Should I Convert 401k to physical gold?

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It is interesting to read the latest news on the hot topic of what to do with one’s retirement plan and investments, and observe the speculation. While reading an article in USA Today this morning about investing in gold through withdrawing from a 401k, something occurred to me.

  • The 401k is the most widely held retirement plan but it does not allow physical precious metals in the plan. For this reason, many people are interested in doing a 401k rollover into a Roth IRA.
  • If you left your job or are still working, if you meet a certain age requirement, you can now rollover your 401k directly into a Roth IRA.

If you have a 401k with your current employer, you are not allowed to roll the money into an IRA until you quit or are fired. In this case, it’s best to open up a self directed Gold IRA as a brand new retirement plan.

Rules For Rolling Over A 401k Into A IRA

  • 1 – You can not be working at your job anymore. You either had to quit or retire unless you meet certain age requirements. Once you leave the company you had your 401k with, you can then convert in into a IRA. When you do this, you have to pay the taxes. You have to claim your 401k as income on your taxes for that year.
  • 2 – If you are 59 1/2 and are still working, you can do what is called an in-service distribution and then convert that directly into a Roth IRA. Again, you must claim and pay the taxes on the in-service distribution for that year.

When you leave a job or lose it, you may end up with a 401k from a previous employer that just sits there. If you get a new job with a retirement plan, then you may have the options to roll it over into the new 401k.

If you do not acquire that kind of job or you go into business for yourself, this leftover 401k does not have to remain forgotten in a corner of your investment portfolio. You can rollover your 401k into an IRA. In fact, many financial experts recommend this move. The possibilities with the typical IRA are much more diverse than the average 401k.

For a IRA you want to make sure it’s the type of IRA that allows you to hold physical gold, silver and precious metals as investments. What you need is a self directed Gold IRA.

Clearly by now if you have read through some of the articles on this site, you can see I am a very big advocate of gold. I also encourage anyone to do their own research on the topic, and not just take my word on it.

Since I based this article off of a news article, warning about investing in gold essentially, I’ve added a few other recent articles about gold for your convenience.

One thing that struck me in the article I just referenced, was how one could interpret something that was said, and perhaps not fully grasp the full picture. It was certainly a nicely written article, and left some nice points for one to consider.

Then there was this aspect in which it said in relation to inflation, gold in essence does not raise in value, in that it’s ‘real return’ is more equivalent to zero.

There is one point to really consider in that, for it’s relatively accurate, although as aforementioned in the article, no one can predict with absolute certainty what gold will do. It may level off some, even perhaps drop a little, and it could also go up in price, or even spike.

The key to think about here is what that means, in gold remaining in accordance with inflation.

Inflation appears to be the raising of prices, when it’s actually the devaluation of whichever currency is being referenced. So as the value of the currency drops, prices go up.

The interesting thing with this is how gold remains with the same buying power. You can use an example of dollars as a comparison. You can take one ounce of gold 100 years ago, and one ounce of gold today, and it has the same buying power.

(the video at the bottom of this post goes into detail about this if you’d like an in depth understanding)

This is very significant. It does remain the same in that respect, in reference to the amount of goods it is capable of purchasing. Now the dollar amount of gold then and now is $20 vs $1600 give or take. You can clearly see that the buying power of $20 then, became equivalent to the buying power of $1800 today, and what remains unchanged is one ounce of gold, whereas $20 and $1800 do not have the same ‘buying power’ today.

So in reference to inflation, gold remains equivalent. Now when you factor in what historically accompanies inflation, there generally aren’t factors in place to supply individuals with the equivalent dollar amount to compensate for inflation. With reference to dollars, in essence, it works the opposite direction for the worth of that individual’s dollars in a few distinct ways.

Inflation generally has a negative impact on many investments, in their value, and interest rates. As in, real estate will suffer, as with inflation, less people can afford it, then there comes along the devaluation of the real estate that impacts those already invested, and others experience foreclosures and the like, having a double impact, which typically impacts other markets, sending sort of a wave effect through the various sectors. Something that could offset that is if the medium income rose in accordance with inflation, yet in essence when there is an economic woe at a national scale, employers move in the opposite direction, tightening up expenses and perhaps even administering pay cuts. Then when other prices such as gas are raising, food prices, and then if by chance the stock market under performs, in essence everything only associated with the dollar is deflating.

From that whole perspective, gold in essence is an increase in value, simply by remaining parallel with the trends of inflation, and that isn’t even a guarantee, as there is the chance that the value of gold could go up in value at a steeper rate than inflation, which then in fact it would be increasing in value.

With all that being said, then you can take into account our current economic climate. A number of areas look a bit fragile at present, as in real estate, Wall Street, unemployment, international conflicts, international currencies and the like. There doesn’t appear to be any solid foundation either can rely on. If you were to look through the courses of history, you would be able to pick up that the foundation that upholds all of this is gold.

We don’t need to go into that further, though if you are seriously considering your options, I would highly suggest taking all of this into account. It is ultimately up to you, and it is true, no one can predict any of the above with absolute certainty, yet most of us are at a bit of unease, and there are a number of people whom have invested in gold who feel very secure. They don’t indicate that is their only foundation for portfolio diversification, though they do often indicate that is the most consistent one, along with other commodities.

I recently watched a video that showed quite an enlightening perspective of the trends with gold when compared to another commodity, and a few world currencies. I would suggest watching this video if understanding this better is something you are looking for before making what you’d feel is a rash decision.

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