How to Move 401k to Gold Without Penalty

by Grant HEnson

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With inflation levels skyrocketing and economic uncertainty growing in the world, the value of gold and other precious metals as a potential alternative investment is continuously increasing. 

Only because gold offers an opportunity to diversify one’s investment portfolio to mitigate any risks associated with traditional investment options that have suffered through this period of economic uncertainty. Thus, it comes as no surprise to us that most financial advisors are actively advocating their clients to move funds out of their 401(k)s and into gold IRAs. 

However, is that truly an option? More importantly, can you move funds from a 401(k) into gold without incurring penalties? These are all questions that we’re prepared to answer in the post below. 

Understanding 401k Plans and Gold Investments

A 401(k) plan is a type of retirement account designed for employees and sponsored by employers. The plan allows employees to contribute a portion of their salary to their designated 401(k) account before income tax is applied. Basically ensuring that they keep saving up for their retirement during their professional career. 

Employers can also decide to contribute some portion of their own income to employees’ 401(k) as an additional incentive for employees to participate in the plan. The contributions employers make though are monitored by the IRS and must be within certain limits set by the Internal Revenue Service. Funds within a 401(k) are allowed to grow tax-deferred. Essentially meaning that the money is not subject to income tax until the time it is withdrawn from the account. 

Now, while 401(k) plans allow solid growth of retirement savings, a gold IRA allows individuals the chance to diversify their portfolio by investing in precious metal assets directly that act as a hedge against inflation and economic uncertainty. 

Systems are in place that allow individuals the chance to rollover their funds from a 401(k) into a gold IRA, which can then be used to purchase precious metal assets as part of their investment portfolio. Having said that, the IRS has put certain rules in place that individuals must follow when rolling over their funds from a 401(k) into gold to ensure that they don’t incur tax penalties. We’ll get into these rules a bit later. 

Why Move Your 401k to Gold?

We’ve talked plenty about diversification of assets and how it can help mitigate risks for investors. But how does that work exactly? 

Well, in gold’s case, rolling over some of your funds from a 401(k) into gold can spread risk across different asset classes. An action that can prove potentially beneficial if one asset class is suffering from an economic downturn. 

For example, in a 401(k) your money is usually invested into traditional investment options like stocks and bonds. However, when inflation rises the value of these options fall drastically, while gold maintains its value or even goes through a slight increase. Thus, gold acts as a hedge against inflation and market volatility, helping reduce investors’ risk and maintain or even increase the value of their retirement savings. 

Even historically, gold has accumulated a reputation as an asset that preserves one’s wealth, acting as a buffer against the eroding effects of inflation, enabling investors to maintain their purchasing power. Therefore, investing in gold provides both short term and long term benefits, provided you stick with your investment. 

Legal Considerations and IRS Regulations

As we’ve touched on already, the IRS doesn’t allow individuals who’ve invested in 401(k)s to keep their money in alternative investments like gold and other precious metals. These individuals can traditionally only invest in investment options like stocks, bonds and mutual funds through their 401(k)s. In order to be eligible to invest directly in gold and precious metals, they must create a gold IRA and rollover their funds from their 401(k) into their gold IRA. 

This essentially means that you can’t go out and buy gold coins or bullions as part of your 401(k). However, even though you can’t get physical ownership of gold directly, most plans do offer you the choice of investing in mutual funds or exchange traded funds (ETFs) that in turn invest in precious metals. 

IRS Rules Regarding The Ownership of Gold Through 401(K)

While most 401(k) plans don’t allow precious metal investments, we’re here to talk about the IRS’ rules regarding the few plans that do.

Gold Mutual Funds

Most 401(k) plans don’t allow you to invest in tangible gold. However, the IRS does permit you to invest in mutual funds that offer access to gold by holding stocks of companies involved in the gold mining industry. This way you can receive access to periodic dividends while also having indirect access to gold assets. 

Gold ETFs

Some employers offer their employees the chance to access a 401(k) plan with a brokerage option. This in turn allows employees the chance to invest in a wide range of asset classes through a brokerage account, including all types of gold assets. 

This opens up a means for investors to invest in gold ETFs. ETFs allow employees the chance to invest in funds that actually hold physical gold, thereby allowing them to hold gold in an indirect manner. 

To add to that, this brokerage option also enables employees to hold individual stocks of gold industry firms. This is as close as you can get to owning physical gold yourself.

Why you Should Consider a 401(K) to Gold IRA Rollover

If you’re nearing retirement age, we’d highly recommend opting out of your 401(k) and rolling over your funds into a gold IRA. For that you’d have to leave your job and retain self-employed status. That’s because the IRS only allows self-employed individuals to open a gold IRA or any other type of self-directed IRA. But why is this move more beneficial than holding gold mutual funds or ETFs through your 401(k)? 

Well, while gold mutual funds and ETFs do enable you to have indirect access to gold, you can’t retain ownership of physical gold through this method. More importantly, you don’t have any control over the gold assets that are being purchased or invested in. 

