Sooner or later we are all confronted with the priority of planning for retirement. Even if you don’t stop working you still need to prioritize your investments for the later years. If you have changed employers and have two or more retirement accounts you will be confronted with the decision of whether or not to do an IRA rollover. Furthermore, you need to take a serious look at your current assets, then decide whether it is appropriate to roll them over into gold.
If you decide that rolling some of your assets over into gold to be the right thing to do, then you need to take into consideration the rules and regulations associated with this type of transaction. Investing in precious metals through your IRA has to be done according to the rules and regulations established by the Internal Revenue Service. This is why it is very important to work with a reputable company that has a good track record working with these types of retirement accounts.
If you have a choice you should always select the option of doing a direct rollover. The reason is that if the funds are paid to you directly, you may be subject to a 20% withholding tax. The IRS imposes this tax to ensure that you abide by the rollover rules and regulations.
A Gold IRA is pretty much a self-directed IRA used to invest physical bullion coins and bars. You have several options in funding a Gold IRA account. First, you have the option of opening a Gold IRA directly. Second, you can rollover or transfer funds from a retirement account (401k, SEP, TSP, 403b, etc.) into a new Gold IRA.
Why Rollover into Gold?
The majority of IRAs and 401(k) accounts are typically funded with stocks, mutual funds and other paper-based assets. The value of paper based assets has been very volatile of late and cash IRAs have been negatively affected by a declining value of the dollar.
For these reasons investors are choosing to rollover their traditional IRAs into gold IRAs. Gold is relatively unaffected by inflation. When paper currencies fall, historically gold has risen in value. When paper assets like stocks and mutual funds decline, again gold tends to rise. By adding gold to your investment portfolio you are lessening the volatility of your investments. Essentially gold is a hedge against investments that are prone to be affected by inflationary circumstances. Furthermore, gold has proven itself to be a preserver of wealth in the long run.
Paper-based currencies of nations that are backed solely by their economies have historically never worked and they eventually fail. In light of this fact, currently every developed nation in the world operates under this type of system.
One of the reasons our American forefathers revolted against England was over their central banking system. A central bank is a financial institution that issues currency, controls interest rates and regulates money supply. The fact that it has a monopoly printing national currency is what separates it from a traditional bank.
Since 1971, when under administration of Richard Nixon, the Federal Reserve is no longer needed to have an equal amount of gold to print money. Up to this time all US dollars were required to be backed by an equal amount of gold. Since 1971, every printed dollar has been backed by the economy and the primary contributing factor leading to the rise in the national debt. The potential of a collapsing dollar is the main reason you need to buy gold.
Gold IRA Rollover vs Transfer
A rollover occurs when you receive the funds from your existing retirement account and then turn around and deposit it in another retirement plan custodial account. You must place the funds in the new account within 60 days or you will be liable for taxes and penalties on the money that was withdraw. You’re allowed to roll over the same money only once per year if you wish to preserve the tax-deferred status of your retirement savings.
As long as the assets go from custodian to custodian, a transfer is something you do at any time with your existing IRA. This means the distribution check representing your funds must be made out in the name of the trustee or custodian of the new IRA account. You may make as many transfers as you like. Again you need to use a good company that has organized thousands of transfers for their customers and therefore the experience to handle your transaction properly.
The 60 Day Rule
Let’s take a closer look at the 60 day rule. Let’s assume you’ve decided to rollover your current IRA into a gold IRA. The first thing you need to realize is that you have 60 days after receiving the funds to place them in the new IRA. Please note, you have 60 days, not 2 months. A two month period can exceed 60 days and therefore you would have violated the rule. If you do not complete the rollover within the 60 days allotted or do not receive a waiver/extension regarding the 60 day period from the Internal Revenue Service – the amount will be treated as ordinary income by the IRS. That means you will pay taxes on the amount.
Furthermore, if you did not reach 59½ when the distribution occurred, you will be looking at a 10% penalty upon withdrawal.
One-Year Waiting Rule
Within one year after distributing your assets from one IRA to another, you are not allowed to make another tax-free rollover of any IRA. A 2014 tax court decision required a change in the law.
The previous law had the one year rule only applying to the making of additional rollovers from the same IRA to another or the same IRA. Under the new rules, you can’t roll funds out of any IRA until the one-year period has passed. The downside to this rule is that some banks may charge to issue a check to another bank of a custodian when moving the IRA. Banks often consider each CD an IRA, so this charge could reduce your earnings substantially and force you to stay with the original bank.
This new rule does not apply to rollovers of an employer plan. Therefore, you can roll over from the same qualified 403(b) or 457(b) plan more than once within a year. One other note, this one year limit does not apply when rolling over from a Traditional IRA to a Roth IRA.
How Do I Complete a Rollover?
1. Direct rollover – If you’re receiving distributed funds from a retirement plan, you can ask your plan administrator to make the payment directly to another retirement plan or to an IRA. The administrator may issue your funds in the form of a check which is made payable to your new account and you will not be liable for taxes.
2. Trustee-to-trustee transfer – If you’re receiving the funds from an IRA, you can ask the financial institution that is holding your IRA to make payment directly from your old IRA to another IRA or to a retirement plan. Once again you will not be liable for taxes on your transfer amount.
3. 60-day rollover – In the case of a distribution from an IRA or a retirement plan is paid directly to you, you are allowed to deposit all or a portion of it in a new IRA or retirement plan.
However, as previously mentioned you must place the funds within the new plan within 60 days. If not deposited with 60 days the IRS will see it as ordinary income and you will be responsible for paying the taxes.
Why 401(k) Rollovers Are Different
If you are rolling over from one IRA to another you can do this at any time. However, 401(k0 rollovers are a bit different. If you are under 59½, normally you can have a distribution from a 401(k) unless fall under one of the qualifying exemptions. A couple of exemptions include financial hardship and if you’re changing jobs. If you should leave your employment you have the option of keeping your 401(k) with the company but not advised. The fees and expenses associated with your account could negatively affect your savings. Your best option is to either roll it over into your new employer’s 401(k) or into an IRA.
Unless the new company has a very good 401(k) it is best to rollover into an IRA. This reason is the fees associated with IRAs are less than the administration fees of a 401(k). Also, with your new company’s 401(k0 you are limited as to investment options which may not meet your needs and circumstances. Furthermore their investment options may not be the most competitive in pricing and performance.
The steps for rolling over a 401(k) are similar to that of an IRA. Simply download an order form from a custodian and select an account if you do not already have one. The custodian of the receiving account will arrange transfer of the funds with the old custodian on your behalf.
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