401K Plan

401K Plan

The 401(k) plans were not a brainchild of either the Internal Revenue Service or the United States Government. It was conceptualized and created by a person named Ted Benna, a benefits consultant. When the Section 401(k) of the IRS was added in 1978, Benna saw that it could be used to create a simple retirement plan for employees with tax advantages.

The first plans of this kind were offered in 1980. In just one decade, almost 50 million employees had 401(k)s from their employers. At present, about 95% of employers have a 401k option available in their benefits package. In fact, this is the most popular retirement plan in the US today.

The 401k is primarily funded by the pre-tax paycheck deductions of the employee. In some cases, employers offer programs to match the amount. This is the most important feature of the 401k plan. This allows investors to get free contributions and give more than the standard contribution limits. However, please note that almost all of the responsibility for the 401k funding falls upon the individual account holder.

The people who are most likely to have 401k plans are for-profit private employers. Non-profit companies might have 403(b) plans. Government employers are more likely to offer 457(b) plans.

Limitations of the 401k

There are some limitations to the 401k. Investment options are limited to the offerings of the plan provider. Thus, you will be unable to invest in precious metals and real estate. A majority of the 401k money is invested in mutual funds.

Plan Type Sponsorship 2015 Contribution Limit Roth Option? Allow Gold Stocks? Allow Gold ETFs? Allow Gold Bullion
401(k) Private Employer $18,000 / $24,000 Yes Maybe Maybe No
Solo 401(k) Self-employed $18,000 / $24,000 Yes Yes Yes Yes
Keogh Plan Self-employed or Unincorporated Employer $53,000 No Maybe Maybe No
403(b) Government or Non-profit Employer $18,000 / $24,000 Yes Maybe Maybe No
457(b) Government or Tax-exempt Employer $18,000 / $24,000 Yes Maybe Maybe No
Simple IRA Private Employer $12,500 / $15,000 Yes Yes Yes Maybe
SEP IRA Business Owners & Self-employed $53,000 Yes Yes Yes Maybe
Profit Sharing Plan Private Employer $53,000 No Maybe No No
Money Purchase Plan Private Employer $53,000 No Maybe Maybe No
Annuity Individual None No Maybe Maybe No
ESOP Private Employer Varies Yes Maybe No No
SARSEP Private Employer $53,000 No Yes Yes Maybe
Self Directed IRA Individual $5,500 / $6,500 Yes Yes Yes Yes
Traditional IRA Individual $5,500 / $6,500 Yes Yes Yes No
Precious Metals IRA Individual $5,500 / $6,500 Yes Yes Yes Yes
Thrift Savings Plan (TSP) Government or Military $53,000 No No No No

The 401(k) Plan Rollover to Gold Rules & Limitations

People who have a 401k plan will be pleased to know that they can shift to an Individual Retirement Account or other qualified plans without any tax penalties. If you are interested in a 401k rollover to gold, here are some rules that you should know:

• As soon as you get your 401k funds for the rollover, you are given 60 days to complete this process. Failure to do so during the allotted time will lead to penalities. If you have not yet reached the age of 59 1/2, there is a 10% penalty for the withdrawal, aside from the usual income taxation.
• There is a limit of one rollover per year from your 401k to IRA. The one-year period starts exactly on the day you get the 401k distribution. Please note that this applies to a single IRA.
• You are not allowed to use cash from the distribution to buy investments during the period that falls between receiving the 401k distribution and the establishment of your IRA.

It would be best to do a direct rollover with regard to 401k funds. This process is preferred by many, as you do not receive a check. The provider will transfer the money directly to the IRA fund of your choice instead.

Gold Investments For 401k Plans

Although the options are limited, these are the types of investments you can make with your 401k plan:
• individual bonds (corporate and government)
• certificates of deposit (CDs)
• individual stocks
• mutual funds
• exchange-traded funds (ETFs)
Therefore, you are unable to invest in gold bullion or other precious metals. However, you can invest in stocks to gold mining companies or a mutual fund that has stocks for mining establishments. This is termed as “paper gold” investments. You might also consider mining or gold ETFs.

Physical Gold vs. Paper Gold

Paper gold stocks are shares from companies that produce, explore or mine gold. There are a multitude of gold stocks to choose from. Please note that the largest ones can usually be found in BUGS Indes (HUI) or Gold Miners Index (GDX).

This is a lucrative venture yet more risky that buying physical gold. There are many risks involved, and here are some of them:

• Regulatory Risk — companies that deal with mining and exploration are subject to higher regulation and taxes.
• Cost of Production Risk —  increased property values , depreciation of mining equipment and labor costs can impact a mining company in a negative way.
• Management Risk —  overly leveraged or mismanaged companies could declare bankruptcy.
• Fiat Currency Risk – when someone sells securities like gold stock or even shares of a gold mutual fund, he or she will be will be paid with fiat currency. If currency collapse were to occur, one may be left with just worthless paper.

historical gold price

401K Rollover to Gold

A gold rollover allows you to control the direction of your investment and open new tax-free investments. They are not vulnerable to business risks made by your employer and are not limited as well.

If you decide to dedicate 5% to 20% of your investment into precious metals, you will protect your stocks from market volatility and inflation.

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