and cons of choosing a 401k for your retirement portfolio: 

  • Pro: Federal Legal Protection

One benefit of a 401k plan is that you'll have federal legal protection. Any qualified workplace retirement plan is protected by the Employee Retirement Income Security Act of 1974.

This law sets minimum standards for employers that offer retirement plans to their employees.  

It also protects employees' and their beneficiaries' interests in the workplace through several ways, such as disclosing important facts, offering a claims and appeals process, rights to sue for certain benefits, and more. 

  • Pro: Matching Funds

Another advantage of a 401k plan is that your employer will match your funds. This ensures that employees can maximize their earnings and grow their retirement accounts seamlessly. 

  • Pro: High Contribution Limit

401k plans also offer a high contribution limit. Most plans have an automatic escalation feature that increases your contribution percentage at the beginning of each year. This offers an easier way for employees to have a more secure retirement plan in the future.

  • Con: Limited Investment Options

Compared to a gold IRA, investors may have limited investment options. You'll find that 401k plans have standard assets like stocks, bonds, and cash funds. However, there's not much room or investment aside from this. 

  • Con: Higher Account Fees

401k plans can come with some pretty high fees that can eat into your retirement savings. These fees can include things like administrative fees, management fees, and investment expenses. 

Administrative fees are typically charged by the plan administrator for maintaining and managing the plan, and these can add up quickly. 

Management fees are charged by the investment manager for managing the funds in the plan, and these can also be quite high. 

Investment expenses are the fees associated with buying and selling the investments within the plan, and these can vary depending on the type of investments you choose. 

All these fees can add up and significantly reduce the amount of money you have available for retirement.

  • Con: Early Withdrawal Fees

Taking money out of a 401k before you reach retirement age can come with some hefty penalties.

These early withdrawal fees are put in place to discourage people from accessing their retirement savings before they need to, and to ensure that the money is there for them when they're ready to retire.

If you withdraw money from your 401k before you turn 59 1/2, you'll typically be hit with a 10% penalty on top of any taxes you owe on the withdrawal.

This penalty is in addition to the taxes you'll owe on the money you withdraw, which can make a big dent in your savings.


A gold IRA and 401k can be great options for investors. If you're employed, you likely have a 401k plan which can be a great option to secure your retirement.

With a 401k plan, your employer will match your contributions and provides a great way to invest in stocks, bonds, and other cash funds. 

If you are interested in alternative assets or are self-employed, a gold IRA may be ideal. A gold IRA offers an opportunity to invest in alternative assets and diversify your portfolio.

A gold IRA is also a great hedge against inflation. This is a great option for investors that are concerned with improving the security of their investments.  

If you have a 401k and would like to convert your retirement plan into a gold IRA by rolling over your account.  To do so, you will need to find a precious metals company and work with a custodian to start the process.

Regardless of which you choose, be sure to map out your financial goals and see which option will make the most sense for your needs.

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