Through a gold IRA you get to decide the gold coins and bullions that are going to be included in your investment portfolio. Plus, you get to assume possession of these assets in retirement. Thus, the smart option is opting out of your 401(k) and rolling over those funds into your gold IRA, which can then in turn be used to purchase physical gold bullions. 

Steps to Move Your 401k to Gold Without Penalty

We’ve already cleared up that investing in gold mutual funds and ETFs is normal practice through a 401(k). So, this section will instead detail how to rollover your funds from a 401(k) into a gold IRA. So that you can assume possession of physical gold assets without incurring any penalties. 

But before we get to the actual method, let us first discuss the two different types of rollovers you can opt for, namely, direct rollovers and indirect rollovers. 

Direct Rollovers

In a direct rollover, the employer or institution in charge of your 401(k) transfer funds directly into your new gold IRA. 

For that to happen, the custodian of your new gold IRA and your now former employer have to communicate and collaborate directly to ensure that the funds transferred don’t go through your personal account. Instead they’re transferred directly from the 401(k) in your employer’s possession to your new gold IRA. 

Indirect Rollover

As the name suggests, in an indirect rollover funds don’t travel directly from your 401(k) into your gold IRA. Instead, they’re first withdrawn into your own personal account and then deposited into your gold IRA. Now, this process can make you liable to receive a tax penalty. Why? 

Well, the IRS doesn’t permit retirement account holders to withdraw funds from their 401(k) into their personal account before reaching retirement age. If such a thing were to occur, then the IRS forces you to pay an early withdrawal penalty, which costs 10% of the withdrawal amount. 

However, the IRS does give you a timeframe of 60 days to transfer the money from your personal account into your new retirement account (a gold IRA in this case) before charging the early withdrawal penalty. 

Thus, once you’ve withdrawn the money from your 401(k) into your personal account, you have 60 days to transfer it to your new gold IRA. That’s basically how an indirect rollover works. 

The Actual Process

With both types of rollovers explained, let’s move on to the actual steps you’ll have to take to complete the rollover. 

Step 1: Set up your Gold IRA

To initiate a rollover you must first create a gold IRA. For this you’ll have to opt for the services of a reputable gold IRA company such as Goldco or Augusta Precious Metals. Make sure that whatever company you choose doesn’t charge any excessive fees and has an excellent reputation when it comes to handling their customers’ accounts. Also make sure that they have a great track record when it comes to setting up gold IRAs. 

After you’ve selected your company, follow their instructions closely to successfully set up your account. 

Step 2: Choose your Gold IRA Custodian

Every gold IRA needs a custodian to take charge and manage the account until the account holder reaches retirement age. Follow the same process for choosing your custodian as you did for picking a gold IRA company. 

Your account’s custodian will be responsible for holding your gold assets, managing their storage and processing the rollover. Your gold IRA company should provide you with a list of custodians to choose from as well.

Step 3: Work With the Custodian to Rollover your Funds

Once you’ve chosen your custodian, it's time to put them into contact with your former employer who has access to your 401(k). Even once contact is established, it’ll still fall on you to request the release of your funds. 

Now, you can either ask your former employer to transfer the funds through a direct rollover or through an indirect rollover. That choice lies with you and your custodian. 

Step 4: Buy Precious Metals

If the rollover of your funds was successful without incurring any penalties, you can use the funds to purchase precious metals from the gold IRA company. That is how you move 401(k) to gold without penalty. 

Choosing the Right Gold Investment

Investing in gold as part of your investment portfolio may be the mainstream thing to do nowadays, but you still have to make sure you choose the right gold investment. 

For one thing, you need to always make sure that the gold you purchase fulfills the fineness standards of the IRS. That’s because the IRS considers all coins and bullions that don’t fit their fineness standards as collectibles and not eligible to be kept as part of a gold IRA. If you do invest in coins that don’t fit their standards, the tax advantages associated with your gold IRA may be jeopardized. 

The best advice we can offer you here is to ask your gold IRA company to provide you with a list of the most profitable gold coins and bullions that you can invest in. 

Potential Risks and Considerations

Now, while gold can provide you with a hedge in some scenarios, there are some risks associated with gold investment. 

To begin with, the price of gold can be highly volatile in the short term, so your purpose for investing shouldn’t be short term gain. Also, gold doesn’t generate income in the form of dividends like stocks do. So, again long term gain should be your focus. Additionally, you’ll also have to consider the extra fees you’ll be paying to your custodian and storage facility. These costs can impact your overall return on investment. 

The only way to mitigate these risks is by not putting all your eggs in one basket. That’s what diversification truly means. Thus, you should focus on investing in other options as well, so that you aren’t solely dependent on gold in the future. 


To recap, the only way you can access gold through a 401(k) is by investing in gold mutual funds or gold ETFs. Even then you’ll only have indirect access to gold at best. 

The only way to gain access to physical gold through a retirement account is by rolling over your funds from your 401(k) into a gold IRA. You’ll then be eligible to purchase and assume possession of physical gold assets (coins and bullions). 

The rollover process itself can be painstaking, but we believe it's worth it considering how gold allows you to diversify your investment portfolio and acts as a hedge against inflation.

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