Gold can be a useful way to diversify your retirement portfolio, but investing in it through a 401(k) isn’t always straightforward. Most employer-sponsored plans don’t allow you to buy physical gold, although some offer access to gold-related mutual funds, exchange-traded funds (ETFs) or mining stocks.
If you want to hold physical gold as part of your retirement savings, rolling eligible 401(k) funds into a self-directed gold IRA may be another option.
Here’s how to invest in gold through a 401(k), when a gold IRA rollover might make sense and what to consider before making a move.
Can you hold gold in a 401(k)?
You may be able to invest in gold through your 401(k), depending on your plan’s investment options. Some employer-sponsored plans offer gold-related mutual funds or access to gold ETFs and mining stocks through a self-directed brokerage window.
However, most 401(k) plans don’t allow you to purchase and hold physical gold bars or coins directly.
“It’s not necessarily because the IRS prohibits it. More often, it’s because of the investment options and restrictions established by the employer plan,” explained Rob De Lessio, director of lead advisors at Strategic Wealth Designers.
If owning physical gold is your priority, you may be able to roll eligible 401(k) savings into a self-directed gold IRA, which allows you to invest in certain precious metals that meet IRS requirements.
Learn more: What’s the difference between sterling silver and investment silver?
How can you invest in gold through a 401(k)?
Even though you can’t buy physical gold directly through your 401(k), you can still gain exposure to gold in other ways. Here are the most common options.
Gold mutual funds
Gold mutual funds are essentially pooled funds that mostly invest in companies that mine, process or sell gold. So, instead of owning physical gold yourself, gold mutual funds let you invest in companies whose financial performance may be influenced by gold prices. Since most gold mutual funds are actively managed by fund managers, they may come with fees.
Gold exchange-traded funds (ETFs)
Gold ETFs are another way to invest in gold without owning the physical precious metal. Some of these gold ETFs track the price of gold, whereas others invest in companies in the gold-mining industry.
“Some people want the security of a physical coin they can hold. What a lot of people are really after, though, is gold’s return and risk profile, and an ETF pretty much accomplishes that,” said David Talley, CFP®, EA and founder of Talley Wealth.
If your 401(k) includes a self-directed brokerage window, you may be able to buy certain gold ETFs through that feature.
How to choose the right investment: Gold IRA or ETF?
Gold mining stocks
If your plan offers a self-directed brokerage window, you may be able to invest in gold mining stocks as well. When gold prices rise, mining companies may benefit from higher revenues.
That said, owning gold mining stocks isn’t the same as owning gold, just as owning stock in an oil company isn’t the same as owning a barrel of oil, explained Evan Mills, Financial Advisor and commodities specialist at Scholar Advising.
“Miners can vary drastically with or against the price of gold, so sometimes you’re not buying the same insurance you think you are, and they bring their own geopolitical and supply chain risks that gold tends not to have, which can be the exact risk you were trying to hedge against,” he said.
Learn more: Gold and oil prices are both down. Here’s why that matters
Can you buy physical gold with your 401(k)?
Most employer-sponsored 401(k) plans don’t allow you to buy physical gold directly. However, if you’re eligible to roll over your 401(k) funds, you may be able to use that money to purchase physical gold through a self-directed IRA.
What is a gold IRA?
A gold IRA is a type of self-directed individual retirement account that allows you to invest in certain physical precious metals, including gold, silver, platinum and palladium.
Unlike a traditional IRA that typically holds investments such as stocks, bonds and mutual funds, a gold IRA can hold qualifying precious metal coins and bars. However, these investments must meet IRS requirements and remain in the custody of a qualified IRA trustee or custodian.
Gold IRAs can offer tax advantages similar to other IRAs, but they also come with additional expenses, including account administration, precious metal storage and dealer fees. It’s important to weigh these costs against the potential benefits before transferring retirement savings.
Learn more: These are the best gold IRA companies for your retirement savings
How to roll over a 401(k) into a Gold IRA
Here’s how to roll over your eligible 401(k) funds into a self-directed gold IRA so you can invest in the physical precious metal.
Check your 401(k) rollover eligibility
Start by contacting your 401(k) plan administrator. If you’ve left your employer, you may be eligible to roll over your retirement savings into an IRA.
If you’re still working for the company, your options may be more restricted. Some plans allow in-service distributions under certain circumstances, while others don’t.
Choose a self-directed IRA custodian
Your next step is to open a self-directed IRA that’s managed by an IRS-approved custodian. These custodians are typically banks or trust companies that manage your account and help you comply with IRS requirements.
When you’re comparing IRA custodians, make sure to look at their structure, customer experience and whether they’re approved by the IRS.
Transfer your retirement funds
Once you’ve opened an account, your next step is to transfer your retirement funds.
You can do it in two ways.
A direct rollover sends money from your 401(k) plan to the receiving IRA, so you don’t touch the money, and there’s typically no tax withholding or deadline. An indirect rollover pays the money to you first, and you generally have 60 days to complete the rollover and redeposit the full amount. If you miss the deadline, you may face tax consequences.
Buy eligible gold
Once you’ve funded your account, your custodian can help you buy eligible gold. Eligible gold means the gold must meet the relevant IRS requirements and be stored in an approved depository.
What types of gold are allowed in retirement accounts?
Not every gold coin or bar qualifies for a gold IRA. Generally, gold must meet a minimum purity standard of 99.5%, although certain coins are specifically exempt from this requirement.
Examples of gold products that may qualify include American Gold Eagle coins, American Gold Buffalo coins, Canadian Gold Maple Leaf coins and gold bars produced by qualifying refiners.
American Gold Eagles are a notable exception to the purity requirement. Although they’re only 91.67% pure, they’re specifically permitted under IRS rules.
Collectible coins and many other gold products aren’t eligible, even if they’re made from precious metals. Before purchasing gold for your IRA, confirm that the product meets IRS requirements and is accepted by your custodian.
Buying gold bars? How size, cost and resale value compare
Pros and cons of investing in gold for retirement
Gold can help diversify your retirement savings, but it also comes with risks and costs. Before investing in gold through your 401(k) or rolling funds into a gold IRA, consider the potential benefits and drawbacks.
Pros of investing in gold
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Portfolio diversification: Gold doesn’t always move in the same direction as stocks and bonds, so adding it to your retirement portfolio may help reduce your exposure to market fluctuations.
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Potential inflation protection: Gold has historically helped preserve purchasing power over long periods, although it isn’t a reliable hedge against inflation in every economic environment.
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Physical ownership: A self-directed gold IRA allows you to invest in tangible precious metals rather than relying solely on stocks, bonds and other financial assets. However, the metals must remain in qualified custody.
Cons of investing in gold
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Price volatility: Gold prices can fluctuate significantly, and there’s no guarantee your investment will increase in value, even during periods of economic uncertainty.
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No regular income: Unlike dividend-paying stocks or interest-bearing bonds, physical gold doesn’t generate income. Your returns depend on changes in its market value.
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Additional fees: Gold ETFs typically charge fund expenses, while physical gold IRAs may involve dealer markups, storage fees, insurance and account administration costs.
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Limited liquidity: Selling physical gold through an IRA may take longer than selling stocks or ETFs, particularly if your custodian must coordinate the transaction with a precious metals dealer.
Bottom line: Should you invest in gold through your 401(k)?
Investing in gold through your 401(k) can help diversify your retirement portfolio, but your options depend on your plan. Gold mutual funds, ETFs and mining stocks may offer a relatively straightforward way to gain exposure without purchasing physical precious metals.
If you prefer to own physical gold, rolling eligible 401(k) savings into a self-directed gold IRA may be worth exploring. However, these accounts come with additional fees, storage requirements and rollover rules that can make them more complicated than traditional retirement investments.
Before making a move, consider your retirement goals, risk tolerance and the costs of each option. A qualified financial advisor can help you determine whether gold makes sense as part of your long-term investment strategy.
Frequently asked questions about holding gold in a 401(k)
Can I transfer my 401(k) into gold without paying taxes?
Yes, you can generally roll your 401(k) balance into an appropriate IRA without triggering immediate taxes. That said, tax treatment depends on the account types and how you complete the rollover.
Can I store my Gold IRA gold at home?
No. The IRS doesn’t allow the home storage of IRA-purchased gold and other precious metals. It requires all IRA-owned precious metals to be held by a qualified custodian or trustee.
How much of my 401(k) should I invest in gold?
There’s no universally correct percentage. Talk to your financial advisors to figure out what works best for you depending on your retirement goals, other investments and risk tolerance.
Is gold safer than stocks for retirement?
Neither gold nor stocks are safer for retirement. Though gold tends to perform well during economic uncertainty, gold prices can still be volatile and physical gold doesn’t generate dividends or interest. And though stocks may pay dividends, they carry risks as well. Make sure to diversify your retirement portfolio so you aren’t relying entirely on one asset class.
This article originally appeared on Money Group Affiliate: Want to invest your 401(k) in gold? Here are your options
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